CHAPTER 11

Consolidated statement of
financial position

Introduction
Examination context
Topic List
1 Context
2 Consolidated statement of financial position workings
3 Mid-year acquisitions
4 Intra-group balances
5 Unrealised intra-group profit
6 Fair value adjustments
7 Other consolidation adjustments
Summary and Self-test
Technical reference
Answers to Interactive questions
Answers to Self-test

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 Introduction

Learning objectives Tick

off
• Identify the financial effects of group accounting in the context of the IASB Conceptual
Framework
• Explain and demonstrate the concepts and principles surrounding the consolidation of
financial statements including:

– The single entity concept

– Substance over form
– The distinction between control and ownership
• Calculate the amounts to be included in an entity's consolidated statement of financial
position in respect of its new and continuing interests in subsidiaries in accordance with
the Bangladesh financial reporting framework
• Prepare and present a consolidated statement of financial position (or extracts
therefrom) including adjustments for intra-group transactions and balances, goodwill,
non-controlling interests and fair values

• Explain the application of IFRS to specified group scenarios

Specific syllabus references for this chapter are: 1d,1h, 3d,3e, 3f, 3g.

Syllabus links
This chapter looks in detail at the preparation of the consolidated statement of financial position and is
fundamental to the Financial Accounting and Reporting syllabus. It builds on the principles introduced in
Chapter 10 and applies them to more complex situations. A detailed knowledge and understanding of
this topic will also be assumed at the Advanced Stage.

Examination context
In a consolidated statement of financial position question the majority of marks are likely to be awarded
for the preparation of the statement of financial position or extracts therefrom including a number of
consolidation adjustments.
In the examination, candidates may be required to:
• Prepare a consolidated statement of financial position (or extracts therefrom) including the results
of the parent entity and one or more subsidiaries from individual financial statements or draft
consolidated financial statements and including adjustments for the following:
– Acquisition of a subsidiary, including mid-year acquisitions
– Goodwill
– Intra-group items
– Unrealised profits
– Fair values
– Other consolidation adjustments
• Explain the process of preparing a consolidated statement of financial position in the context of the
single entity concept, substance over form and the distinction between control and ownership
• Explain the two methods of measuring the non-controlling interest at acquisition and prepare
financial information by the two methods

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 1 Context

Section overview
This chapter considers the preparation of the consolidated statement of financial position in more detail.

1.1 Consolidated statement of financial position

This chapter builds on the basic principles of group accounts (dealt with in Chapter 10) by applying
them in more detail to the preparation of the consolidated statement of financial position. In particular it
covers the following issues:
• Standardised workings
• Intra-group balances
• Unrealised intra-group profit
• Fair value adjustments
All of the above relate to the application of the single entity concept and reflect the distinction between
control and ownership.

2 Consolidated statement of financial position workings

Section overview
A number of standard workings should be used when answering consolidation questions.

2.1 Question technique

As questions increase in complexity a formal pattern of workings is needed. Review the standard
workings below, then attempt Interactive question 1 which puts these into practice.
(1) Establish group structure
P Ltd

80%

S Ltd
(2) Set out net assets of S Ltd
At year end At acquisition Post acquisition
CU CU CU
Share capital X X X
Retained earnings X X X
X X X

(3) Calculate goodwill

CU
Consideration transferred X
Plus: Non-controlling interest at acquisition X
X
Less: Net assets at acquisition (see W2) (X)
X
Impairment to date (X)
Balance c/f X

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 The double entry to consolidate the subsidiary will be:
CU CU
DR Share of subsidiary’s net assets X
DR Goodwill X
CR Investment in subsidiary X
(4) Calculate non-controlling interest (NCI) at year end
CU
At acquisition((NCI% × net assets (W2) or fair value) X
Share of post-acquisition profits and other reserves (NCI% × post-acquisition (W2)) X
X
(5) Calculate retained earnings
CU
P Ltd (100%) X
S Ltd (share of post-acquisition retained earnings (see W2)) X
Goodwill impairment to date (see W3) (X)
Group retained earnings X
Point to note:
You should use the proportionate basis for measuring the NCI at the acquisition date unless a question
specifies the fair value basis.
Interactive question 1: Consolidated statement of financial position workings
[Difficulty level: Easy]
The following are the summarised statements of financial position of a group of companies as at
31 December 20X1.
Rik Ltd Viv Ltd Neil Ltd
CU CU CU
Non-current assets
Property, plant and equipment 100,000 40,000 10,000
Investments
Shares in Viv Ltd (75%) 25,000
Shares in Neil Ltd (2/3) 10,000
Current assets 45,000 40,000 25,000
180,000 80,000 35,000
Equity
Share capital (CU1 ordinary) 50,000 20,000 10,000
Retained earnings 100,000 40,000 15,000
Total equity 150,000 60,000 25,000
Liabilities 30,000 20,000 10,000
180,000 80,000 35,000
Rik Ltd acquired its shares in Viv Ltd and Neil Ltd during the year, when their retained earnings were
CU4,000 and CU1,000 respectively. At the end of 20X1 the goodwill impairment review revealed a loss
of CU3,000 in relation to the acquisition of Viv Ltd.

Requirement
Prepare the consolidated statement of financial position of Rik Ltd at 31 December 20X1.
Fill in the proforma below.

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Rik Ltd: Consolidated statement of financial position as at 31 December 20X1

CU
Non-current assets
Property, plant and equipment
Intangibles (W3)
Current assets

Equity attributable to owners of the parent

Share capital
Retained earnings (W5)
Non-controlling interest (W4)
Total equity
Liabilities

WORKINGS

(1) Group structure

Rik Ltd

75% 2/3

Viv Ltd Neil Ltd

(2) Net assets

Year end Acquisition Post-acquisition
CU CU CU
Viv Ltd
Share capital
Retained earnings

Year end Acquisition Post-acquisition

CU CU CU
Neil Ltd
Share capital
Retained earnings

(3) Goodwill
Viv Ltd Neil Ltd Total
CU CU CU
Consideration transferred
Plus: Non-controlling interest at acquisition
Less: Net assets at acquisition
Viv Ltd (W2)
Neil Ltd (W2)
Goodwill
Impairment to date
Balance c/f

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 (4) Non-controlling interest
CU
Viv Ltd – Share of net assets at acquisition (W2)
– Share of post-acquisition (W2)
Neil Ltd – Share of net assets at acquisition (W2)
– Share of post-acquisition (W2)
(5) Retained earnings
CU
Rik Ltd
Viv Ltd – Share of post-acquisition retained earnings (W2)
Neil Ltd – Share of post-acquisition retained earnings (W2)
Goodwill impairment to date (W3)

See Answer at the end of this chapter.

3 Mid-year acquisitions

Section overview
• If a subsidiary is acquired mid-year, net assets at acquisition will need to be calculated.
• Unless told otherwise assume profits of the subsidiary accrue evenly over time.

3.1 Calculation
A parent entity might not acquire a subsidiary at the start or end of a year. If the subsidiary is acquired
mid-year, it is necessary to calculate reserves, including retained earnings, at the date of acquisition.
This is necessary in order to:
• Calculate net assets at acquisition (which is required as part of the goodwill calculation)
• Calculate consolidated reserves, eg retained earnings
Point to note:
It is usually assumed that a subsidiary's profits accrue evenly over time.
Interactive question 2: Mid-year acquisition [Difficulty level: Easy]
P Ltd acquired 80% of S Ltd on 31 May 20X2 for CU20,000. S Ltd's retained earnings had stood at
CU15,000 on 1 January 20X2.
S Ltd's equity at 31 December 20X2 was as follows.
CU
Share capital 1,000
Retained earnings 15,600
Equity 16,600
Requirements
(a) Produce the standard working for S Ltd's net assets (W2).
(b) Produce the standard working for goodwill on consolidation (W3).
(c) Calculate S Ltd's retained earnings which will be included in the consolidated retained earnings.

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Answers to Interactive questions

Answer to Interactive question 1

Rik Ltd: Consolidated statement of financial position as at 31 December 20X1

CU
Non-current assets
Property, plant and equipment (100,000 + 40,000 + 10,000) 150,000
Intangibles (W3) 6,667
156,667
Current assets (45,000 + 40,000 + 25,000) 110,000
266,667
Equity attributable to owners of the parent
Called up share capital 50,000
Retained earnings (W5) 133,334
183,334
Non-controlling interest (W4) 23,333
Total equity 206,667
Liabilities (30,000 + 20,000 + 10,000) 60,000
266,667

WORKINGS

(1) Group structure

Rik Ltd

75% 2/3

Viv Ltd Neil Ltd

(2) Net assets
Post-
Year Acquisition acquisition
end
CU CU CU
Viv Ltd
Share capital 20,000 20,000 –
Retained earnings 40,000 4,000 36,000
60,000 24,000
Neil Ltd
Share capital 10,000 10,000 –
Retained earnings 15,000 1,000 14,000
25,000 11,000

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 (3) Goodwill
Viv Ltd Neil Ltd Total
CU CU CU
Consideration transferred 25,000 10,000
Non-controlling interest at acquisition
Viv Ltd (25% × 24,000 (W2)) 6,000
Neil Ltd (1/3 × 11,000 (W2)) 3,667
Net assets at acquisition (24,000) (11,000)
Goodwill 7,000 2,667 9,667
Impairment to date (3,000) – (3,000)
4,000 2,667 6,667
(4) Non-controlling interest
CU CU
Viv Ltd – Share of net assets at acquisition (25% × 24,000 (W2)) 6,000
– Share of post-acquisition (25% × 36,000 (W2)) 9,000
15,000
Neil Ltd – Share of net assets at year end (1/3 × 11,000 (W2)) 3,667
– Share of post-acquisition (1/3 × 14,000 (W2)) 4,666
8,333
23,333
(5) Retained earnings
CU
Rik Ltd 100,000
Viv Ltd – Share of post-acquisition retained earnings (75% × 36,000 (W2)) 27,000
Neil Ltd – Share of post-acquisition retained earnings (2/3 × 14,000 (W2)) 9,334
Goodwill impairment to date (W3) (3,000)
133,334
Answer to Interactive question 2
(a) Net assets (W2)
Post-
Year end Acquisition acquisition
CU CU CU
Share capital 1,000 1,000 –
Retained earnings (15,000 + (5/12 × (15,600 – 15,600 15,250 350
15,000)))
16,600 16,250
(b) Goodwill (W3)
CU
Consideration transferred 20,000
Plus: Non-controlling interest at acquisition (16,250 × 20% (W2)) 3,250
Less: Net assets at acquisition (W2) (16,250)
7,000

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(c) Profit from S Ltd included in consolidated retained earnings
CU
Share of post-acquisition retained earnings of S Ltd (80% × 350 (W2)) 280
Answer to Interactive question 3
CU CU
DR Seller's (S Ltd's) retained earnings (adjust in net assets working) 3,000
CR Inventories in CSFP (1/2 × 6,000) 3,000
WORKINGS
(1) Group structure
P Ltd
80%

S Ltd

(2) S Ltd net assets

Year end Acquisition Post-
acquisition
CU CU CU CU
Share capital 10,000 10,000
Retained earnings
Per question 65,000
Less: PURP (3,000)
62,000 20,000 42,000
72,000 30,000
(3) Non-controlling interest CU
Share of net assets at acquisition (20% × 30,000) 6,000
Share of post-acquisition (W2) (20% × 42,000) 8,400
14,400
(4) Retained earnings CU
P Ltd 100,000
Share of S Ltd (80% × 42,000 (W2)) 33,600
133,600

Answer to Interactive question 4

Following the transfer the asset will be measured at
CU
Cost to S Ltd 15,000
Less: Depreciation – (15,000/3 remaining years (8,000 is 2/5 of cost)) (5,000)
10,000
Had the transfer not been made, the asset would stand in the books at
CU
Cost 20,000
Less: Accumulated depreciation at date of 'transfer' (8,000)
Charge for current year (CU20,000/5) (4,000)
8,000
Overall adjustment in CSFP
CU CU
DR Seller's (P Ltd's) retained earnings 2,000
CR Non-current assets 2,000

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