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CONSOLIDATIONS

IFRS 10
IAS 27
1
Key definitions
Consolidated financial statements
Financial statements of a group in which A, L, OE, I and
E of parent and its subsidiaries are presented as those of
a single economic entity
Parent
An entity that controls one or more entities
Subsidiary
An entity that is controlled by another entity
Control

(IFRS 10: Appendix A)
2
Control
IFRS 10 identifies three elements of control
1. Power over investee
2. Exposure, or rights to variable returns from
involvement with the investee
3. Ability to use power over the investee to affect the
amount of the investors returns
(IFRS 10:7)
An investor must possess all three elements to
conclude it controls an investee. Conclusion is
reassessed if there is an indication to at least one of
the three elements.
3
Elements of control: (1) Power
The investor has existing rights that gives it the ability to direct
the relevant activities (activities that significantly affect the
investees returns)
Power arises through
Voting rights
such as when power over an investee is obtained directly and solely from
the voting rights granted by equity instruments such as shares (often
straightforward)
Contractual arrangements
when power results from one or more contractual arrangements (often
more complex)
(IFRS 10:11)
Investor may have special relationship with investee that
indicates that it has power over the investee
Investees operations are dependant on the investor
Investees key management personnel are current or previous
employees of the investor
Significant portion of the investees activities are conducted for the
investor.



4
Elements of control: Power (ctd )
Substantive v protective rights
IFRS 10 specifies that only substantive rights are considered in
assessing power
Gives holder practical ability to exercise the rights when decisions
need to be made
Investor with protective rights would not have power over an
investee
Eg, Right to approve new debt financing
(IFRS 10:11-14)
Considerations relating to voting rights
Power with a majority of voting rights
Majority of voting rights but no power
Power without a majority of voting rights

5
Power with a majority of voting rights
6
An investor that holds more than half of the voting rights of
an investee has power in the following situations
the relevant activities are directed by a vote of the holder of
the majority of the voting rights, or
a majority of the members of the governing body that directs
the relevant activities are appointed by a vote of the holder of
the majority of the voting rights
(IFRS 10: B35)


Majority of voting rights but no power
For an investor that holds more than half of the voting rights of
an investee, to have power over an investee,
the investors voting rights must be substantive
and must provide the investor with the current ability to direct the
relevant activities
If another entity has existing rights that provide that entity with
the right to direct the relevant activities and that entity is not an
agent of the investor, the investor does not have power over the
investee.
An investor does not have power over an investee, even though
the investor holds the majority of the voting rights in the
investee, when those voting rights are not substantive.
Eg, if the relevant activities are subject to direction by a
government, court, administrator or regulator.
(IFRS 10: B36, B37)

7
Power without a majority of voting rights
An investor can have power even if it holds less than a
majority of the voting rights of an investee, for example,
through:
a contractual arrangement between the investor and other
vote holders
rights arising from other contractual arrangements
the investors voting rights
potential voting rights
a combination of the above
(IFRS 10: B38)

8
Example 1: Power, voting rights
9
An investor acquires 48 per cent of the voting rights of an investee.
The remaining voting rights are held by thousands of shareholders,
none individually holding more than 1 per cent of the voting rights.
None of the shareholders has any arrangements to consult any of the
others or make collective decisions. When assessing the proportion
of voting rights to acquire, on the basis of the relative size of the
other shareholdings, the investor determined that a 48 per cent
interest would be sufficient to give it control.

In this case, on the basis of the absolute size of its holding and the
relative size of the other shareholdings, the investor concludes that it
has a sufficiently dominant voting interest to meet the power
criterion without the need to consider any other evidence of power.
(IFRS 10: B43, Eg 4)
Example 2: Power, voting rights
Investor A holds 40 per cent of the voting rights of an investee and
twelve other investors each hold 5 per cent of the voting rights of the
investee. A shareholder agreement grants investor A the right to
appoint, remove and set the remuneration of management responsible
for directing the relevant activities. To change the agreement, a two-
thirds majority vote of the shareholders is required.
In this case, investor A concludes that the absolute size of the
investors holding and the relative size of the other shareholdings alone
are not conclusive in determining whether the investor has rights
sufficient to give it power.
However, investor A determines that its contractual right to appoint,
remove and set the remuneration of management is sufficient to
conclude that it has power over the investee.
(IFRS 10: B43, Eg 5)

10
Example 3: Power, voting rights
Investor A holds 45 per cent of the voting rights of an
investee. Two other investors each hold 26 per cent of the
voting rights of the investee. The remaining voting rights
are held by three other shareholders, each holding 1 per
cent. There are no other arrangements that affect decision-
making.
In this case, the size of investor As voting interest and its
size relative to the other shareholdings are sufficient to
conclude that investor A does not have power. Only two
other investors would need to co-operate to be able to
prevent investor A from directing the relevant activities of
the investee.
(IFRS 10: B44, Eg 6)


11
Elements of control: Power (ctd )
Relevant activities for entities whose operations are
directed through voting rights are generally its operating
and financing activities.
May be situations where voting rights are less relevant
because rights relate to administrative tasks only
Analysis of investors contractual and non-contractual rights
may be necessary
Appoint key management personnel
Veto significant transactions
12
Example: Power, relevant activities
13
Two investors form an investee to develop and market a medical product. One investor is
responsible for developing and obtaining regulatory approval of the medical product.
Once the regulator has approved the product, the other investor will manufacture and
market it.
If all the activitiesdeveloping and obtaining regulatory approval as well as
manufacturing and marketing of the medical productare relevant activities, each
investor needs to determine whether it is able to direct the activities that most
significantly affect the investees returns.
Accordingly, each investor needs to consider whether developing and obtaining
regulatory approval or the manufacturing and marketing of the medical product is the
activity that most significantly affects the investees returns and whether it is able to
direct that activity. In determining which investor has power, the investors would
consider:
(a) the purpose and design of the investee;
(b) the factors that determine the profit margin, revenue and value of the investee as well
as the value of the medical product;
(c) the effect on the investees returns resulting from each investors decision-making
authority with respect to the factors in (b); and (d) the investors exposure to variability
of returns
(IFRS 10:B13, Eg 1)





Elements of control: (2) Exposure, or
rights to variable returns
Returns must have the potential to vary as a result of the
investees performance
Can be positive, negative or both
Examples
Change in value of investment
Dividends or interest
Management or service fees
(IFRS 10:15)
14
Elements of control: (3) Ability to use
power to affect returns
This considers the interaction between the first two control
concepts
An investor with decision-making rights determines
whether it is a principal or an agent.
An investor that is an agent does not control an investee when
it exercises decision-making rights delegated to it.
(IFRS 10:17, 18)
15
SEPARATE FINANCIAL STATEMENTS OF
THE PARENT
The investment in a subsidiary is accounted for in the
separate financial statements of the parent at cost
Dr Investment in subsidiary
Cr Bank
The parent records all dividends received or receivable from
the subsidiary with the following j/e
Dr Bank / Dividend receivable
Cr Dividend income
(IAS 27)
16
CONSOLIDATION OF WHOLLY OWNED
SUBSIDIARY AT ACQUISITION
Parent / subsidiary relationship comes about as a result
of a business combination
IFRS 3 defines a business combination as a transaction or
event in which the acquirer obtains control of one or more
businesses
IFRS 3 requires acquisition method to be used
Identification of acquirer
Determination of acquisition date
Recognition and measurement of
Identifiable assets and liabilities assumed
Any non-controlling interest in subsidiary
Recognition and measurement of goodwill or gain from bargain
purchase option
17
Recognition and measurement of goodwill or
gain from bargain purchase option
Internally generated goodwill not recognised as intangible
asset
When goodwill is purchased in a business combination, it
may be recognised as an intangible asset
GW is defined in IFRS 3 as the excess of
the acquisition date fair value of the consideration transferred
over
the acquisition date fair value of the net amount of identifiable
assets acquired and liabilities assumed
(this definition will be modified when dealing with partly-owned subsidiaries
and non-controlling interests)
GW is thus the future economic benefits arising from assets
that are not capable of being individually identified and
separately recognised.



18
Eg 1- Consolidation at acquisition: Goodwill
S plc
STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X1
Other assets 30
30
Share capital 20
Retained earnings 10
30
19
P plc
STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X1
(a) (b) (c)
Other assets 120
105 125
Investment in S
30 45 25
150
150 150
Share capital 100 100 100
Retained earnings 50 50 50
150 150 150
On 31 December 20X1 P Limited acquired 100% of the ordinary share capital of S plc for
(a) 30
(b) 45
(c) 25
The other assets of S plc consist of inventory and accounts receivable which are considered to be
fairly valued.
Required:
Prepare a consolidated SOFP at 31 December 20X1.
Eg 1 - Procedure
Analyse equity of subsidiary for at acquisition adjustments
Offset (eliminate) the carrying amount of the parents
investment in the subsidiary (in Ps records as a Dr balance)
against the capital and reserves of S at date of acquisition (in
Ss records as Cr balances)
Combine like items of assets, liabilities, equity, income and
expenses of the parent with those of its subsidiary
(IFRS 10:B86)
On the consolidated SOFP, the assets and liabilities of S
replace the amount recorded by P as its investment in S.
20
Eg 1- Workings
Analysis of equity of S
At acquisition






Pro-forma consolidating j/e

21
(a) (b) (c)
SC 20 20 20
RE 10 10 10
30 30 30
Inv in S 30 45 25
- 15 (5)
GW BPO
Dr Cr Dr Cr Dr Cr
SC 20 20 20
RE 10 10 10
GW 15
Inv in S 30 45 25
Gain 5
Eg 1 - Solution
P & S GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20x1
(a) (b) (c)
Other assets (120 + 30) / (105 + 30) / (125 + 30) 150 135 155
Goodwill [15 (Dr GW)] 15
150 150 155
Share capital [100 + 20 20 (Dr SC)] 100 100 100
Retained
earnings
(a) / (b) [50 + 10 -10 (Dr RE)]
(c) [50 + 10 -10 (Dr RE) + 5 (Cr Gain)]
50 50 55
150 150 155
22
Principles learnt
On consolidated SOFP,
Group share capital is the share capital of P only
Group RE is
RE of P, plus
RE of S
Post acquisition (thus eliminate at acquisition)
Investment in S (from Ps TB) does not appear
Other assets and liabilities of P and S are summed
together
The consolidation adjustments are not recorded in
the records of P or S

23
Change in value of non depreciable
assets of subsidiary
An arms-length transaction involving the transfer of
ownership of shares in a subsidiary may be a reliable
indicator of major asset held by the subsidiary
Adjustments are made to identifiable tangible assets
on the basis of
specific information regarding the valuation of those assets
implied information by examining the SOFP of the
subsidiary
24
Eg 2 - Consolidation at acquisition: Excess
attributable to non-depreciable asset
S plc
STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X1
Land 25
Other assets
5
30
Share capital 20
Retained earnings 10
30
25
P plc
STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X1
(a) (b) (c)
Other assets 120
105 125
Investment in S
30 45 25
150
150 150
Share capital 100 100 100
Retained earnings 50 50 50
150 150 150
On 31 December 20X1 P Limited acquired 100% of the ordinary share capital of S plc for
(a) 30, when FV of land is 25
(b) 45, when FV of land is 37
(c) 25, when FV of land is 20
Required:
Prepare a consolidated SOFP at 31 December 20X1.
Ignore tax
Eg 2 - Workings
Analysis of equity of S
At acquisition






Pro-forma consolidating j/e

26
(a) (b) (c)
SC 20 20 20
RE 10 10 10
Land (37 25) / (20 25) 12 (5)
30 42 25
Inv in S 30 45 25
- 3 -
GW
Dr Cr Dr Cr Dr Cr
SC 20 20 20
RE 10 10 10
Land 12 5
GW 3
Inv in S 30 45 25
Eg 2 - Solution
P & S GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20x1
(a) (b) (c)
Land (25) / [25 + 12 (Dr Land)] / [25 5 (Cr Land)] 25 37 20
Goodwill [3 (Dr GW)] 3
Other assets (120 + 5) / (105 + 5) / (125 + 5) 125 110 130
150 150 150
Share capital [100 + 20 20 (Dr SC)] 100 100 100
Retained
earnings
[50 + 10 -10 (Dr RE)] 50 50 50
150 150 150
27
Principles learnt
The change in the fair value of the land
has not been recorded in the financial statements of S
has been recorded as a consolidation adjustment only.

28
CONSOLIDATION OF WHOLLY OWNED
SUBSIDIARY AFTER ACQUISITION
Analyse equity of subsidiary
At date of acquisition for at acquisition adjustments
to establish the fair value of the identifiable net assets of
the subsidiary
to calculate goodwill or bargain purchase option
The period between the date of acquisition and
the start of the current financial year to establish
the post-acquisition profits or losses of the subsidiary
attributable to the parent company for adjustments at
beginning of current year
The current year profit of the subsidiary company
and any dividends paid for current year adjustments
29
Example 3: Consolidation after acquisition
S plc
STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X1
Net assets 30
30
Share capital 20
Retained earnings 10
30
30
P plc
STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X1
Net assets 150
150
Share capital 100
Retained earnings 50
150
On 1 January 20X2 P Limited acquired 100% of the share capital of
S Limited for 30.
Example 3: Consolidation after acquisition . . .
TRIAL BALANCES 31/12/20x3 31/12/20x2
P S P S
Net assets 220 47 160 35
Investment in S 30 - 30 -
250 47 190 35
Share capital 100 20 100 20
Retained earnings boy 90 15 50 10
Profit for period 60 12 40 5
250 47 190 35
31
Required:
Prepare consolidated financial statements for 20x2 and 20x3.
Trial balances of P plc and S plc at 31 December 20x2 and 20x3 are
as follows:
Eg 3 - Workings
Analysis of equity of S







32
31/12/20x3 31/12/20x2
At acquisition
Pro-forma Pro-forma
SC 20
Dr
20
Dr
RE 10
Dr
10
Dr
30 30
Inv in S 30
Cr
30
Cr
- -
Beginning of year
RE at boy 15 (31/12/x2) 10 (31/12/x1)
RE at acquisition (10) (10)
5 -
Current year
Profit 12 5
Eg 3 Workings . . .

Pro-forma consolidating j/e

33
20x3 20x2
Dr Cr Dr Cr
At acq
SC 20 20
RE 10 10
Inv in S 30 30
Eg 3 - Solution
P & S GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER
20x3 20x2
SC RE SC RE
Bal at boy 100 95
[90 + 15 10 (At acq)]
100 50
[90 + 15 10 (At acq)]
Profit for
period
72 45
Bal at eoy 100 167 100 95
34
P & S GROUP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER
20x3 20x2
Profit for the period 72 (60 + 12) 45 (40 + 5)
Eg 3 Solution . . .
P & S GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER
20x3 20x2
Net assets 267 (220 + 47) 195 (160 + 35)
267 195
Share capital 100
P only, or
[100 + 20 20 (At acq)]
100
P only, or
[100 + 20 20 (At acq)]
Retained earnings 167 From SOCIE, or
[(90 + 15 10) + 72]
95 From SOCIE, or
[(50 + 10 -10) + 45]
267 195
35
Principles learnt

Group RE at beginning of year =
Ps RE at beginning of year
plus
Ps share of Ss post acquisition
RE at beginning of year

36
Elimination of intra-group transactions
Eliminate in full intragroup
Assets and liabilities
Income and expenses
(IFRS 10: 86(B))
37
Eg 4 - Elimination of intragroup transactions
38
Trial balances P S
Share capital 500 100
Retained earnings 260 80
Rent income (from S) 36 -
Admin fee income (from S) 12 -
Interest income (from S) 6 -
Dividend income- S 50 -
Dividend income - other 97 33
Loan from P - 60
Current account - P - 37
Gross profit 230 170
1 191 480
Land and buildings 360 -
Investment in S 100 -
Other investments 150 74
Taxation 72 40
Loan to S 60 -
Current account - S 37 -
Dividends paid 140 50
Expenses 104 70
Other assets 168 246
1 191 480
P plc acquired 100% of the
shares in S plc when it was
formed, some years ago.









Required:
Prepare consolidated
financial statements for the
20X2 financial year.

Eg 4 - Workings
Analysis of equity of S







39
31/12/20x2
At acquisition
Pro-forma
SC 100
Dr
RE 0
100
Inv in S 100
Cr
-
Beginning of year
RE at boy 80
RE at acquisition (0)
80
Current year
Profit 93
(170 +33 70 40)
Dividend (50)
Dr Div inc (P) Cr Div pd (S)
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P GROUP plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 20x2
Gross profit
(230 + 170)


400
Dividends received
[(97 + 33) + 50 50)]

130
Expenses
(104 + 70 - 54)
(120)
Profit before tax 410
Taxation
(72 + 40)

(112)
Profit for the period 298
40
P GROUP plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 20x2
Retained
earnings
Balance at beginning of year
(260 + 80 0)
340
Profit for the period 298
Dividends
(140 + 50 50)

(140)
Balance at end of year 498
Pro-forma j/e Dr Cr
Rent inc 36
Admin fee inc 12
Int inc 6
Expenses 54
Pro-forma j/e Dr Cr
Dividend inc - S 50
Dividends paid 50
Eg 4 Solution . . .
41
P GROUP plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20x2
ASSETS
Land & buildings
(360 + 0)
360
Other investments
(150 + 74)
224
Other assets
(168 + 246)
414
998
EQUITY
Share capital
(500 + 100 100)
500
Retained earnings
(From SOCIE)
498
998
Pro-forma j/e Dr Cr
Loan from P 60
Current a/c P 37
Loan to S
60
Current a/c S 37
Change in value of depreciable asset
When a depreciable asset of the subsidiary is revalued by the
parent company at acquisition
it is necessary for the parent company to assess the remaining
useful life of the asset, and
depreciate the asset in the consolidated financial statements based
on this estimate.
The subsidiary generally does not change the assets value in its
records. Thus,
the depreciation charge of the subsidiary will need to be adjusted
by the difference between the groups depreciation charge and that
of the subsidiary.
As the consolidation journal entries are merely proforma entries
and do not get posted to a ledger, it is necessary to adjust the
retained earnings and the accumulated depreciation account of the
subsidiary each year for the cumulative difference to date.
42
Eg 5 - Consolidation after acquisition: Excess
attributable to depreciable asset
S plc
STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X1
Plant 40
At cost 80
Accumulated depreciation (40)
Other net assets 110
150
Share capital 100
Retained earnings 50
150
43
P plc
STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X1
Net assets 480
480
Share capital 300
Retained earnings 180
480
On 1 January 20X2, P plc acquired 100% of the share capital of S plc. Plant was
considered to have a fair value of 60 at the date of acquisition. The estimated
future life was agreed to be five years.
Eg 5 . . .
Trial balances 31/12/20x3 31/12/20x2

P S P S
Share capital 300 100 300 100
Retained earnings beginning of year 184 68 160 50
Profit before depreciation and tax 60 48 40 38
Plant, accumulated depreciation - 56 - 48
544 272 500 236
Plant, cost - 80 - 80
Depreciation - 8 - 8
Taxation 24 16 16 12
Investment in S plc 170 - 170 -
Other net assets 350 168 314 136
544 272 500 236
44
Trial balances of P plc and S plc at 31 December 20x2 and 20x3 are
as follows:
Required:
Prepare consolidated financial statements for 20x2 and 20x3.
E
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Analysis of plant S Ltd
Consolidated
adjustment
Group
Cost 80
31/12/X1 Accumulated depreciation (40)
01/01/X2 Carrying amount 40 /5 yr
= 8
20 /5 yr
= 4
60 /5 yr
= 12
31/12/X2 Depreciation (8) (4) (12)
32 16 48
31/12/X3 Depreciation (8) (4) (12)
24 12 36
31/12/X4 Depreciation (8) (4) (12)
16 8 24
31/12/X5 Depreciation (8) (4) (12)
8 4 12
31/12/X6 Depreciation (8) (4) (12)
0 0 0
45
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46
31/12/20x3 31/12/20x2
At acquisition Pro-forma Pro-forma
SC 100
Dr
100
Dr
RE 50
Dr
50
Dr
Plant 20
Dr
20
Dr
170 170
Inv in S 170
Cr
170
Cr
- -
Beginning of year
RE at boy 68 (31/12/x2) 50 (31/12/x1)
RE at acquisition (50) (50)
Group depreciation (4) (x2 deprn)
Dr RE Cr Acc deprn
-
14 0
Current year
Profit 24
(48 4 16)
18
(38 8 12)
Group depreciation (4)
Dr Deprn Cr Acc Deprn

(4)
Dr Deprn Cr Acc Deprn
20 14
Analysis
of equity
of S

Eg 5 - Solution
47
P & S GROUP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER
20x3 20x2
Profit before tax 96
(60 + 48 8 4 (CY Deprn)]
66
[40 + 38 8 -4 (CY Deprn)]
Taxation (40)
(24 + 16)
(28)
(16 + 12)
Profit for the period 56 38
Pro-forma j/e 20x2 Dr Cr
Depreciation expense 4
Accumulated depreciation 4
Pro-forma j/e 20x3 Dr Cr
Depreciation expense 4
Accumulated depreciation 4
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48
P & S GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 20x2
Share
capital
Retained
earnings
Balance at 31/12/x1 300 160
[160 + 50 50 (At acq)]
Profit for the period - 38
Balance at 31/12/x2 300 198
Pro-forma j/e 20x3 Dr Cr
Retained earnings 4
Accumulated depreciation 4
P & S GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 20x3
Share
capital
Retained
earnings
Balance at 31/12/x2 300 198
[184 + 68 50 (At acq) 4 (Boy Acc dep)]
Profit for the period - 56
Balance at 31/12/x3 300 254
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P & S GROUP plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER
20x3 20x2
ASSETS
Plant 36 48
At cost 60
(80 40 + 20)
60
(80 40 + 20)
Accumulated depreciation (24)
(56 40 + 4 + 4)
(12)
(48 40 + 4)
Other net assets 518
(350 + 168)
450
(314 + 136)
554 498
EQUITY AND LIABILITIES
Share capital 300
(P only)
300
(P only)
Retained earnings 254
(from SOCIE)
198
(from SOCIE)
554 498
49
Pro-forma j/e Dr Cr
Dep exp 4
Acc Dep 4
Pro-forma j/e x2 and x3 Dr Cr
Accumulated depreciation 40
Plant 40
Pro-forma j/e Dr Cr
RE 4
Acc Dep 4
PARTLY OWNED SUBSIDIARIES
When a subsidiary is not owned
entirely by a parent company (or by
subsidiaries of the parent), the
shareholders outside the group are
known as the non-controlling
interests (referred to in previous
versions of the standard as minority
shareholders or outside shareholders)
The NCI are shareholders of the
subsidiary and have no interest in the
consolidated financial statements
Non-controlling interest defined as
equity of subsidiary not attributable,
directly or indirectly, to a parent
(IFRS 10, Defns)

50
P
S
NCI
Goodwill definition (taking into
account non-controlling interests)
GW is defined in IFRS 3 as the excess of
the acquisition date fair value of the consideration transferred
and
the amount of any non-controlling interest in the
acquiree
over
the acquisition date fair value of the net amount of
identifiable assets acquired and liabilities assumed.

51
52
Effect on consolidated SOFP
The parent / subsidiary company relationship results in
the parent company controlling the economic
resources of the subsidiary
Thus, full carrying amounts (not only Ps share) of
the A and L of S are included on the consolidated SOFP
of the group
The portion of Ss net assets owned by the non-
controlling interests are shown as non-controlling
interests on the group SOFP within equity,
separately from the equity of the parent.
(IFRS 10:22)

53
Effect on consolidated SOCI
The parent / subsidiary company relationship gives the
parent company the power to govern the financial and
operating policies of the subsidiary
Thus, the subsidiarys I and E items are included in
full on the consolidated SOCI of the group.
The profit and TCI of the group is then allocated
between
Equity holders / owners of the parent
Non-controlling interests
as a reconciliation at the bottom of the group SOCI.

(IFRS 10: B94)

Eg 1- Consolidation at acquisition: Goodwill
S plc
STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X1
Other assets 30
30
Share capital (20 shares of 1) 20
Retained earnings 10
30
54
P plc
STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X1
(a) (b) (c)
Other assets 126
110 130
Investment in S
24 40 20
150
150 150
Share capital 100 100 100
Retained earnings 50 50 50
150 150 150
On 31 December 20X1 P Limited acquired 80% of the ordinary share capital of S plc for
(a) 24
(b) 40
(c) 20
The other assets of S plc consist of inventory and accounts receivable which are considered to be
fairly valued.
Required:
Prepare a consolidated SOFP at 31 December 20X1.
Eg 1- Workings
Analysis of equity of S







55
(a) (b) (c)

At acquisition

Tot
NCI
(20%)
P
(80%)

Tot
NCI
(20%)
P
(80%)

Tot
NCI
(20%)
P
(80%)
SC 20 20 20
RE 10 10 10
30 6 24 30 6 24 30 6 24
Goodwill calculation
FV of consideration 24 40 20
NCI 6 6 6
30 46 26
FV of net assets 30 30 30
- 16 (4)
GW Gain from
BPO
Eg 1- Workings

Pro-forma consolidating j/e

56
(a) (b) (c)
Dr Cr Dr Cr Dr Cr
SC 20 20 20
RE 10 10 10
GW 16
NCI 6 6 6
Inv in S 24 40 20
Gain 4
Eg 1 - Solution
P & S GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20x1
(a) (b) (c)
Other assets (126 + 30) / (110 + 30) / (130 + 30) 156 140 160
Goodwill [16 (Dr GW)] 16
156 156 160
Share capital [100 + 20 20 (Dr SC)] 100 100 100
Retained
earnings
(a) / (b) [50 + 10 -10 (Dr RE)]
(c) [50 + 10 -10 (Dr RE) + 4 (Cr Gain)]
50 50 54
NCI 6 6 6
156 156 160
57
CONSOLIDATION OF PARTLY OWNED
SUBSIDIARY AFTER ACQUISITION
Income and expenses of S included in consolidated
SOCI from acquisition date
Non-controlling interests in profit or loss of S are
Identified
Disclosed separately from profit or loss
attributable to P

58
Example 2: Consolidation after acquisition
TRIAL BALANCES 31/12/20x2 31/12/20x1
P S P S
Net assets 58,5 40
48 36
Investment in S 24 -
24 -
Dividends paid 12 6
10 4
94,5 46
82 40
Share capital 50 20 50 20
Retained earnings boy 22 16 15 12
Profit for period 18 10 14 8
Dividend income 4,5 - 3 -
94,5 46 82 40
59
Required: Prepare consolidated financial statements
for 20x1 and 20x2.
On 1 January 20x1, P plc acquired 75% of the shares in S plc for
24 000. Trial balances of P plc and S plc at 31 December 20x1 and
20x2 are as follows:
E
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Analysis of equity of S







60
31/12/20x2 31/12/20x1

Tot
Pro-
forma

NCI
(25%)
P
(75%)

Tot
Pro-
forma
NCI
(25%)
P
(75%)
At acquisition
SC
20
Dr SC
20
Dr SC
RE
12
Dr RE
12
Dr RE
32 8 24 32 8 24
Cr NCI
(SOFP)
Cr Inv Cr NCI
(SOFP)
Cr Inv
Beginning of year
RE at boy
16 12
RE at acquisition
(12) (12)
4 1 3 0
Dr RE
Cr NCI
(SOFP)
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Analysis of equity of S . . .







61
31/12/20x2 31/12/20x1

Tot
Pro-
forma

NCI
(25%)
P
(75%)

Tot
Pro-
forma
NCI
(25%)
P
(75%)
Current year
Profit
10
2,5
7,5 8 2 6
Dr NCI
(SOCI)
Cr NCI
(SOFP)
Dr NCI
(SOCI)
Cr NCI
(SOFP)
Dividend paid
(6) (1,5) (4,5) (4) (1) (3)
Cr
Div pd
(S)
Dr
NCI
(SOFP)
Dr
Div inc
(P)
Cr
Div pd
(S)
Dr
NCI
(SOFP)
Dr
Div inc
(P)
40 10 30 36
9
21
(40 x
25%)
(36 x
25%)
Summary of pro-forma consolidating entries
62
20x2 Dr Cr
At acquisition
SC
20
RE
12
NCI (SOFP)
8
Inv in S
24
Beginning of year
RE
1
NCI (SOFP)
1
Current year
NCI (SOCI)
2,5
NCI (SOFP)
2,5
Div inc (P)
6
NCI (SOFP)
1,5
Div pd (S)
4,5
Eg 2 - Solution
P & S GROUP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
20X2 20X1
Profit for the period 28
(18 + 10)
22
(14 + 8)
Other comprehensive income - -
Total comprehensive income 28 22
Attributable to:
Equity holders of parent 25,5
(28 2,5) or(18 + 7,5)
20
(22 2) or (14 + 6)
Non-controlling interests 2,5
Dr NCI (SOCI)
2
Dr NCI (SOCI)
28 22
63
Eg 2 solution . . .
P & S GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

SC

RE
Attributable
to P

NCI

Tot
Bal 01/01/x1
50 15
(15 + 12 12)
65 - 65
Acq of S
8
At acq
TCI
20
(From SOCI)
20 2
CY
22
Dividends
(10)
P only, or (10 + 4 4)
(10) (1)
CY
(11)
Bal
31/12/x1
50 25
[22 + 16 12 (at acq)
1 (NCI boy)]
75 9 84
TCI
25,5
(From SOCI)
25,5 2,5
CY
28
Dividends
(12)
P only, or (12 + 6 6)
(12) (1,5)
CY
(13,5)
Bal 31/12/x2
50 38,5 88,5 10 98,5
64
Eg 2 solution . . .
P & S GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
20X2 20X1
ASSETS
Net assets (58,5 + 40) (48 + 36) 98,5 84
98,5 84
EQUITY AND LIABILITIES
Equity
Share capital 50 50
Retained earnings 38,5 25
Equity attributable to equity holders of parent 88,5 75
Non-controlling interest 10 9
98,5 84
65
66
Consolidation after acquisition
- principles learnt
The non-controlling interests share of the post
acquisition RE of S, to the beginning of the year, is
allocated by a consolidating adjustment
Dr RE
Cr Non-controlling interest (SOFP)
The non-controlling interests share of profits for the
current year is allocated by a consolidating adjustment
Dr Non-controlling interest (SOCI)
Cr Non-controlling interest (SOFP)
The dividends paid of S is eliminated against the
dividend income of P and the non-controlling interest
(SOFP)
Dr Dividend income (P)
Dr NCI (SOFP)
Cr Dividend paid (S)
Elimination of intra-group transactions
Same principles apply to partly owned subsidiaries as
to wholly owned subsidiaries
Eliminate in full intragroup
Assets and liabilities
Income and expenses
(IFRS 10: 86(B))

However, non-controlling interests share of profit is
calculated before eliminating the intra-group
transactions
Intra-group transactions are eliminated when
computing group profit.
67
Eg 3 - Elimination of intra-group transactions
68
Trial balances 31/12/x2 P S
Share capital 500 100
Retained earnings 260 80
Rent income (from S) 36 -
Admin fee income (from S) 12 -
Interest income (from S) 6 -
Dividend income- S 40 -
Dividend income - other 97 35
Loan from P - 58
Current account - P - 37
Gross profit 230 170
1 181 480
Land and buildings 380 -
Investment in S 80 -
Other investments 150 74
Taxation 72 40
Loan to S 58 -
Current account - S 37 -
Dividends paid 140 50
Expenses 104 70
Other assets 160 246
1 181 480
P plc acquired 80% of the
shares in S plc when it was
formed, some years ago.









Required:
Prepare consolidated
financial statements for the
20x2 financial year.

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69
Analysis of equity of S 31/12/20x2

Tot
NCI
(20%)
P
(80%)
At acquisition
SC
100
RE
0
100 20 80
Goodwill calculation
FV of consideration 80
NCI 20
100
FV of net assets 100
-
Beginning of year
RE at boy
80
RE at acquisition
(0)
80 16 64
Pro-forma j/e Dr Cr
At acquisition
SC 100
RE 0
NCI (SOFP) 20
Inv in S 80
Beginning of year
RE 16
NCI (SOFP) 16
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70
Analysis of equity of S . . . 31/12/20x2

Tot
NCI
(20%)
P
(80%)
Current year
Trading profit
170
Dividend income
35
Expenses (including intra-group)
(70)
Tax
(40)
95 19 76
Dividend paid
(50) (10) (40)
225 45 180
(225 x
20%)
Pro-forma j/e Dr Cr
Current year
NCI (SOCI) 19
NCI (SOFP) 19
Div inc (P) 40
NCI (SOFP) 10
Div pd (S) 50
Eg 3 - Solution
P GROUP plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 20x2
Gross profit
(230 + 170)


400
Dividends received
[(97 + 35) + 40 40)]

132
Expenses
(104 + 70 - 54)
(120)
Profit before tax 412
Taxation
(72 + 40)

(112)
Profit for the period 300
Attributable to
Equity holders of parent (300 19) 281
Non-controlling interest 19
300
71
Pro-forma j/e Dr Cr
Rent inc 36
Admin fee inc 12
Int inc 6
Expenses 54
Eg 3 Solution . . .
72
P GROUP plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 20x2
Share
capital
Retained
earnings
Attrib-
utable
to P

NCI

Total
Balance 01/01/x2 500 324
[260 + 80 - 0
16 (NCI boy)]
824 36
[20 (at acq)
+ 16 (boy)]
860
Profit for the period 281 281 19
CY
300
Dividends (140)
(140 + 50 50)
(140) (10)
CY
(150)
Balance 31/12/x2 500 465 965 45 1 010
Eg 3 Solution . . .
73
P GROUP plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20x2
ASSETS
Land & buildings
(380 + 0)
380
Other investments
(150 + 74)
224
Other assets
(160 + 246)
406
1 010
EQUITY
Share capital
(500 + 100 100)
500
Retained earnings
(From SOCIE)
465
Equity attributable to equity holders of parent 965
Non-controlling interest 45
1 010
Pro-forma j/e Dr Cr
Loan from P 58
Current a/c P 37
Loan to S
58
Current a/c S 37
74
Change in value of depreciable assets
Same principles apply to partly owned subsidiaries
as to wholly owned subsidiaries
Pro-forma consolidating entries for cumulative
group depreciation to beginning of year is taken
into account before allocating RE to boy to non-
controlling interests
Pro-forma group adjustments for current year
group depreciation is taken into account before
allocating current year profit to non-controlling
interests

Eg 4
Trial balances 28/02/20x7 28/02/20x6

P S P S
Share capital
100 000 40 000 100 000 40 000
Retained earnings beginning of year
45 760 11 000 26 560 5 000
Profit before depreciation and tax
42 000 20 000 32 000 16 000
Plant, accumulated depreciation
- 18 000 - 12 000
187 760 89 000 158 560 73 000
Plant, cost
- 48 000 - 48 000
Investment in S plc
38 800 - 38 800 -
Other net assets
132 160 29 400 106 960 15 000
Taxation 16 800 5 600 12 800 4 000
Depreciation - 6 000 - 6 000

187 760 89 000 158 560 73 000
75
Required:
Prepare consolidated financial statements for 20x6 and 20x7.
On 1 March 20X5, P plc acquired 80% of the share capital of S plc. Plant was considered
to have a fair value of 45,5 at the date of acquisition. S plc had acquired the plant on
1 March 20x4. Estimated total useful life is 8 years and P plc agreed with this estimate.
Eg 4 - Workings
Analysis of plant S Ltd
Consolidated
adjustment
Group
01/03/x4 Cost 48
28/02/x5 Accumulated depreciation (6)
Carrying amount 42 /7 yr
= 6
3,5 /7 yr
= 0,5
45,5 /7 yr
= 6,5
28/02/x6 Depreciation (6) (0,5) (6,5)
36 3 39
28/02/x7 Depreciation (6) (0,5) (6,5)
30 2,5 32,5
01/03/x7
28/02/x12
Depreciation for remaining
5 years
(30) (2,5) (32,5)
0 0 0
76
Eg 4 Workings
77
Analysis of equity
of S

28/02/x7

28/02/x6

At acquisition

Tot
NCI
(20%)
P
(80%)

Pro-forma

Tot
NCI
(20%)
P
(80%)
Pro-forma
SC
Dr SC
40
Dr SC
RE
Dr RE
5
Dr RE
Plant
Dr Plant
3,5
Dr Plant
48,5
9,7 38,8
Cr NCI Cr Inv in S Cr NCI Cr Inv in S
Beginning of year
RE at boy 5
RE at acquisition (5)
Group depreciation
Dr RE
Cr Acc dep
-
0
Dr RE
Cr NCI (FP)







78
28/02/x7 28/02/x6

Current year

Tot

NCI

P

Pro-forma

Tot

NCI

P Pro-forma
Profit 6
Group depreciation
Dr Dep
Cr Acc Dep
(0.5)
Dr Dep
Cr Acc Dep
5,5 1,1 4,4
Dr NCI (CI)
Cr NCI (FP)
Dr NCI (CI)
Cr NCI (FP)
54 10.8
= 20% = 20%
Eg 4 Workings . . .
Eg 4 - Solution
79
P & S GROUP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 28 FEBRUARY
20x7 20x6
Profit before tax
[ (CY Deprn)]
41,5
[32 + 16 6 - 0,5 (CY Deprn)]
Taxation ( )
( )
(16,8)
(12,8 + 4)
Profit for the period 24,7
Pro-forma j/e 20x2 Dr Cr
Depreciation expense 0,5
Accumulated depreciation 0,5
Pro-forma j/e 20x3 Dr Cr
Depreciation expense
Accumulated depreciation
E
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.

.

.

80
P & S GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 28 FEBRUARY 20X6
Share
capital
Retained
earnings
Attrib
to P

NCI

Tot
Balance at 01/03/x5 100 26,56
(26,56 + 5 5) 126,56
- 126,56
Acquisition of sub 9,7
Profit for the period 23,6
23,6
1,1 24,7
Balance at 28/02/x6 100 50,16
150,16
10,8 160,96
Pro-forma j/e 20x7 Dr Cr
Retained earnings
Accumulated depreciation
P & S GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 28 FEBRUARY 20X7
Share
capital
Retained
earnings
Attrib
to P

NCI

Tot
Balance at 28/02/x6
( ) ( )
Profit for the period
Balance at 38/02/x7
E
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4


S
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.

.

.

P & S GROUP plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 28 FEBRUARY
20X7 20X6
ASSETS
Plant 39
At cost
( )
45,5
(48 6+ 3,5)
Accumulated depreciation
( )
(6,5)
(18 6 + 0,5)
Other net assets 121,96
160,96
EQUITY AND LIABILITIES
Share capital
(P only)
100
(P only)
Retained earnings
(from SOCIE)
50,16
(from SOCIE)
Attributable to P 150,16
Non-controlling interests 10,8
160,96
81
INTRA-GROUP TRADING
If a parent company sells goods to a
subsidiary company
The GP of the parent is realised and
recognised in the parents financial
statements
The GP of the group
Remains unrealised if the goods are unsold by the
subsidiary
Becomes realised once the goods are sold by the
subsidiary (to customers outside the group)
No implication for the NCI as the NCI have
no share in the profit of the parent
82
INTRA-GROUP TRADING . . .
If a subsidiary company sells goods to a parent
company
The GP of the subsidiary is realised and recognised in the
subsidiarys financial statements
The GP of the group
Remains unrealised if the goods are unsold by the parent
Becomes realised once the goods are sold by the parent(to
customers outside the group)
Implication for the NCI as the NCI have a share in the
profit of the subsidiary
Any unrealised profit of the subsidiary (in the parents
inventory) must be eliminated before computing the NCI
share of profit

83
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p
a
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s
e
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l
s

g
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s

t
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s
u
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s
i
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i
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y

TRIAL BALANCES 31/12/20x5
P S
Investment in S 48
Other net assets 106 77
Inventory 30 20
Tax expense 6 3
190 100
Share capital 100 50
Retained earnings boy 70 40
Profit before tax 20 10
190 100
84
Included in the closing inventory of S plc are goods bought
from P plc for 3. The cost of these goods to P plc is 2.
Required:
Prepare consolidated SOCI and SOFP for 20x5.
On 1 January 20x3, P plc acquired 80% of the shares in S plc for
48. Trial balances of P plc and S plc at 31 December 20x5 are as
follows:
E
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S




85
31/12/20x5

Tot
Pro-
forma
NCI
(20%)
P
(80%)
At acquisition
SC
50
Dr SC
RE
10
Dr RE
60 12 48
Cr NCI
(SOFP)
Cr Inv
Beginning of year
RE at boy
40
RE at acquisition
(10)
30 6 24
Dr RE
Cr NCI (SOFP)
Current year
Profit after tax
7
1,4
5,6
97
19,4
No
implication to
NCI of Ps
unrealised
profit
E
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1

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S
o
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P & S GROUP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 20X5
Profit before tax 29
[(20 1) + 10)
Tax expense (9)
(6 + 3)
Profit for the period 20
86
Pro-forma j/e 20x5 Dr Cr
Profit before tax 1
Inventory 1
P & S GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X5
ASSETS
Other net assets (106 + 77) 183
Inventory [(30 -1) + 20] 49
232
EQUITY AND LIABILITIES
Share capital 100
Retained earnings [P (70 + 14 -1)] + [S (30 x 0,80) + (7 x 0,80)] 112,6
Equity attributable to equity holders of parent 212,6
Non-controlling interest [(60 + 30 + 7) x 0,20] 19,4
232
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2
:

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s
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s
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s

t
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p
a
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n
t

TRIAL BALANCES 31/12/20x5
P S
Investment in S 48
Other net assets 106 77
Inventory 30 20
Tax expense 6 3
190 100
Share capital 100 50
Retained earnings boy 70 40
Profit before tax 20 10
190 100
87
Included in the closing inventory of P plc are goods bought
from S plc for 3. The cost of these goods to S plc is 2.
Required:
Prepare consolidated SOCI and SOFP for 20x5.
On 1 January 20x3, P plc acquired 80% of the shares in S plc for
48. Trial balances of P plc and S plc at 31 December 20x5 are as
follows:
E
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2

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S




88
31/12/20x5
Tot Pro-forma NCI (20%) P (80%)
At acquisition
SC
50
Dr SC
RE
10
Dr RE
60 12 48
Cr NCI (SOFP) Cr Inv
Beginning of year
RE at boy
40
RE at acquisition
(10)
30 6 24
Dr RE Cr NCI (SOFP)
Current year
Profit after tax
7
S unrealised profit
(1)
6
1,2
4,8
96
19,2
The NCI
must share
in the
unrealised
profit of S
E
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2

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S
o
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o
n

P & S GROUP
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 20X5
Profit before tax 29
[20 + (10 1)]
Tax expense (9)
(6 + 3)
Profit for the period 20
89
Pro-forma j/e 20x5 Dr Cr
Profit before tax 1
Inventory 1
P & S GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X5
ASSETS
Other net assets (106 + 77) 183
Inventory [30 + (20 1)] 49
232
EQUITY AND LIABILITIES
Share capital 100
Retained earnings [P 70 + 14 ] + [S (30 x 0,80) + (6 x 0,80)] 112,8
Equity attributable to equity holders of parent 212,6
Non-controlling interest [(60 + 30 + 6) x 0,20] 19,2
232
ACQUISITION OF SUBSIDIARY PART
WAY THROUGH THE YEAR
The at acquisition reserves of the subsidiary are an
important number
Used as part of the calculation of the FV of the equity of the
subsidiary at acquisition for the purposes of computing
goodwill / BPO
Only reserves earned by the subsidiary post-acquisition are
recognised as earned by the group.
If the subsidiary is acquired part way through the year, it is
necessary to calculate the reserves at acquisition
Retained earnings at last SOFP date
profits earned until acquisition date
- dividends paid until acquisition date

90
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p
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a
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t
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h

t
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y
e
a
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TRIAL BALANCES 31/12/20x1
P S
Net assets
46,5 36
Investment in S
25,5 -
Dividends paid
10 4
82 40
Share capital 50 20
Retained earnings boy 15 12
Profit for period 14 8
Dividend income 3 -
82 40
91
Required: Prepare consolidated SOFP at 31/12/x1
On 1 April 20x1, P plc acquired 75% of the shares in S plc for
24 000. Profit of S is earned evenly through the year. Trial
balances of P plc and S plc at 31 December 20x1 are as follows:
E
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Analysis of equity of S







92
31/12/20x1

Tot
NCI
(25%)
P
(75%)
At acquisition
SC
20
RE (31/12/xo)
12
Profit (01/01/x1 31/03/x1) (8 x 3/12)
2
34 8,5 25.5
End of year
RE at eoy (12 + 8 4)
16
RE at acquisition
(14)
2 0,5 1,5
36 9
Eg1 solution
P & S GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 20X1
ASSETS
Net assets (46,5 + 36) 82,5
82,5
EQUITY AND LIABILITIES
Equity
Share capital 50
Retained earnings [P (15 + 14 + 3 - 10) + S (2 x 0,75)] 23,5
Equity attributable to equity holders of parent 73,5
Non-controlling interest [(34 + 2) x 0,25] 9
82,5
93