GROUP STATEMENTS

1. Background:
- What is Group statements:
 It is the CONSOLIDATION of two or more companies’ financial statements into ONE
set of financial statements which is then called the Consolidated financial statements
of the group.
Example: Statement of financial position – NB!! Where P Ltd acquired 100% interest in S Ltd.

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020

2020 2020 2020

R R R
P Ltd
P Ltd S Ltd Group
ASSETS
Non-current assets
Property, plant and equipment 150 000 120 000 270 000 (Add P Ltd + S Ltd)
Investment in S Ltd: 10 000 shares 90 000 - - Elimination of investment

Current assets
Trade and other receivables 5 000 4 000 9 000 (Add P Ltd + S Ltd)
Inventory 2 000 1 000 3 000 (Add P Ltd + S Ltd)
Cash and cash equivalents 3 000 2 000 5 000 (Add P Ltd + S Ltd)

Total assets 250 000 127 000 287 000

EQUITY AND LIABILITIES

Equity
Share capital (P Ltd: 50 000 shares / S Ltd: 10 000 shares) 150 000 60 000 150 000 Show only P Ltd
Retained earnings 65 000 30 000 65 000 Show only P Ltd
General reserve 15 000 - 15 000 Show only P Ltd

Liabilities
Trade and other payables 20 000 37 000 57 000 (Add P Ltd + S Ltd)

Total equity and liabilities 250 000 127 000 287 000

Lecturer note: P Ltd owns 100% of S Ltd. It is calculated by the NUMBER OF SHARES P Ltd
have in S Ltd.
Thus:
10 000 shares (Investment that P Ltd have in S Ltd) divided by 10 000 issued shares of S Ltd x
100% = 100% owned by P Ltd.

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 NB!! P Ltd is called the Parent company and S Ltd the Subsidiary company. P Ltd controls
S Ltd as P Ltd have more than 50% power over S Ltd (P Ltd actually have 100% power over S
Ltd).

NB!! As can see above:

 Investment that P Ltd have in S Ltd (R90 000) and the Equity of S Ltd (Share capital of
R60 000 + Retained earnings of R30 000 + General reserve of R0 = R90 000) is
ELIMINATED.
 EQUITY: ONLY the equity of P Ltd is shown in the Consolidate statement of financial
position of the P Ltd Group.
 ASSETS AND LIABILITIES: Add P Ltd and S Ltd line by line (Except the “Investment in
S Ltd: 10 000 shares” as it is eliminated).

Example: Statement of profit or loss and other comprehensive income for the year ended
31 December 2020
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020

2020 2020 2020

R R R
P Ltd
P Ltd S Ltd Group
Revenue 100 000 60 000 160 000 (Add P Ltd + S Ltd)
Cost of sales (70 000) (40 000) (110 000) (Add P Ltd + S Ltd)
Gross profit 30 000 20 000 50 000 (Add P Ltd + S Ltd)
(Add P Ltd + S Ltd)
Other income 15 000 2 000 17 000 (Add P Ltd + S Ltd)
Distribution expenses (12 000) (6 000) (18 000) (Add P Ltd + S Ltd)
Administration expenses (8 000) (5 000) (13 000) (Add P Ltd + S Ltd)
Operating expenses (2 000) - (2 000) (Add P Ltd + S Ltd)
(Add P Ltd + S Ltd)
Profit before interest and tax 23 000 11 000 34 000 (Add P Ltd + S Ltd)
Finance cost (5 000) (3 000) (8 000) (Add P Ltd + S Ltd)
Profit before tax 18 000 8 000 26 000 (Add P Ltd + S Ltd)
Income tax expense (5 000) (3 000) (8 000) (Add P Ltd + S Ltd)
Profit for the year 13 000 5 000 18 000 (Add P Ltd + S Ltd)

NB!! As can see above:

 INCOME AND EXPENSES: Add P Ltd and S Ltd line by line.

2. Definitions:
- A group consists of a Parent and its Subsidiaries.

2.1 What is a Parent:

 A Parent is an entity (company) THAT CONTROLS ANOTHER entity (company).

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2.2 What is a Subsidiary:
 A Subsidiary is an entity (company) THAT IS CONTROLED BY ANOTHER entity
(company).

- It is very clear that the important word here is CONTROL!!!!

- NB!!! TAKE NOTE: For the purposes of ACCF 121, we will not go into further detail with
regards to control. For the purpose of Group statements for ACCF 121 the questions will be
based on where a company (the Parent) have more than 50% control over the other
company (the subsidiary).

2.3 What is Non-controlling interest (NCI):

 Where the parent DOES NOT ACQUIRE the entire issued share capital of a subsidiary,
the owners other than the parent are referred to as the non-controlling interest (NCI).

Example 1: P Ltd acquired 80% of S Ltd. Therefore, the non-controlling interest is 20%
(100% - 80%).

Meaning P Ltd only have 80% control over S Ltd and other external shareholders have 20%
control in S Ltd.

Example 2: P Ltd acquired 60% of S Ltd. Therefore, the non-controlling interest is 40%
(100% - 60%).

Meaning P Ltd only have 60% control over S Ltd and other external shareholders have 40%
control in S Ltd.

Example 3: P Ltd acquired 75% of S Ltd. Therefore, the non-controlling interest is 25%
(100% - 75%).

Meaning P Ltd only have 60% control over S Ltd and other external shareholders have 40%
control in S Ltd.

2.4 What is an Acquisition date:

 The acquisition date is the date on which the acquire (Parent) obtains control over the
acquiree (Subsidiary).

2.5 What is Goodwill:

 It is the amount which the Parent pays MORE for the interest acquired than the fair value
of the identifiable assets acquired and liabilities assumed of the acquiree.

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 Example 1: P Ltd acquired 100% in S Ltd for R280 000. The equity of S Ltd on date of
acquisition was as follows:
Share capital R200 000 Lecturer note: This is the TOTAL equity of S Ltd
Retained earnings R60 000 on date of acquisition.

Total equity of S Ltd on date of acquisition = R260 000 (Share capital of R200 000 +
Retained earnings of R60 000)

Consideration paid (Amount paid) by P Ltd for the 100% interest in S Ltd = R280 000.

Thus: P Ltd paid R20 000 MORE than the value of the 100% acquired from S Ltd (R280 000
which P Ltd paid minus R260 000 which is the 100% value acquired of S Ltd).

The R20 000 paid more is called GOODWILL.

Example 2: P Ltd acquired 70% in S Ltd for R200 000. The equity of S Ltd on date of
acquisition was as follows:
Share capital R150 000 Lecturer note: This is the TOTAL equity of S Ltd
Retained earnings R70 000 on date of acquisition.
General reserve R30 000

Total equity of S Ltd on date of acquisition = R250 000 (Share capital of R150 000 +
Retained earnings of R70 000 + General reserve of R30 000).

R250 000 x 70% = R175 000 interest that P Ltd wants to buy in S Ltd.
R250 000 x 30% (100% - 70%) = R75 000 is the (NB!!!) non-controlling interest (NCI).

Consideration paid (Amount paid) by P Ltd for the 70% interest in S Ltd = R200 000.

Thus: P Ltd paid R25 000 MORE than the value of the 70% acquired of S Ltd (R200 000
which P Ltd paid minus R175 000 which is the 70% value acquired of S Ltd).

The R25 000 paid more is called GOODWILL.

2.6 What is a gain from a bargain purchase:

 It is the amount which the Parent pays LESSER for the interest acquired than the fair
value of the identifiable assets acquired and liabilities assumed of the acquiree.

Example 1: P Ltd acquired 100% in S Ltd for R170 000. The equity of S Ltd on date of
acquisition was as follows:
Share capital R150 000 Lecturer note: This is the TOTAL equity of S Ltd
Retained earnings R50 000 on date of acquisition.

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 Total equity of S Ltd on date of acquisition = R200 000 (Share capital of R150 000 +
Retained earnings of R50 000)

Consideration paid (Amount paid) by P Ltd for the 100% interest in S Ltd = R170 000.

Thus: P Ltd paid R30 000 LESSER than the value of 100% acquired of S Ltd (R170 000
which P Ltd paid minus R200 000 which is the 100% value acquired of S Ltd).

The R30 000 paid less is called GAIN FROM A BARGAIN PURCHASE.

Example 2: P Ltd acquired 90% in S Ltd for R120 000. The equity of S Ltd on date of
acquisition was as follows:
Share capital R120 000 Lecturer note: This is the TOTAL equity of S Ltd
Retained earnings R20 000 on date of acquisition.

Total equity of S Ltd on date of acquisition = R140 000 (Share capital of R120 000 +
Retained earnings of R20 000).

R140 000 x 90% = R126 000 interest that P Ltd wants to buy in S Ltd.
R140 000 x 10% (100% - 90%) = R14 000 is the (NB!!!) non-controlling interest (NCI).

Consideration paid (Amount paid) by P Ltd for the 90% interest in S Ltd = R120 000.

Thus: P Ltd paid R6 000 LESSER than the value of 90% acquired of S Ltd (R120 000 which
P Ltd paid minus R126 000 which is the 90% value acquired of S Ltd).

The R6 000 paid less is called GAIN FROM A BARGAIN PURCHASE.

3. Steps:
NB!!! Remember: Equity accounts have credit balance. So if we eliminate the share capital in
the subsidiary, we need to DEBIT the equity accounts to remove it.

Step 1: Calculate the % of interest that the Parent has acquired on date of acquisition for
example 75% etc. (You can skip this step if the % acquired is given in the question).

Step 2: Calculate if there is a Goodwill or Gain from a bargain purchase.

Step 3: Eliminate:
 The investment in the Parent, and
 The equity (share capital, retained earnings, general reserve) of the Subsidiary.

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Step 4: Prepare the at acquisition journal and Consolidated statement of financial statements.
Remember the following:
1. If the parent only acquired a part of the subsidiary for example 70%, then remember
there will be a non-controlling interest of 30%. NB!!! The non-controlling interest amount
will be disclosed on the statement of financial position under “Equity and liabilities”.
2. If there is a Goodwill as calculated as per step 2, then the Goodwill amount will be
disclosed on the statement of financial position under “Non-current assets”.
3. If there is a Gain from a bargain purchase as calculated as per step 2, then the Gain
from a bargain purchase amount will be added to “Retained earnings” on the
statement of financial position under equity.

4. Non-controlling interest (NCI):

- Remember: Non-controlling interest (NCI) is the part of the Subsidiary that the Parent
DOES NOT owned or control. So, for example if P Ltd (Parent) only acquired 60% of S Ltd
(Subsidiary), then the non-controlling interest is 40% (100% - 60%).

- NB!!! There will then ALWAYS be a non-controlling interest if the Parent acquired less than
100% of the Subsidiary. For example: P Ltd (Parent) only acquired 60% or 75, or 80% etc. of
S Ltd (Parent).

- Non-controlling interest can be measured at the acquisition date either at:

• The proportionate share of the acquiree’s identifiable net assets, OR
• Fair value (Lecturer note: We will give you the fair value of NCI if this method is asked)

- VERY IMPORTANT: If the question doesn’t state which method to use and you don’t see a
fair value of NCI that is given a question, then you use “The proportionate share of the
acquiree’s identifiable net assets”-method.

The Examples below will explain the two methods easily. Please work
through all the examples (See point 6).

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 5. Template to use to calculate if there is a Goodwill or Gain from a
bargain purchase AS WELL as the Non-controlling interest:

Lecturer note:

Consideration transferred (Amount paid by parent) Rxxx

Non-controlling interest (Rxxx X NCI %) Rxxx This is the NCI amount.

Less net fair value of identifiable assets acquired

and liabilities assumed:
Share capital Rxxx
Retained earnings at acquisition Rxxx
Other reserves at acquisition Rxxx (Rxxx) NB!!! Must be negative amount.

Goodwill (If amount is positive) Rxxx or (Rxxx)

Gain from a bargain purchase (If amount is negative)

6. Examples (Questions and solutions)

6.1 Example 1 and solution:

The following are the statement of financial position of P Ltd and S Ltd (a subsidiary which is
partially owned) at 30 September 2018, the acquisition date:
2018 2018
R R
P Ltd S Ltd
ASSETS
Non-current assets
Property, plant and equipment 23 000 50 000
Investment in S Ltd: 60 000 shares at cost price 75 000 -

Current assets
Trade and other receivables 112 000 86 000

Total assets 210 000 136 000

EQUITY AND LIABILITIES

Equity
Share capital (P Ltd: 100 000 shares / S Ltd: 80 000 shares) 100 000 80 000
Retained earnings 26 000 20 000

Liabilities
Trade and other payables 84 000 36 000

Total equity and liabilities 210 000 136 000

Page 7 of 20
 P Ltd elected to measure any non-controlling interest in an acquiree at their proportionate
share of the acquiree’s identifiable net assets.

Required:

1. Prepare the at acquisition pro forma journal entry of the P Ltd group.
2. Prepare the consolidated statement of financial position for the P Ltd group as at
30 September 2018.

Solution:

Step 1: We need to calculate the % of interest that the P Ltd has acquired on date of acquisition
in S Ltd. (They did not say the % that P Ltd acquired in S Ltd, but we can see how many
shares P Ltd have in S Ltd as per statement of financial position).

Thus: 60 000 shares / 80 000 shares x 100% = 75% Interest that P Ltd acquired.

Step 2: Calculate if there is a Goodwill or Gain from a bargain purchase (Use template as per
point 5).
Lecturer note:

Consideration transferred (Amount paid by P Ltd) 75 000 Investment amount as per SOFP
Non-controlling interest R100 000 X 25% (100% - 75% of P Ltd) 25 000 This is the NCI amount.

Less net fair value of identifiable assets acquired

and liabilities assumed:
Share capital 80 000
Retained earnings at acquisition 20 000
Other reserves at acquisition 0 (100 000) NB!!! Must be negative amount.

No Goodwill OR Gain from a bargain purchase (amount is R0) 0

Step 3 and 4: Prepare the at acquisition journal and Consolidated statement of financial position
as at 30 September 2018.

Journal:

DR CR Lecturer note:
R R
Share capital (S Ltd) 80 000
Retained earnings (S Ltd) 20 000 To eliminate common items.
Investment in S Ltd (P Ltd) 75 000
Non-controlling interest 25 000 To recognise non-controlling interest.
Elimintation of common items and recognition
of non-controlling interest at acquisition.

Page 8 of 20
P LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2018

2018 2018 2018

R R R
P Ltd
P Ltd S Ltd Group
ASSETS
Non-current assets
Property, plant and equipment 23 000 50 000 73 000 (Add P Ltd + S Ltd)
Investment in S Ltd: 60 000 shares at cost price 75 000 - - Elimination of investment

Current assets
Trade and other receivables 112 000 86 000 198 000 (Add P Ltd + S Ltd)

Total assets 210 000 136 000 271 000

EQUITY AND LIABILITIES

Equity
Share capital 100 000 80 000 100 000 Show ONLY P Ltd
Retained earnings 26 000 20 000 26 000 Show ONLY P Ltd

Non-controlling interest 25 000 See calculation / Journal

Liabilities
Trade and other payables 84 000 36 000 120 000 (Add P Ltd + S Ltd)

Total equity and liabilities 210 000 136 000 271 000

(Example 2 and solution on next page)

Page 9 of 20
6.2 Example 2 and solution:

The following are the statement of financial position of P Ltd and S Ltd (a subsidiary which is
partially owned) at 1 October 2018, the acquisition date:
2018 2018
R R
P Ltd S Ltd
ASSETS
Non-current assets
Property, plant and equipment 23 000 50 000
Investment in S Ltd: 60 000 shares at cost price 80 000 -

Current assets
Trade and other receivables 107 000 86 000

Total assets 210 000 136 000

EQUITY AND LIABILITIES

Equity
Share capital (P Ltd: 100 000 shares / S Ltd: 80 000 shares) 100 000 80 000
Retained earnings 26 000 20 000

Liabilities
Trade and other payables 84 000 36 000

Total equity and liabilities 210 000 136 000

P Ltd elected to measure any non-controlling interest in an acquiree at their proportionate

share of the acquiree’s identifiable net assets.

Required:

1. Prepare the at acquisition pro forma journal entry of the P Ltd group.
2. Prepare the consolidated statement of financial position for the P Ltd group as at
1 October 2018.

Solution:

Step 1: We need to calculate the % of interest that the P Ltd has acquired on date of acquisition
in S Ltd. (They did not say the % that P Ltd acquired in S Ltd, but we can see how many
shares P Ltd have in S Ltd as per statement of financial position).

Thus: 60 000 shares / 80 000 shares x 100% = 75% Interest that P Ltd acquired.

Page 10 of 20
 Step 2: Calculate if there is a Goodwill or Gain from a bargain purchase (Use template as per
point 5).
Lecturer note:

Consideration transferred (Amount paid by P Ltd) 80 000 Investment amount as per SOFP
Non-controlling interest R100 000 X 25% (100% - 75% of P Ltd) 25 000 This is the NCI amount.

Less net fair value of identifiable assets acquired

and liabilities assumed:
Share capital 80 000
Retained earnings at acquisition 20 000
Other reserves at acquisition 0 (100 000) NB!!! Must be negative amount.

Goodwill (Amount is positive) 5 000 Will be shown under Non-current assets

Step 3 and 4: Prepare the at acquisition journal and Consolidated statement of financial position
as at 1 October 2018.

Journal:
DR CR Lecturer note:
R R
Share capital (S Ltd) 80 000 To eliminate common items.
Retained earnings (S Ltd) 20 000
Goodwill (S Ltd) 5 000 To recognise goodwill.
Investment in S Ltd (P Ltd) 80 000 To eliminate common items.
Non-controlling interest 25 000 To recognise non-controlling interest.
Elimintation of common items and recognition
of goodwil and non-controlling interest at acquisition.

Page 11 of 20
P LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 1 OCTOBER 2018

2018 2018 2018

R R R
P Ltd
P Ltd S Ltd Group
ASSETS
Non-current assets
Property, plant and equipment 23 000 50 000 73 000 (Add P Ltd + S Ltd)
Investment in S Ltd: 60 000 shares at cost price 80 000 - - Elimination of investment
Goodwill 5 000 See calculation / Journal

Current assets
Trade and other receivables 107 000 86 000 193 000 (Add P Ltd + S Ltd)

Total assets 210 000 136 000 271 000

EQUITY AND LIABILITIES

Equity
Share capital 100 000 80 000 100 000 Show ONLY P Ltd
Retained earnings 26 000 20 000 26 000 Show ONLY P Ltd

Non-controlling interest 25 000 See calculation / Journal

Liabilities
Trade and other payables 84 000 36 000 120 000 (Add P Ltd + S Ltd)

Total equity and liabilities 210 000 136 000 271 000

(Example 3 and solution on next page)

Page 12 of 20
6.3 Example 3 and solution:

The following are the statement of financial position of P Ltd and S Ltd (a subsidiary which is
partially owned) at 1 October 2018, the acquisition date:
2018 2018
R R
P Ltd S Ltd
ASSETS
Non-current assets
Property, plant and equipment 23 000 50 000
Investment in S Ltd: 60 000 shares at cost price 65 000 -

Current assets
Trade and other receivables 122 000 86 000

Total assets 210 000 136 000

EQUITY AND LIABILITIES

Equity
Share capital (P Ltd: 100 000 shares / S Ltd: 80 000 shares) 100 000 80 000
Retained earnings 26 000 20 000

Liabilities
Trade and other payables 84 000 36 000

Total equity and liabilities 210 000 136 000

P Ltd elected to measure any non-controlling interest in an acquiree at their proportionate

share of the acquiree’s identifiable net assets.

Required:

1. Prepare the at acquisition pro forma journal entry of the P Ltd group.
2. Prepare the consolidated statement of financial position for the P Ltd group as at
1 October 2018.

Solution:

Step 1: We need to calculate the % of interest that the P Ltd has acquired on date of acquisition
in S Ltd. (They did not say the % that P Ltd acquired in S Ltd, but we can see how many
shares P Ltd have in S Ltd as per statement of financial position).

Thus: 60 000 shares / 80 000 shares x 100% = 75% Interest that P Ltd acquired.

Step 2: Calculate if there is a Goodwill or Gain from a bargain purchase (Use template as per
point 5).

Page 13 of 20
 Lecturer note:

Consideration transferred (Amount paid by P Ltd) 65 000 Investment amount as per SOFP
Non-controlling interest R100 000 X 25% (100% - 75% of P Ltd) 25 000 This is the NCI amount.

Less net fair value of identifiable assets acquired

and liabilities assumed:
Share capital 80 000
Retained earnings at acquisition 20 000
Other reserves at acquisition 0 (100 000) NB!!! Must be negative amount.

Gain from a bargain purchase (Amount is negative) (10 000) Will be offset against retained earnings

Step 3 and 4: Prepare the at acquisition journal and Consolidated statement of financial position
as at 1 October 2018.

Journal:
DR CR Lecturer note:
R R
Share capital (S Ltd) 80 000
Retained earnings (S Ltd) 20 000 To eliminate common items.
Investment in S Ltd (P Ltd) 65 000
Gain from a bargain purchase (S Ltd) 10 000 Set off against retained earnings
Non-controlling interest 25 000 To recognise non-controlling interest.
Elimintation of common items and recognition
of gain from a bargain purchase and non-controlling
interest at acquisition.

Page 14 of 20
P LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 1 OCTOBER 2018

2018 2018 2018

R R R
P Ltd
P Ltd S Ltd Group
ASSETS
Non-current assets
Property, plant and equipment 23 000 50 000 73 000 (Add P Ltd + S Ltd)
Investment in S Ltd: 60 000 shares at cost price 65 000 - - Elimination of investment

Current assets
Trade and other receivables 122 000 86 000 208 000 (Add P Ltd + S Ltd)

Total assets 210 000 136 000 281 000

EQUITY AND LIABILITIES

Equity
Share capital 100 000 80 000 100 000 Show ONLY P Ltd
Retained earnings 26 000 20 000 36 000 P Ltd + Gain from bargain purchase
(R26 000 + R10 000)

Non-controlling interest 25 000 See calculation / Journal

Liabilities
Trade and other payables 84 000 36 000 120 000 (Add P Ltd + S Ltd)

Total equity and liabilities 210 000 136 000 281 000

(Example 4 and solution on next page)

Page 15 of 20
6.4 Example 4 and solution:

The following are the statement of financial position of P Ltd and S Ltd (a subsidiary which is
partially owned) at 1 October 2018, the acquisition date:
2018 2018
R R
P Ltd S Ltd
ASSETS
Non-current assets
Property, plant and equipment 123 000 50 000
Investment in S Ltd: 60 000 shares at cost price 80 000 -

Current assets
Trade and other receivables 107 000 86 000

Total assets 310 000 136 000

EQUITY AND LIABILITIES

Equity
Share capital (P Ltd: 100 000 shares / S Ltd: 80 000 shares) 200 000 80 000
Retained earnings 26 000 20 000

Liabilities
Trade and other payables 84 000 36 000

Total equity and liabilities 310 000 136 000

P Ltd elected to measure any non-controlling interest at fair value at the acquisition date. On
1 October 2018 the fair value of the non-controlling interest was R35 000 based on current
market prices.

Required:

1. Prepare the at acquisition pro forma journal entry of the P Ltd group.
2. Prepare the consolidated statement of financial position for the P Ltd group as at
1 October 2018.

Solution:

Step 1: We need to calculate the % of interest that the P Ltd has acquired on date of acquisition
in S Ltd. (They did not say the % that P Ltd acquired in S Ltd, but we can see how many
shares P Ltd have in S Ltd as per statement of financial position).

Thus: 60 000 shares / 80 000 shares x 100% = 75% Interest that P Ltd acquired.

Page 16 of 20
 Step 2: Calculate if there is a Goodwill or Gain from a bargain purchase (Use template as per
point 5).

Lecturer note:

Consideration transferred (Amount paid by P Ltd) 80 000 Investment amount as per SOFP
Non-controlling interest (NB!!! Fair value was given in question) 35 000 NCI amount (Given in question)

Less net fair value of identifiable assets acquired

and liabilities assumed:
Share capital 80 000
Retained earnings at acquisition 20 000
Other reserves at acquisition 0 (100 000) NB!!! Must be negative amount.

Goodwill (Amount is positive) 15 000 Will be shown under Non-current assets

Step 3 and 4: Prepare the at acquisition journal and Consolidated statement of financial position
as at 1 October 2018.

Journal:
DR CR Lecturer note:
R R
Share capital (S Ltd) 80 000 To eliminate common items.
Retained earnings (S Ltd) 20 000
Goodwill (S Ltd) 15 000 To recognise goodwill.
Investment in S Ltd (P Ltd) 80 000 To eliminate common items.
Non-controlling interest 35 000 To recognise non-controlling interest.
Elimintation of common items and recognition
of goodwil and non-controlling interest measured at fair
value at acquisition.

Page 17 of 20
P LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 1 OCTOBER 2018

2018 2018 2018

R R R
P Ltd
P Ltd S Ltd Group
ASSETS
Non-current assets
Property, plant and equipment 123 000 50 000 173 000 (Add P Ltd + S Ltd)
Investment in S Ltd: 60 000 shares at cost price 80 000 - - Elimination of investment
Goodwill 15 000 See calculation / Journal

Current assets
Trade and other receivables 107 000 86 000 193 000 (Add P Ltd + S Ltd)

Total assets 310 000 136 000 381 000

EQUITY AND LIABILITIES

Equity
Share capital 200 000 80 000 200 000 Show ONLY P Ltd
Retained earnings 26 000 20 000 26 000 Show ONLY P Ltd

Non-controlling interest 35 000 Given in question

Liabilities
Trade and other payables 84 000 36 000 120 000 (Add P Ltd + S Ltd)

Total equity and liabilities 310 000 136 000 381 000

(Example 5 and solution on next page)

Page 18 of 20
6.5 Example 5 and solution:

P Ltd acquired 65% of S Ltd for R350 000.

The statement of profit or loss and other comprehensive income for the year ended
31 December 2020 are provided to you.
2020 2020
R R

P Ltd S Ltd
Revenue 260 000 190 000
Cost of sales (180 000) (130 000)
Gross profit 80 000 60 000

Other income 20 000 5 000

Distribution expenses (15 000) (16 000)
Administration expenses (12 000) (8 000)
Operating expenses (4 000) -

Profit before interest and tax 69 000 41 000

Finance cost (5 000) (3 000)
Profit before tax 64 000 38 000
Income tax expense (14 000) (11 000)
Profit for the year 50 000 27 000

Required:

1. Prepare the consolidated statement of profit or loss for the P Ltd group for the year ended
31 December 2020.

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 Solution:

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2020

2020 2020 2020

R R R
P Ltd
P Ltd S Ltd Group
Revenue 260 000 190 000 450 000 (Add P Ltd + 100% of S Ltd)
Cost of sales (180 000) (130 000) (310 000) (Add P Ltd + 100% of S Ltd)
Gross profit 80 000 60 000 140 000 (Add P Ltd + 100% of S Ltd)
(Add P Ltd + 100% of S Ltd)
Other income 20 000 5 000 25 000 (Add P Ltd + 100% of S Ltd)
Distribution expenses (15 000) (16 000) (31 000) (Add P Ltd + 100% of S Ltd)
Administration expenses (12 000) (8 000) (20 000) (Add P Ltd + 100% of S Ltd)
Operating expenses (4 000) - (4 000) (Add P Ltd + 100% of S Ltd)
(Add P Ltd + 100% of S Ltd)
Profit before interest and tax 69 000 41 000 110 000 (Add P Ltd + 100% of S Ltd)
Finance cost (5 000) (3 000) (8 000) (Add P Ltd + 100% of S Ltd)
Profit before tax 64 000 38 000 102 000 (Add P Ltd + 100% of S Ltd)
Income tax expense (14 000) (11 000) (25 000) (Add P Ltd + 100% of S Ltd)
Profit for the year 50 000 27 000 77 000 (Add P Ltd + 100% of S Ltd)

NB!!! Lecturer note: Even though P Ltd acquired only 65% of S Ltd, you still add P Ltd and 100% of
S Ltd’s income and expenses.

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