 PFRS 10 states that consolidated financial statements are defined as the financial

statements of a group in which the assets, liabilities, equity, income, expenses and cash

flows of the parent and its subsidiaries are presented as those of a single economic unit.

PFRS 10, paragraph 4, provides that an entity that is a parent shall present consolidated

financial statements. Consolidated financial statements shall include all subsidiaries of

the parent.

• Consolidation starts when control is obtained and ceases when control is lost.

• Consolidated financial statements are prepared using uniform accounting policies

and same reporting date.

• Consolidated retained earnings include the retained earnings of the parent plus

the parent’s share in the change in the net assets of the subsidiary since

acquisition date.

• NCI in net assets includes the NCI at acquisition date plus the NCI’s share in the

change in net assets of the subsidiary since acquisition date.

• NCI in net assets is presented within equity but separate from the equity of the

owners the consolidated profit or loss is attributed to the owners of the parent and

NCI.

Consolidated financial statements are prepared using the following basic procedures:

1. Combine like items of assets, liabilities, equity, income and expenses of the parent

with those of its subsidiaries.

2. Eliminate the carrying amount of the parent’s investment in each subsidiary and

the parent’s portion of equity of each subsidiary.

3. Eliminate in full intercompany assets and liabilities, equity, income, expenses and

cash flows relating to transactions between entities of the group.

Consolidated Comprehensive Income

Consolidation subsequent to a subsidiary’s acquisition involve changes that take

place over time, the resulting financial statements rest on the concepts of consolidated

comprehensive income. It may be computed using two approaches: (1). Parent company

approach and (2). The entity approach

Parent Approach

Under the parent approach, consolidated comprehensive income is that part of the

total company’s income that is assigned to the parent stockholder’s.

* Wholly Owned Subsidiary – all income of the parent and its subsidiaries accrue

to the parent company.

* Partially Owned Subsidiary – a portion of its income accrues to its non-controlling

shareholders and is excluded from the consolidated net income.

Entity Approach

Consolidated income under the entity approach equals total earnings of all entities

consolidated less any income recorded by the parent from the consolidating entities.

Cost method

This method is used when the acquirer (parent) owns directly or indirectly more

than half of the voting power of the acquire (subsidiary), thereby exercising control. Under

the cost method, the Investment in Subsidiary account is retained at its original cost.

Income on the investment is limited to dividends received from subsidiary.

• Consolidated retained earnings include the retained earnings of the parent plus

the parent’s share in the change in the net assets of the subsidiary since

acquisition date.

• NCI in net assets includes the NCI at acquisition date plus the NCI’s share in the

change in net assets of the subsidiary since acquisition date.

• NCI in net assets is presented within equity but separate from the equity of the

owners the consolidated profit or loss is attributed to the owners of the parent and

NCI.