# Consolidated Statement of Financial position

We have to combine elements of the statement of financial position of parent, subsidiary and associate in order to make a single statement that gives a view of the entire group. Below you will find rules for preparing the Consolidated Statement of Financial Position. We have presented rules of consolidation in such a sequence which will be helpful to you in answering exam question.

Steps for preparing Consolidated SOFP
 Step 1: Draw the layout of the consolidated statement of financial position. You should

keep space of two pages for your statement of financial position before you start your workings. Your layout should be as follows:
Name of parent company

Parent’s Group Consolidated Statement of Financial Position as at DD/MM/YYYY Details \$

\$

 Step 2: Start doing workings. Leave two pages for the statement before workings. Layout of working is shown later. From steps 3 to 8 are the workings.  Step 3: Do Working 1: Determine the group structure by calculating parent control percentage over subsidiary and associate. Example P acquires 8000000 \$1 shares of S and 3000000 \$1 shares of A. S and A both have a share capital of \$10,000,000. Draw the group structure?
Answer: Calculation, % of Subsidiary = 8/10 x 100 = 80% % of Associate = 3/10 x 100 = 30% 80% S P 30% A

Additionally Pink exchanged 2 shares for every 4 shares acquired in Sink when the market price of Pink share is \$3/share. There are many forms of consideration a parent can make.000 2. Current interest rates are 10% pa.944 This calculation is shown in the working section of your answer.000 x 1/(1+0.273. http://facebook.944 1. They are:  Cash consideration  Deferred consideration  Contingent consideration  Share for share Exchange It is always possible that more than one form of consideration has been made by the parent and in that case we have to add all the consideration together.com/acca. Total consideration in subsidiary is calculated as it is required in the calculation of goodwill of the subsidiary. Calculate the total consideration made by parent at reporting date? Answer: Investment in Sink: \$ Cash consideration (\$1 x 8000) Share exchange (8000/4 x 2 x \$3) Deferred consideration [\$3. See the example below. Example Pink ltd acquired 8000 shares out of 10000 share capital of Sink ltd.000. The terms of the business combination further provide for the payment of an additional \$2 million after 2 years if the performance of Sink reaches a specified level in the two years period.crazy .253. Step 4: Do Working 2: Calculate total consideration (investment) made by the parent in order to purchase subsidiary’s shares. The directors of Pink estimated that the fair value of the contingent consideration at current reporting date is \$1 million.000 3. It was also agreed that Pink would pay a further \$2m in three years time. Pink paid initial cash consideration of \$1 for every share acquired.000.000 12.1)³] Contingent consideration Investment in Sink 8.

It is calculated by following method: Cost of investment in Associate: \$ Cost of investment* XXX (+) Parent’s share of post acquisition profit XXX (-) Impairment of investment in associate XXX (-) PUP** (If parent is the seller) XXX Carrying value of investment in associate XXX *Cost of investment can be found in parent’s statement of financial position under noncurrent asset will be told directly in the question. carrying the value of “investment in associate” is also to be calculated. additional/reduced depreciation for fair value.com/acca. Investment in associate is shown under the non -current asset heading in the consolidated statement of financial position. etc.  Step 6: Do Working 4: Perform calculations for intra-group and fair value adjustments. Step 5: Do Working 3: If there is an associate. Make sub-headings by giving name of your calculation for example. URP (unrealized profit) for intra-group transaction. http://facebook.crazy . **PUP is the short form of “Provision for unrealized profit”.

crazy . Detail explanation is mentioned later.com/acca.  Step 8: Do Working 6: Calculate Goodwill. This figure will be needed for calculating group retained earning and NCI at reporting date. Step 7: Do Working 5: Calculate subsidiary’s net asset value for both the acquisition date and reporting date. (A-B) is the post acquisition profit of subsidiary i.e. **Difference between the value of subsidiary’s net asset i. C. Goodwill Calculation Details Cost of Investment (W2) (+) NCI value @ acquisition* (No.e. It can be calculated as shown below: Details Share Capital Reserves: Share Premium Revaluation Reserve Retained Earning General Reserve Fair value adjustment*: Additional/(Excess) value of Non-Current assets (W4) Revaluation Excess/Reduced Depreciation (W4) PUP in goods or non-current asset (if Subsidiary is seller) (W4) Net Asset Post acquisition profit** (A-B) Subsidiary’s Net Asset Acquisition date X X X X X X/(X) Reporting date X X X X X/(X) X/(X) X/(X) (X) A C B *Fair value adjustments are made depending on the situation mentioned in the question. of shares x market price per share) or (NCI % x fair value of S’s net asset) (-) Fair value of Sub’s net asset @ acquisition Goodwill @ acquisition (-) Impairment of goodwill Carrying value of goodwill Reporting Date (\$) XX X (X) X (X) XX http://facebook. Follow the proforma below for calculating value of goodwill that needs to be recognized at the reporting date.

 Step 10: Do Working 8: Calculate Group retained earnings at the reporting date by following the proforma below: Group Retained Earnings Details Parent’s full retained earning Less: Unrealized Profit(URP) for intra-group sale of goods (if sold by Parent to Subsidiary) Less: Unrealized Profit(URP) for intra-group sale of Non-current asset (if sold by parent to subsidiary Less: Parent’s % of URP due to transaction between parent and associate (for both sale of goods and non-current asset. Step 9: Do Working 7: Calculate NCI value at the reporting date by following the proforma below: \$ NCI value at acquisition X NCI % of post-acquisition profit* X NCI % of goodwill impairment (for fair value method only) X NCI value at reporting date XX *Post-acquisition profit is calculated in the net asset calculation table which is shown later. asset impairment etc. Give each working a sequential number so that a reference can be made in the actual statement. http://facebook.crazy . between parent & associate.com/acca. construction contracts. tax and deferred tax. students may need to perform other workings for Lease. financial assets and liabilities. whoever the seller is) Less: Parent % of goodwill impairment Less: Parent % of impairment of investment in associate Less: Unwinding discount on deferred consideration Less: Loss on Parent’s other investment for fair value valuation Add: Gain on Parent’s other investment for fair value valuation Add: Parent’s % of Subsidiary’s post acquisition profit (calculated in net asset calculation Add: Parent’s % of Associate’s post acquisition profit Group retained earning @ reporting date NCI value at reporting date Details \$ X (X) (X) (X) (X) (X) (X) (X) X X X XX  Step 11: Besides the workings of consolidation.

It is shown separately from other investment. Current Assets: For each current asset. total amortization from the date of acquisition till reporting date). Subsidiary’s investments are also adjusted for any gain or loss arising due to fair value recognition. Step 12: Go back to the consolidated statement of financial position layout which you have drawn as per step 1. . It may comprise 3 areas of investment made by parent. investment figure is shown. Non-current Assets: For each tangible non-current asset. . Also add or deduct any adjusting amount that relates to intra-group sale of non-current asset and non current asset fair value issues. Entire separate workings can be shown for other investment.com/acca.Investment in Subsidiary needs to be eliminated thus not included in consolidation. investment in associate and other investment.  Goodwill: We have calculated the value of goodwill at reporting date in our working 6. See earlier in this chapter for details. Any intangible asset of subsidiary shall also be shown in the consolidated statement of financial position at their fair value less accumulated amortization (i. add both parent’s and subsidiary’s amount together and deduct any intra-group transaction adjustments. then make reference of your working. You might have done some workings in W4 regarding these adjustment.Other investment of parent is adjusted for any gain or loss arising by recognizing them at their fair value and then added with subsidiary’s all of the investments. they are investment in subsidiary.  Investment: In the parent’s statement of financial position. goodwill is shown by making a reference to your working. If you have done any workings with these regards. http://facebook. Making reference to your workings makes easier for the examiner to check your performance. Some time separate figures are shown for each investment which makes our task easier. II. therefore don’t forget to refer it to your workings by just writing “W4”.Investment in Associate calculation is already done in working 3.crazy . . add both parent’s and subsidiary’s carrying value which is shown in their respective statement.  Intangible Assets: All the intangible asset of parent shall be shown in the statement at their carrying value. Now we shall start writing our statement of financial position in the following manner: I. Since Goodwill is a non-current asset therefore under non-current asset heading.e.

NCI value is shown in the statement. V. http://facebook. If you have done any workings with these regards.crazy .com/acca. Current liability: For each current liability add both parent’s and subsidiary’s amount together and add/deduct any intra-group transaction adjustments. Equity: Under the equity section of consolidated statement of financial position.  Differed Consideration: Total liability for deferred consideration is shown under non-current liability. You may show separate workings for your calculation of deferred consideration and refer to your workings. share premium and other reserves of parent are shown. both parent’s and subsidiary’s non-current liabilities are added together and shown. then make reference of your working. After group retained earning.  NCI: We have already calculated NCI value at reporting date in working 7. IV. Non-current Liability: For each non-current liability.III.  Group retained earning: Group retained earning is calculated in working 8. Subsidiary’s share capital. share premium and other reserves are not included in consolidated statement of financial position. This group retained earning is shown under equity section after share and share premium. only parent’s share capital.