Group Accounts - Subsidiaries (CSPLOCI) : Chapter Learning Objectives

Chapter
12
Group accounts –
Subsidiaries (CSPLOCI)
Chapter learning objectives
Lead outcome Component outcome

B2: Explain relevant (a) Explain the financial
financial reporting reporting standards for
standards for group the key areas of group
accounts accounts.
C1: Prepare group accounts Prepare the following based
based on IFRS on financial reporting
standards:
(b) Consolidated statement
of profit or loss and other
comprehensive income
309
Group accounts – Subsidiaries (CSPLOCI)
1 Session content
2 Consolidated statement of profit or loss and other

The principles of consolidation as per IFRS 10 Consolidated financial
statements are continued within the statement of profit or loss and other
comprehensive income (CSPLOCI).
A statement of profit or loss and other comprehensive income reflects the
income and expenses generated by the net assets shown on the statement of
financial position. It incorporates two separate statements: the statement of
profit or loss and the statement of other comprehensive income.
Since the group controls the net assets of the subsidiary, the income and
expenses of the subsidiary should be fully included in the consolidated
statement of comprehensive income i.e. add across 100% of the parent plus
100% of the subsidiary.
310
Chapter 12
Pro forma for the CSPLOCI

Consolidated statement of profit or loss and other comprehensive income
for the year ended.....
$
Revenue (100% P + 100% S) X
Cost of sales (100% P + 100% S) (X)
–––
Gross profit X
–––
Operating expenses (100% P + 100% S) (X)
–––
Profit from operations X
Investment income (100% P + 100% S) X
–––
Profit before tax X
Income tax expense (100% P + 100% S) (X)
–––
Profit for the year X
–––
Other comprehensive income (100% P + 100% S) X
–––
Total comprehensive income X
–––
Profit attributable to:
Parent shareholders (balancing figure) X
Non-controlling interests (W) X
–––
X
–––
Total comprehensive income attributable to:
Parent shareholders (balancing figure) X
Non-controlling interests (W) X
–––
X
–––
311
Consolidation adjustments and the consolidated statement of profit or

loss and other comprehensive income (CSOPLOCI)
Mid-year acquisitions
If the subsidiary was acquired mid-year then only the post-acquisition results
should be consolidated. Unless told otherwise, it is normal to assume that
results accrue evenly over the period and therefore the results of the subsidiary
should be time apportioned so that only the post-acquisition results are
consolidated.
Intra-group investment income

Dividends paid by the subsidiary to the parent should be eliminated upon
consolidation from the parent's investment income.
Non-controlling interests
According to IFRS 10 Consolidated financial statements, the profit for the year
and the total comprehensive income for the year are analysed between the
amounts attributable to the owners of the parent and the amounts attributable to
the non-controlling interest. This analysis is presented at the bottom of the
consolidated statement of profit or loss and it is common for the NCI figures to
be calculated (working shown below) with the amounts attributable to the
owners of the parent then being computed as a balancing figure.
Goodwill impairment
If the fair value method has been used to value the non-controlling interests at
acquisition, the NCI share of profit will be adjusted to reflect their share of any
goodwill impairment loss.
Where the proportionate share of net assets method is used, all of the goodwill
impairment is allocated to the parent (as previously discussed) and therefore no
adjustment is made to the NCI figure.
312
Chapter 12
Standard consolidation workings
Non-controlling interest share of profit/TCI

The share of profit and total comprehensive income that belongs to the NCI is to
be calculated as follows:
$ $
Sub's profit for the year per S's SOPLOCI
(time apportioned if mid-year acquisition –
see Ch 12 section 8) X
FV depreciation adjustment (See Ch 12
section 10) (X)
PUP – if S is seller (See Ch 12 section 9) (X)
Impairment expense (fair value method
only (See CH 12 session 6) (X)
––––
Adjusted profit X
NCI share of profits × NCI% X
Sub's other comprehensive income per S's
SOPLOCI (time apportioned if mid-year
acquisition) X
––––
Adjusted TCI X
NCI share of total comprehensive
income × NCI% X
There are various adjustments that may have to be made to the subsidiary's
profit when calculating the NCI's share.
313
Illustration 1
On 1 July 20X9 Zebedee acquired 75% of the equity shares of Xavier.
The following statements of profit or loss and other comprehensive
income have been produced by Zebedee and Xavier for the year ended
31 December 20X9.
Zebedee Xavier
$000 $000
Revenue 1,260 520
Cost of sales (420) (210)
––––– –––––
Gross profit 840 310
Operating expenses (300) (150)
––––– –––––
Profit from operations 540 160
Investment income 36 –
––––– –––––
Profit before tax 576 160
Income tax expense (130) (26)
––––– –––––
Profit for the year 446 134
Other comprehensive income 100 50
––––– –––––
Total comprehensive income 546 184
––––– –––––
1 At 31 December 20X9, goodwill arising on consolidation was
reviewed for impairment. An impairment loss of $15,000 had
arisen which should be charged to operating expenses. It is group
policy to measure NCI at fair value at the date of acquisition.
2 Zavier paid a dividend of $32,000 on 30 November 20X9.
Required:
Prepare the consolidated statement of profit or loss and other
comprehensive income for the Zebedee group for the year ended
31 December 20X9.
314
Chapter 12
Illustration 1 answer
Look out for mid-year acquisitions as the results of the subsidiary may
need to be time apportioned. In this scenario, only 6 months of the
subsidiary's results should be consolidated as the subsidiary was
acquired half way through the year.
Zebedee
Consolidated statement of profit or loss and other comprehensive
income for the year ended 31 December 20X9
$000
Revenue (1,260 + (520 × 6/12)) 1,520
Cost of sales (420 + (210 × 6/12)) (525)
–––––
Gross profit 995
Operating expenses (300 + (150 × 6/12) + 15 impairment) (390)
–––––
Profit from operations 605
Investment income (36 – 24 (W1)) 12
–––––
Profit before tax 617
Income tax expense (130 + (26 × 6/12)) (143)
–––––
Profit for the year 474
Other comprehensive income (100 + (50 × 6/12)) 125
–––––
Total comprehensive income 599
–––––
Parent shareholders (balancing figure) 461
Non-controlling interests (W2) 13
–––––
474
–––––
Parent shareholders (balancing figure) 580
–––––
599
–––––
315
Workings
(W1) Intra-group dividend/investment income
Sub paid $32,000
Parent received (75% × 32,000) $24,000
Always look out for intra-group dividends in CSOPLOCI questions.
Any dividend paid by the subsidiary will have partly been received
by the parent (depending on their percentage holding) and this
needs to be eliminated from investment income upon
consolidation.
(W2) NCI share of profit and total comprehensive income
$000 $000
Sub's profit (134 × 6/12) 67
Impairment expense (15)
–––
52
NCI share of profits × 25% 13
Sub's OCI (50 × 6/12) 25
–––
77
NCI share of total comprehensive income × 25% 19
For each consolidation adjustment, consider whether it affects the
non-controlling interest. Here, there is goodwill impairment and, as
the NCI is measured at fair value, the NCI's portion of the
impairment charge should be allocated against the NCI profit.
By deducting the impairment expense from the subsidiary's profit
prior applying the NCI%, the NCI's share of the impairment charge
is allocated to the NCI figure.
316
Chapter 12
Test your understanding 1

Given below are the statements of profit or loss and other
comprehensive income for Paris and its subsidiary London for the year
ended 31 December 20X5.
Paris London
$000 $000
Revenue 3,200 2,560
Cost of sales (1,200) (1,080)
–––––– ––––––
Gross profit 2,000 1,480
Operating expenses (560) (400)
–––––– ––––––
Profit from operations 1,440 1,080
–––––– ––––––
Profit before tax 1,600 1,080
–––––– ––––––
Profit for the year 1,200 600
Other comprehensive income 300 100
–––––– ––––––
Total comprehensive income 1,500 700
–––––– ––––––
Paris acquired 80% of London’s equity shares on 1 October 20X5.
1 Goodwill was calculated valuing the NCI at fair value at the date of
acquisition. At 31 December 20X5, it was determined that goodwill
arising on the acquisition had been impaired by $30,000.
Impairments are charged to operating expenses.
2 London paid a dividend of $150,000 on 15 December 20X5.
Required:
Prepare a consolidated statement of profit or loss and other
comprehensive income for the year ended 31 December 20X5.
317
3 Intra-group balances
Intra-group balances and transactions must be eliminated in full, as the group is
treated as a single entity and, therefore, cannot trade with or owe money to
itself.
• Intra-group transactions are eliminated from the consolidated statement of
profit or loss and other comprehensive income
• Any profit still held within the group's assets from intra-group trading
should also be eliminated (the provision for unrealised profit (PUP)
adjustment).
Provision for unrealised profit (PUP) in inventory

P and S may sell goods to each other, resulting in a profit being
recorded in the selling entity's financial statements. If these goods are
still held by the purchasing entity at the year-end, the goods have not
been sold outside of the group. The profit is therefore unrealised from
the group's perspective and should be removed.
The adjustment is also required to ensure that inventory is stated at the
cost to the group i.e. the cost when the goods were first acquired by the
group, not the cost to the purchasing entity after the intra-group
transfer.
PUP adjustment = profit on inventory still held in group at year end
In the consolidated statement of profit or loss:
• Add to cost of sales (to reflect reduction in closing inventory and
profit)
• If S is the seller, adjust the NCI to reflect their share of the PUP
adjustment.
NB. The total intragroup revenue and cost of sales will also be removed
from the consolidated SPL as a separate adjustment to the PUP.
The 'PUP' adjustment
Parent sells to subsidiary
P sells goods to S for $400 at cost plus 25%. All goods remain in the
inventory of S at the end of the year.
25
Profit made on the sale × 400 = 80.
125
PUP adjustment in Consol SOPLOCI
The PUP adjustment of 80 is always added to cost of sales, regardless
of which entity made the profit.
318
Chapter 12
When calculating the split of profit between owners of the parent and
NCI, the NCI share of profit would be adjusted for the PUP adjustment
if the subsidiary was the seller only.
Cost structures
The cost structure of the intra-group sale may be given to you in one of
two ways.
Mark up on cost (Cost plus)

If, for example, goods are sold for $440 and there is a 25% mark up on
cost, you need to calculate the profit included within the $440.
% $
Revenue 125 440
Cost of sales 100
–––– ––––
Gross profit 25 88 = 440 × 25/125
–––– ––––
The PUP is $88.
Gross profit margin

The gross profit margin gives the profit as a percentage of revenue.
Using the same figures as above but with a gross profit margin of 25%.
% $
Revenue 100 440
Cost of sales 75
–––– ––––
Gross profit 25 110 = 440 × 25/100
–––– ––––
The PUP is $110.
319

Below are the statements of profit or loss for Rome and its subsidiary
Madrid for the year ended 30 June 20X9.
Rome Madrid
$000 $000
Revenue 10,350 8,400
Cost of sales (6,200) (5,150)
–––––– ––––––
Operating expenses (2,450) (1,600)
–––––– ––––––
–––––– ––––––
Profit for the year 1,150 1,200
–––––– ––––––
1 Rome acquired 60% of Madrid’s equity shares on 1 July 20X7
paying $6 million. At this date, the value of Madrid’s net assets
was $5 million. It is Rome’s group policy to value NCIs at
acquisition using the proportionate share of net assets method. As
at 30 June 20X9, it was determined that goodwill on acquisition
had been impaired by 20%. No impairment loss had arisen
previously.
2 During the year ended 30 June 20X9, Rome sold $1 million of
goods to Madrid at a margin of 30%. Half of these goods
remained in the inventory of Madrid at the reporting date.
Required:
(a) Prepare a consolidated statement of profit or loss for the Rome
Group for the year ended 30 June 20X9.
(b) Assume now that Madrid had sold the goods to Rome instead
(all other details remain the same). Prepare the analysis of profit
attributable to parent shareholders and NCI for the year ended
30 June 20X9 in this situation.
320
Chapter 12
Provision for unrealised profit (PUP) in Non-current assets

P and S may sell non-current assets to each other, resulting in a profit
being recorded in the selling entity's financial statements. If these non-
current assets are still held by the purchasing entity at the year-end, the
profit is unrealised from the group’s perspective and should be
removed.
The profit on disposal should be removed from the seller’s books (net
assets working (at reporting date) if the sub is the seller, consolidated
reserves working if the parent is the seller).
In addition to the profit, there is depreciation to consider.
Prior to the transfer, the asset is depreciated based on the original cost.
After the transfer depreciation is calculated on the transfer price, i.e. a
higher value. Therefore depreciation is higher after the transfer and this
extra cost must be eliminated in the consolidated financial statements,
i.e. profits need to be increased.
The extra depreciation that has been charged should be removed from
the purchaser’s books.
Adjustment required – CSCI:
• Deduct profit on disposal
• Add back excess depreciation charged (therefore reduce related
expense category)
• In NCI share of profit working:
– If P is seller, add back excess depreciation charged by S
– If S is seller, deduct profit on disposal made by S.
321
Illustration 2
P acquired 80% of the share capital of S some years ago. P’s reporting
date is 31 August. P transfers an asset on 1 March 20X7 for $75,000
when its carrying amount is $60,000. The remaining useful life at the
date of sale is 2.5 years. The group depreciation policy is straight line
on a monthly basis.
Required:
What adjustment is required in the consolidated financial statements of
P for the year ended 31 August 20X8?
Solution
Profit recorded on the sale: $75,000 – $60,000 = $15,000
Extra depreciation: ($75,000 – $60,000) × 1.5/2.5 = $9,000
In the CSOPLOCI, the NCI calculation should include an adjustment to
add back the excess depreciation of $9,000 charged by the subsidiary
since the date of transfer.
Using the same example as above, but if S had sold the asset to P, in
the CSOPLOCI, the NCI calculation would include an adjustment to
reduce the subsidiary's profit by $15,000 to eliminate the profit on
disposal of the intra-group transfer.
4 Fair value adjustments and the CSPLOCI
Impact on post-acquisition depreciation

Fair value adjustments often involve adjustments to non-current asset values
which, consequently, involve an adjustment to depreciation.
Depreciation in the group accounts must be based on the carrying amount of
the related non-current asset in the group accounts. Therefore, if the non--
current asset values are adjusted at acquisition then a depreciation adjustment
must be made in the post-acquisition period.
To record depreciation adjustments in the CSOPLOCI:
• An adjustment should be made to reflect the impact of the fair value
adjustment on the current year's depreciation charge.
• As this depreciation charge relates to the subsidiary's assets, the
adjustment should be reflected in the calculation of profit attributable to the
NCI.
322
Chapter 12
Illustration 3
King purchased 80% of Lear’s equity shares on 1 January 20X5 for

$1.9m when Lear’s retained earnings were $100,000.
It is group policy to measure the non-controlling interests at fair value
at acquisition and the fair value of the non-controlling interests in Lear
on 1 January 20X5 was $400,000. At this date Lear’s non-current
assets had a fair value of $1m and the assets had a remaining useful
economic life of 5 years. Their carrying amount at the date of
acquisition was $850,000.
As at 31 December 20X7, an impairment loss of $50,000 has arisen on
goodwill.
Required:
Explain the impact that the fair value adjustment would have on the
consolidated statement of comprehensive income for the year ended
31 December 20X7.
Illustration 3 answer
Impact in consolidated statement of profit or loss and other

The fair value adjustment of $150,000 results in an additional
depreciation charge of $30,000 ($150,000/5) each year in the
consolidated financial statements.
This adjustment should be added to the relevant expense category
and would also be deducted from the subsidiary's profit when
calculating the profit attributable to the NCI.
323
Test your understanding 3 (integration question)

P acquired 75% of the equity shares of S on 1 December 20X8. Below
are their statements of profit or loss and other comprehensive income
for the year ended 31 March 20X9:
P S
$ $
Revenue 300,000 216,000
Cost of sales and operating expenses (215,000) (153,000)
––––––– –––––––
Finance costs (16,000) (9,000)
––––––– –––––––
Taxation (21,600) (16,200)
––––––– –––––––
Other comprehensive income 25,000 3,000
––––––– –––––––
Total comprehensive income 72,400 40,800
––––––– –––––––
1 In the post-acquisition period P sold $50,000 of goods to S at a
margin of 20%. S held $10,000 of these goods in inventory at the
year end.
2 A fair value adjustment of $150,000 was recorded at acquisition to
increase the value of S’s property, plant & equipment. These
assets have a remaining useful economic life of 5 years at
acquisition. Depreciation is charged to operating costs.
3 Goodwill was reviewed for impairment at the year end. It was
determined that an impairment loss of $3,000 had arisen which is
to be charged to operating expenses. It is group policy to measure
NCI at the proportionate share of net assets at acquisition.
Required:
comprehensive income for the year ended 31 March 20X9.
324
Chapter 12
Test your understanding 4 integration question

The following information relates to the next 4 questions
On 1 July 20X4, Tudor purchased 80% of the shares in Windsor. The
summarised draft statement of profit or loss and other comprehensive
income for each company for the year ended 31 March 20X5 was as
follows:
Tudor Windsor
$000 $000
Revenue 60,000 24,000
Cost of sales (42,000) (20,000)
–––––– ––––––
Operating expenses (6,000) (200)
–––––– ––––––
Finance costs – (200)
–––––– ––––––
Taxation (3,000) (600)
–––––– ––––––
Other comprehensive income 1,500 500
–––––– ––––––
Total comprehensive income 10,575 3,500
–––––– ––––––
1 The fair values of Windsor’s assets at the date of acquisition were
mostly equal to their carrying amounts with the exception of plant,
which was stated in the books at $2 million but had a fair value of
$5.2 million. The remaining useful life of the plant in question was
four years at the date of acquisition. Depreciation is charged to
cost of sales and is time apportioned on a monthly basis.
2 In the post-acquisition period Tudor sold Windsor some goods for
$12 million with a margin of 25%. By the year end Windsor had
sold $10 million of these goods (at cost to Windsor) to third
parties.
3 Tudor invested $1 million in Windsor’s 10% loan notes on 1 July
20X4.
4 At 31 March 20X5, it was determined that an impairment loss of
$100,000 had arisen in respect of goodwill. It is group policy to
measure NCI at fair value at acquisition. Impairment losses should
be charged to operating expenses.
Required:
comprehensive income for the Tudor Group for the year ended 31
March 20X5.
325
Test your understanding 5 (further OTQs)

1 P acquired 80% of the equity shares of S two years ago. At the
date of acquisition, the fair value of S's net assets was the same
as the carrying amount with the exception of property, plant and
equipment, whose fair value was higher. Property, plant and
equipment had an estimated useful life of 5 years from the date of
acquisition.
P purchased goods from S during the year and 50% of the items
remain in P's inventories at the year end. S earns a 20% mark-up
on all sales.
Goodwill impairment arose in the current year. It is group policy to
measure NCI at the proportionate share of net assets.
S paid a dividend of $200,000 two months before the year end.
Which of the following adjustments would be taken into
account when calculating the profit attributable to the non-
controlling interest in the consolidated statement of profit or
loss of the P group for the year ended 31 August 20X6?
Select all that apply.
A Provision for unrealised profit
B Depreciation arising from the fair value adjustment
C Goodwill impairment
D Elimination of intra-group dividends received
Data for Questions (2) to (4)

Hard acquired 75% of the ordinary share capital of Work on 1 April 20X8.
The summarised statement of profit or loss for the year-ended 31 March
20X9 is as follows:
Hard Work
$m $m
Revenue 120 48
Cost of sales (84) (40)
–– ––
Gross profit 36 8
Distribution costs (5) (0.1)
Administration expenses (7) (0.3)
–– –––
Profit from operations 24 7.6
Investment income 0.15 –
Finance costs – (0.4)
––– –––
Profit before tax 24.15 7.2
Tax (6) (1.2)
––– –––
Profit for the year 18.15 6
326
Chapter 12
During the year, Work sold goods too Hard for $24m, which had originally
cost $18m. By the year-end, Hard had sold $20m (at cost to Hard) of
these goods to third parties.
Goodwill impairment of $600,000 needs to be recorded for the current
year and treated as an administration expense.
NCI is calculated using the fair value method.
2 The PUP adjustment for the year-ended 31 March 20X9 is:

A $1m
B $2m
C $5m
D $6m
3 What is the amount of profit attributable to the NCI for the year-
ended 31 March 20X9?
A $1.1m
B $1.5m
C $1.25m
D $1.35m
4 What is the total amount for revenue and cost of sales to be

shown in the consolidated statement of profit or loss for the
year-ended 31 March 20X9?
Revenue Cost of sales
A $144m $100m
B $168m $124m
C $192m $148m
D $144m $101m
327
5 Chapter summary
328
Chapter 12
Test your understanding answers

income
$000
Revenue (3,200 + (2,560 × 3/12)) 3,840
Cost of sales (1,200 + (1,080 × 3/12)) (1,470)
––––––
Gross profit 2,370
Operating expenses (560 + (400 × 3/12) + 30 imp) (690)
––––––
Profit from operations 1,680
Investment income (160 – 120 (W1)) 40
––––––
Profit before tax 1,720
Income tax expense (400 + (480 × 3/12)) (520)
––––––
Profit for the year 1,200
Other comprehensive income (300 + (100 × 3/12)) 325
––––––
Total comprehensive income 1,525
––––––
Parent shareholders (balancing figure) 1,176
––––––
1,200
––––––
––––––
1,525
––––––
Workings
(W1) Intercompany dividend
Sub paid $150,000
Parent received (80% × $150,000) = $120,000
329

$000 $000
Sub's profit (600 × 3/12) 150
Impairment expense (30)
––––
120
NCI share of profit × 20% 24
Sub's OCI (100 × 3/12) 25
––––
145
NCI share of TCI × 20% 29

(a) Consolidated statement of profit or loss
$000
Revenue (10,350 + 8,400 – 1,000 (W2)) 17,750
Cost of sales (6,200 + 5,150 – 1,000 (W2) + 150 (W2)) (10,500)
––––––
Gross profit 7,250
Operating expenses (2,450 + 1,600 + 600 (W1)) (4,650)
––––––
Income tax expense (550 + 450) (1,000)
––––––
––––––
Non-controlling interests (1,200 × 40%) 480
––––––
1,600
––––––
NB. Impairment is not deducted in the NCI working as the NCI has
been valued using the proportionate method. The PUP adjustment
is also not deducted, as the parent made the profit.
Workings
(W1) Goodwill and impairment
$000
Fair value of P's investment 6,000
NCI at proportionate share of net assets (40% × 2,000
5,000)
Fair value of sub's net assets at acquisition (5,000)
–––––
Goodwill at acquisition 3,000
–––––
Impairment (20% × 3,000) 600
–––––
330
Chapter 12
(W2) Intercompany sales and PUP

Intercompany sales of $1,000,000 to be eliminated by
reducing both revenue and cost of sales
PUP adjustment to increase cost of sales:
Goods in inventory = 1/2 × $1,000,000 = $500,000
Profit in inventory = 30% × $500,000 = $150,000
(b) Analysis of profit attributable to parent shareholders and NCI
Non-controlling interests ((1,200 – 150) × 40%) 420
––––––
1,600
––––––
As the subsidiary made the unrealised profit, the PUP adjustment
is deducted from the subsidiary's profit prior to applying the NCI%.

income for the year ended 31 March 20X9
$
Revenue (300,000 + (4/12 × 216,000) – 50,000 (W2)) 322,000
Cost of sales and operating expenses (215,000 + (4/12
× 153,000) – 50,000 (W2) + 2,000 (W2) + 10,000 (W3) +
3,000 imp) (231,000)
–––––––
Finance costs (16,000 + (4/12 × 9,000)) (19,000)
–––––––
Taxation (21,600 + (4/12 × 16,200)) (27,000)
–––––––
Other comprehensive income (25,000 + (4/12 × 3,000)) 26,000
–––––––
–––––––
–––––––
45,000
–––––––
331

–––––––
71,000
–––––––
Workings
(W1) Group structure
P
75% 1 December 20X8

i.e. 4 months since acquisition
S
Intercompany sales of $50,000 to be eliminated by reducing both
revenue and cost of sales
Profit in inventory = 20% × $10,000 = $2,000
(W3) Depreciation adjustment
Fair value adjustment = $150,000
Depreciation adjustment = 1/5 × 4/12 × $150,000 = $10,000
$ $
Sub's profit for the year per S’s SCI (4/12 × 37,800)
12,600
Depreciation adjustment (W3) (10,000)
––––––
2,600
Sub's other comprehensive income per S's SCI
(4/12 × 3,000) 1,000
––––––
3,600
332
Chapter 12

income for the year ended 31 March 20X5
$000
Revenue (60,000 + (9/12 × 24,000) – 12,000 (W2)) 66,000
Cost of sales (42,000 + (9/12 × 20,000) – 12,000 (W2) +
500 (W2) + 600 (W3)) (46,100)
–––––––
Gross profit 19,900
Operating expenses (6,000 + (9/12 × 200) + 100 imp) (6,250)
–––––––
Investment income (75 – 75 (W4)) –
Finance costs ((9/12 × 200) – 75 (W4)) (75)
–––––––
Taxation (3,000 + (9/12 × 600)) (3,450)
–––––––
Other comprehensive income (1,500 + (9/12 × 500)) 1,875
–––––––
–––––––
–––––––
10,125
–––––––
–––––––
12,000
–––––––
333
Workings
(W1) Group structure
Tudor
80% 1 July 20X4 i.e. 9 months

since acquisition
Windsor
Intercompany sales of $12,000,000 to be eliminated by reducing
both revenue and cost of sales
Goods in inventory = 12m – 10m = $2,000,000
Profit in inventory = 25% × $2,000,000 = $500,000
(W3) Depreciation adjustment
Fair value adjustment = $5.2m – $2m = $3.2m
Depreciation adjustment = 1/4 × 9/12 × $3.2m = $600,000
(W4) Intercompany interest
Windsor paid interest to Tudor = 10% × $1 m × 9/12 = $75,000
$000 $000
Sub's profit for the year per S's SCI (9/12 × 3,000) 2,250
Depreciation adjustment (W3) (600)
Impairment (fair value method) (100)
––––––
1,550
Sub's other comprehensive income per S's SCI
(9/12 × 500) 375
––––––
1,925
334
Chapter 12
Test your understanding 5 (further OTQs)

1 Adjustments would be made for A and B.
C would not be adjusted as NCI is measured using the
proportionate share of net assets and therefore all goodwill
impairment should be charged to the parent shareholders.
D is not adjusted as it is eliminated from the parent's investment
income and has no impact on the subsidiary's profit.
335
336

Group Accounts - Subsidiaries (CSPLOCI) : Chapter Learning Objectives

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Group Accounts - Subsidiaries (CSPLOCI) : Chapter Learning Objectives

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Chapter

Lead outcome Component outcome

2 Consolidated statement of profit or loss and other

Pro forma for the CSPLOCI

Consolidation adjustments and the consolidated statement of profit or

Intra-group investment income

Standard consolidation workings

Non-controlling interest share of profit/TCI

Test your understanding 1

Provision for unrealised profit (PUP) in inventory

The 'PUP' adjustment

Parent sells to subsidiary

Mark up on cost (Cost plus)

Gross profit margin

Test your understanding 2

Provision for unrealised profit (PUP) in Non-current assets

4 Fair value adjustments and the CSPLOCI

Impact on post-acquisition depreciation

King purchased 80% of Lear’s equity shares on 1 January 20X5 for

Impact in consolidated statement of profit or loss and other

Test your understanding 3 (integration question)

Test your understanding 4 integration question

Test your understanding 5 (further OTQs)

Data for Questions (2) to (4)

2 The PUP adjustment for the year-ended 31 March 20X9 is:

4 What is the total amount for revenue and cost of sales to be

Test your understanding answers

Test your understanding 1

Consolidated statement of profit or loss and other comprehensive

(W2) NCI share of profit and total comprehensive income

Test your understanding 2

(W2) Intercompany sales and PUP

Test your understanding 3 (integration question)

Total comprehensive income attributable to:

75% 1 December 20X8

Test your understanding 4 (integration question)

80% 1 July 20X4 i.e. 9 months

Test your understanding 5 (further OTQs)

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