ASSOCIATION OF CHARTERED

CERTIFIED ACCOUNTANTS

F3 – FINANCIAL ACCOUNTING
Lecturing F – Meeting 02
The Consolidated Statement of
Profit and Loss and Other
Comprehensive Income
 Learning Objectives
 Describe the components of and prepare a
consolidated statement of comprehensive
income or extracts thereof including:
(i) Elimination of inter-company trading
(ii) Removal of unrealised profit arising on
inter-company trading
(iii) Acquisition of subsidiaries part way
through the financial year

ACCA Paper F3 – Batch XII 2

 Overview

ACCA Paper F3 – Batch XII 3

 Consolidated income statement
Purpose
 To show the results of the group for an
accounting period as if it were a single
entity.
Sales revenue to profit for year
100% P + 100% S (excluding adjustments
for intra-group transactions)
Reason
 To show the results of the group which
were controlled by the parent company.
ACCA Paper F3 – Batch XII 4
 Consolidated income statement
Example 1 - Question
P Co acquired 75% of the ordinary shares of S Co on that company's
incorporation in 20X3. The summarised statements of profit or loss of
the two companies for the year ending 31 December 20X6 are set out
below.

Required
Prepare the consolidated statement of profit or loss and movement on
retained earnings for the group.
ACCA Paper F3 – Batch XII 5
 Consolidated income statement
Example 1 -Answer

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 Consolidated income statement
Example 1 - Answer
 Down to the line 'profit for the year' the whole of S Co's
results is included without reference to group share or non-
controlling interest share. Profit for the year is then split
between the group and the non-controlling interest.
 The non-controlling interest's share ($17,000 x 25% = $4,250)
of S Co's retained earnings brought forward is excluded from
group retained earnings. This means that the carried
forward figure of $126,750 is the figure which would appear in
the statement of financial position for group retained earnings.

ACCA Paper F3 – Batch XII 7

 Consolidated income statement
Example 2 - Question
The following information relates to the Wheeler group
for the year to 30 April 20X7.

ACCA Paper F3 – Batch XII 8

 Consolidated income statement
Example 2 - Question
Additional information
 The issued share capital of the group was as
follows:
Wheeler Co: 5,000,000 ordinary shares of $1 each.
Brookes Co: 1,000,000 ordinary shares of $1 each.
 Wheeler Co purchased 80% of the issued share
capital of Brookes Co in 20X0. At that time, the
retained earnings of Brookes amounted to $56,000.

Required
Prepare the consolidated statement of profit or loss
and the movement on retained earnings for the
Wheeler group for the year to 30 April 20X7.
ACCA Paper F3 – Batch XII 9
 Consolidated income statement
Example 2 – Answer

ACCA Paper F3 – Batch XII 10

 Intra-group Sales
Strip out intra-group activity from both sales
revenue and cost of sales.

Unrealised profit on intra-group sales

(a) Goods sold by P. Increase cost of sales by
unrealised profit.
(b) Goods sold by S. Increase cost of sales by full
amount of unrealised profit and decrease non-
controlling interest by their share of
unrealised profit.

ACCA Paper F3 – Batch XII 11

 Intra-group Sales
Non-controlling interests
S's profit after tax X
Less: * unrealised profit (X)
X
NCI % X
* Only applicable if sales of goods made by subsidiary.

Reason
 To show the extent to which profits generated through
P’s control are in fact owned by other parties

Reserves carried forward

 As per the calculations for the statement of financial
position.
ACCA Paper F3 – Batch XII 12
 Intra-group Sales
Example 1 - Question
Pumpkin has held 90% of the equity share capital of
Squash for many years. Cost of sales for each entity
for the year ended 31 December 20X3 was as follows:
> Pumpkin $ 100,000 > Squash $ 80,000
During the year, Squash sold goods costing $5,000 to
Pumpkin for $8,000. At the year end, all these goods
remained in inventory.
(a) What figure should be shown as cost of sales in
the consolidated statement of profit or loss of the
Pumpkin group for the year ended 31 December
20X3?
(b) If Squash’s profit for the year was $16,000, what
is the profit attributable to the NCI?
ACCA Paper F3 – Batch XII 13
 Intra-group Sales
Example 1 - Answer

ACCA Paper F3 – Batch XII 14

 Intra-group Sales
Example 2 - Question
Percy has held 75% of the equity share capital of Mercy for many years.
Draft summarised statements of profit or loss for Percy and Mercy for the
year ended 31 December 20X3 are below.

During the year, Percy sold goods which cost $20,000 to Mercy at a
margin of 20%. At the year end, all of these goods remained in
inventory.
Required
Prepare the consolidated statement of profit or loss for the Percy group
as at 31 December 20X3.
ACCA Paper F3 – Batch XII 15
 Intra-group Sales
Example 2 - Answer

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 Intra-group Sales
Example 2 - Answer

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 Acquisitions part way
through the year
 We have seen in the last chapter that retained
earnings in the consolidated statement of financial
position comprise:
(a) The whole of the parent company's retained earnings
(b) The group's share of post-acquisition retained
earnings in the subsidiary.
 From the total retained earnings of the subsidiary we
must therefore exclude both the non-controlling
interest's share of total retained earnings and the
group's share of pre-acquisition retained earnings.
 A similar procedure is necessary in the consolidated
statement of profit or loss if it is to link up with the
consolidated statement of financial position.
ACCA Paper F3 – Batch XII 18
 Acquisitions part way
through the year - Example
P Co acquired 60% of the equity of S Co on 1 April 20X5. The
statements of profit or loss of the two companies for the year
ended 31 December 20X5 are set out below.

Required
Prepare the consolidated statement of profit or loss and
movements on retained earnings.
ACCA Paper F3 – Batch XII 19
 Acquisitions part way
through the year - Example

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 Consolidated Statement of
Comprehensive income
If there is a revaluation gain or loss in the
parent or subsidiary you will prepare a
consolidated statement of comprehensive
income. This will only require a few additions
to the consolidated income statement.

ACCA Paper F3 – Batch XII 21

Consolidated Statement of
Comprehensive income - Example
The consolidated statement of profit or loss of Wheeler
Co and its 80% owned subsidiary, Brookes Co, has
been prepared for the year ended 30 April 20X7 and is
shown below. During the year, Wheeler Co made a
$30,000 revaluation gain on one of its properties and
Brookes Co made a revaluation gain of $10,000 on a
piece of land. The accountant at Wheeler Co has yet to
prepare the consolidated statement of profit or loss
and other comprehensive income.

ACCA Paper F3 – Batch XII 22

Consolidated Statement of
Comprehensive income - Example

Required
Prepare the consolidated statement of profit or loss and other
comprehensive income for the Wheeler Group as at 30 April
20X7.
ACCA Paper F3 – Batch XII 23
Consolidated Statement of
Comprehensive income - Example

ACCA Paper F3 – Batch XII 24

 Chapter summary

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THE END