CIA3001 Corporate Accounting

CIA3001 Corporate qCHAPTER 11 Consolidated Statement of Financial Position

Accounting
1 Context

WEEK 4
2 Consolidated statement of financial position workings
3 Mid-year acquisitions
ICAEW Strategic Credits 4 Intra-group balances
5 Unrealised intra-group profit
6 Fair value adjustments
WEEK 4 and 5: Consolidated statement of financial position 7 Other consolidation adjustments
1 Context
8 UK GAAP comparison
WEEK 5 C
H

Semester 1, 2021/2022
A
Section overview P
T
This chapter considers the preparation of the consolidated statement of financial position in E
more detail. R

11
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

CIA3001 Corporate Accounting CIA3001 Corporate Accounting

Section overview
A number of standard workings should be used when answering consolidation questions.
CHAPTER 11 CHAPTER 11
2 Consolidated
2.1 statement of financial position workings
Question technique
1 Context 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.
Builds on the basic principles of group accounts in CHAPTER 10
(1) Establish group structure
P Ltd

Standardised workings 80%

S Ltd

Intra-group balances q Single entity

(2) Set out net assets of S Ltd
At year end At acquisition Post
acquisition

Unrealised intra-group profits üControl Share capital

£
X
£
X
£
X
Retained earnings X X X
üOwnership (3) Calculate goodwill
X X X

Fair value adjustments Consideration transferred

£
X
Plus non-controlling interest at acquisition X
X
Less net assets at acquisition (W2) (X)
X
Impairment to date (X)
Balance c/f X

ICAEW 2020 Consolidated statement of financial position 479

CHAPTER 11
CIA3001 Corporate Accounting CHAPTER 11
CIA3001 Corporate Accounting
2 Consolidated statement of financial position workings
2 Consolidated statement of financial position workings
Use
The double entry to consolidate the subsidiary will be:
£ £ proportionate
DR Share capital (subsidiary) X method in
DR Retained earnings / reserves (subsidiary)
computing the
NOTE:
DR Goodwill X
CR Investment in subsidiary (parent)
2 methods of
X NCI, UNLESS • Please spend 10 minutes for this question.
CR Non-controlling interest X you are given
valuing NCI
(4) Calculate non-controlling interest (NCI) at year end
with the • For those who do not have the hard copy of the manual, please refer to the
£ FAIR VALUE proforma uploaded in Spectrum and use it to write down your answers.
At acquisition (NCI% × net assets (W2) or NCI fair value) X of the NCI.
Share of post-acquisition profits and other reserves (NCI% × post-acquisition
(W2))
X
• At first, you may want to use proforma to write your answers, as you
X
progress, it is expected that you know the proforma. Alternatively, in
(5) Calculate retained earnings
£ these first few questions, you can use the proforma as a guide only, and
P Ltd (100%)
S Ltd (share of post-acquisition retained earnings (W2)
X
X Market write down the whole of the answers yourselves.
Value
Goodwill impairment to date (W3) (X)
Group retained earnings X • You may be asked to turn on your camera to participate in the
Point to note: You should use the proportionate basis for measuring the NCI at the acquisition discussions🙂.
date unless a question specifies the fair value basis.

Interactive question 1: Consolidated statement of financial position workings

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
£ £ £
Non-current assets
Property, plant and equipment 100,000 40,000 10,000
 (4) Calculate non-controlling interest (NCI) at year end
£
At acquisition (NCI% × net assets (W2) or NCI fair value) X
Share of post-acquisition profits and other reserves (NCI% × post-acquisition X
(W2))
X

(5) Calculate retained earnings

£
P Ltd (100%) X

CIA3001 Corporate Accounting CIA3001 Corporate Accounting

S Ltd (share of post-acquisition retained earnings (W2) X
Goodwill impairment to date (W3) (X)
Group retained earnings X
CHAPTER 11 Point to note: You should use the proportionate basis for measuring the NCI at the acquisition
CHAPTER 11Answers to Interactive questions

👉
date unless a question specifies the fair value basis.
2 Consolidated statement of financial position workings
Interactive question 1: Consolidated statement of financial position workings
ANSWERS TO INTERACTIVE QUESTION 1
Answer to Interactive question 1
The following are the summarised statements of financial position of a group of companies as at
31 December 20X1.
Answers to Interactive
Rik Ltd: Consolidated questions
statement of financial position as at 31 December 20X1
Rik Ltd Viv Ltd Neil Ltd £
£ £ £ Non-current assets
Non-current assets
Answer toplant
Property, Interactive question
and equipment 1
(100,000 + 40,000 + 10,000) P + S(CONTROL) 100% 150,000
Property, plant and equipment 100,000 40,000 10,000
Investments Intangibles (W3) 6,667
Rik Ltd: Consolidated statement of financial position as at 31 December 20X1
Shares in Viv Ltd (75%) 25,000 156,667
£
Shares in Neil Ltd (2/3) 10,000 Current assets (45,000 + 40,000 + 25,000) P + S (CONTROL) 100% 110,000
Current assets 45,000 40,000 25,000 Non-current assets
266,667
180,000 80,000 35,000 Property, plant and equipment (100,000 + 40,000 + 10,000) 150,000
Equity Equity attributable to owners of the parent
Intangibles (W3) 6,667
Share capital (£1 ordinary) 50,000 20,000 10,000 Called up share capital OWNERSHIP 50,000
156,667
Retained earnings 100,000 40,000 15,000 Retained earnings (W5) P + S (Post acquisition) 133,334
Total equity 150,000 60,000 25,000 Current assets (45,000 + 40,000 + 25,000) 110,000
183,334
Liabilities 30,000 20,000 10,000 266,667
180,000 80,000 35,000
Non-controlling interest (W4) 23,333
Equity attributable to owners of the parent
Total equity 206,667
Rik Ltd acquired its shares in Viv Ltd and Neil Ltd during the year, when their retained earnings Called up share capital 50,000
Liabilities (30,000 + 20,000 + 10,000) 60,000
were £4,000 and £1,000 respectively. At the end of 20X1 the goodwill impairment review Retained earnings (W5) 133,334
266,667
revealed a loss of £3,000 in relation to the acquisition of Viv Ltd. 183,334
WORKINGS
Non-controlling interest (W4) 23,333
Requirement
Prepare the consolidated statement of financial position of Rik Ltd at 31 December 20X1. Total
(1) equity
Group structure 206,667
Liabilities (30,000 + 20,000 + 10,000) 60,000
Fill in the proforma below.
Rik Ltd 266,667
Rik Ltd: Consolidated statement of financial position as at 31 December 20X1
£ WORKINGS
Non-current assets
Property, plant and equipment (1) Group structure
Intangibles (W3)
Answers to Interactive questions 75%
Rik Ltd
2/3

480 Answer to Interactive question

Financial Accounting and Reporting – IFRS
1 ICAEW 2020
Viv Ltd Neil Ltd
Rik Ltd: Consolidated statement of financial position as at 31 December 20X1
£ 75% 2/3
(2) Net assets
Non-current assets Post-
Property, plant and equipment (100,000 + 40,000 + 10,000) 150,000
Year end Acquisition acquisition
Intangibles (W3) 6,667
Viv Ltd Neil Ltd £ £ £
156,667
Current assets (45,000 + 40,000 + 25,000) 110,000
Viv Ltd
266,667
(2) Net assets
Share capital 20,000 20,000 –
Equity attributable to owners of the parent Retained earnings 40,000 4,000 Post-
36,000
Called up share capital 50,000 Year end
60,000 Acquisition
24,000 acquisition

CIA3001 Corporate Accounting CIA3001 Corporate Accounting

Retained earnings (W5) 133,334 Neil Ltd £ £ £
183,334 Viv Ltdcapital
Share 10,000 10,000 –
CHAPTER 11 Non-controlling interest (W4) 23,333
CHAPTER 11 Share capital
Retained earnings 20,000
15,000 20,000
1,000 14,000–

👉 ANSWERS TO INTERATIVE QUESTION 1

Total equity 206,667 Retained earnings 40,000 4,000 36,000
Liabilities (30,000 + 20,000 + 10,000) 60,000
25,000 11,000

WORKINGS
266,667
👉 ANSWERS TO INTERATIVE QUESTION
Goodwill
(3) Neil Ltd
Viv Ltd Neil Ltd
1 60,000 24,000

Total –
Share capital 10,000 10,000
(1) Group structure Retained earnings £
15,000 £
1,000 £
14,000
Consideration transferred 25,000
25,000 10,000
11,000
Rik Ltd Non-controlling interest at acquisition
(3) Goodwill
Viv Ltd (25% 24,000 (W2)) 6,000
Neil Ltd (1/3 11,000 (W2)) Viv Ltd Neil Ltd
3,667 Total
Net assets at acquisition £
(24,000) £
(11,000) £
75% 2/3
ACQUISITION YEAR END Consideration
Goodwill transferred 25,000
7,000 10,000
2,667 9,667
£ £ Non-controlling
Impairment to date interest at acquisition (3,000) – (3,000)
Viv Ltd (25% 24,000 (W2)) 6,000
4,000 2,667 6,667
Viv Ltd Neil Ltd Neil Ltd (1/3 11,000 (W2)) 3,667
(2) Net assets Net assets at acquisition (24,000) (11,000)
Post- Goodwill 7,000 2,667 9,667
Year end Acquisition acquisition 504 Financial Accounting and Reporting – IFRS ICAEW 2020
Impairment to date (3,000) – (3,000)
£ £ £
Viv Ltd
4,000 2,667 6,667
Share capital 20,000 20,000 –
Retained earnings 40,000 4,000 36,000
60,000 24,000
Neil Ltd 504 Financial Accounting and Reporting – IFRS ICAEW 2020
Share capital 10,000 10,000 –
Retained earnings 15,000 1,000 14,000
25,000 11,000

(3) Goodwill
Viv Ltd Neil Ltd Total
£ £ £
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

504 Financial Accounting and Reporting – IFRS ICAEW 2020

CHAPTER 11
CIA3001 Corporate Accounting CHAPTER 11
CIA3001 Corporate Accounting
👉 ANSWERS TO INTERATIVE QUESTION 1 3 Mid-year acquisitions
(4) Non-controlling interest
Calculation
£ £ C
Viv Ltd – Share of net assets at acquisition (25% 24,000 (W2))
At Acq
6,000 H
A
A parent entity might not acquire a subsidiary at the start or end of a
– Share of post-acquisition (25% 36,000 (W2)) Post Acq 9,000
15,000
P
T
year. If the subsidiary is acquired mid-year, it is necessary to calculate
Neil Ltd – Share of net assets at acquisition (1/3 11,000 (W2))At Acq 3,667 E
– Share of post-acquisition (1/3 14,000 (W2)) Post Acq 4,666 R reserves, including retained earnings, at the date of acquisition.
8,333 11
23,333 This is necessary in order to:
(5) Retained earnings P + S (Post acquisition)
£ • calculate net assets at acquisition (which is required as part of the
Rik Ltd 100,000
Viv Ltd – Share of post-acquisition retained earnings (75% 36,000 (W2)) 27,000 goodwill calculation); and
Neil Ltd – Share of post-acquisition retained earnings (2/3 14,000 (W2)) 9,334
Goodwill impairment to date (W3) (3,000) • calculate consolidated reserves, eg, retained earnings.
133,334
• Point to note: It is usually assumed that a subsidiary's profits accrue
Answer to Interactive question 2
(a) Net assets (W2)
evenly over time.
Post-
Year end Acquisition acquisition
£ £ £
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)

£
 If a subsidiary is acquired mid-year, net assets at acquisition will need to be calculated.
(4) Non-controlling interest
Unless told otherwise assume profits of the subsidiary accrue evenly over time.
£ £
Viv Ltd – Share of net assets at acquisition (25% 24,000 (W2)) 6,000
3.1 Calculation – Share of post-acquisition (25% 36,000 (W2)) 9,000
15,000
A parent entity might not acquire a subsidiary at the start or end of a year. If the subsidiary is
Neil Ltd – Share of net assets at acquisition (1/3 11,000 (W2)) 3,667
acquired mid-year, it is necessary to calculate reserves, including retained earnings, at the date
– Share of post-acquisition (1/3 14,000 (W2)) 4,666
of acquisition.

CIA3001 Corporate Accounting CIA3001 Corporate Accounting

8,333
This is necessary in order to: 23,333
CHAPTER 11 calculate net assets at acquisition (which is required as part of the goodwill calculation); and CHAPTER 11 (5) Retained earnings
calculate consolidated reserves, eg, retained earnings. £
3 Mid-year acquisitions
Point to note: It is usually assumed that a subsidiary's profits accrue evenly over time. 3 Mid-year
Rik Ltd acquisitions 100,000
Viv Ltd – Share of post-acquisition retained earnings (75% 36,000 (W2)) 27,000

👉 ANSWERS TO INTERATIVE QUESTION 2

Neil Ltd – Share of post-acquisition retained earnings (2/3 14,000 (W2)) 9,334
Interactive question 2: Mid-year acquisition Goodwill impairment to date (W3) (3,000)
P plc acquired 80% of S Ltd on 31 May 20X2 for £20,000. S Ltd's retained earnings had stood at 133,334
£15,000 on 1 January 20X2.
Answer to Interactive question 2
S Ltd's equity at 31 December 20X2 was as follows.
£ (a) Net assets (W2)
Share capital 1,000 Post-
Retained earnings 15,600 Year end Acquisition acquisition
Equity 16,600 £ £ £
Share capital 1,000 1,000 –
Requirements
Retained earnings (15,000 + (5/12 (15,600 – 15,600 15,250 350
(a) Produce the standard working for S Ltd's net assets (W2). 15,000)))
16,600 16,250
(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 (b) Goodwill (W3)
Subsidiary’s profits ACCRUE EVENLY OVER-TIME £
earnings.
Consideration transferred 20,000
Fill in the proforma below. Plus non-controlling interest at acquisition (16,250 20% (W2)) 3,250
(a) Net assets (W2) Less net assets at acquisition (W2) (16,250)
End of reporting period Acquisition Post acquisition 7,000
£ £ £
(c) Profit from S Ltd included in consolidated retained earnings
Share capital
£
Retained earnings
Share of post-acquisition retained earnings of S Ltd (80% 350 (W2)) 280

(4) Non-controlling interest Answer to Interactive question 3

£ £ C £ £
Viv Ltd – Share of net assets at acquisition (25% 24,000 (W2)) H
6,000 A
DR Seller's (S Ltd's) retained earnings (adjust in net assets working) 3,000
– Share of post-acquisition (25% 36,000 (W2)) 9,000 P CR Inventories in CSOFP (1/2 6,000) 3,000
482 Financial Accounting and Reporting – IFRS 15,000
ICAEW 2020 T
Neil Ltd – Share of net assets at acquisition (1/3 11,000 (W2)) 3,667 E WORKINGS
– Share of post-acquisition (1/3 14,000 (W2)) 4,666 R
(1) Group structure
8,333 11 P Ltd
23,333

(5) Retained earnings 80%

£
Rik Ltd 100,000
Viv Ltd – Share of post-acquisition retained earnings (75% 36,000 (W2)) 27,000

CIA3001 Corporate Accounting CIA3001 Corporate Accounting

Neil Ltd – Share of post-acquisition retained earnings (2/3 14,000 (W2)) 9,334 S Ltd
Goodwill impairment to date (W3) (3,000)
CHAPTER 11 133,334
CHAPTER 11
3Answer to Interactive
Mid-year question 2
acquisitions 4 Intra-group balances
(a) Net assets (W2)
Post-

👉 ANSWERS TO INTERATIVEYearQUESTION
£
end Acquisition
£ 2 acquisition
£ ICAEW 2020 SINGLE Intra-group balances
Consolidated statement
for example:
of result
financialfrom,
position 505
Share capital 1,000 1,000 –
Retained earnings (15,000 + (5/12 (15,600 – 15,600 15,250 350
ENTITY § one group company's loans,
15,000))) CONCEPT debentures or redeemable
16,600 16,250 preference shares held by
another group company; or
(b) Goodwill (W3)
£ § intra-group trading.
Consideration transferred 20,000 Transactions between group
Plus non-controlling interest at acquisition (16,250 20% (W2)) 3,250 Loans, debentures and
members need to be redeemable preference shares
Less net assets at acquisition (W2) (16,250)
7,000
ELIMINATED Cancel the credit balance in one
company against the debit balance
(c) Profit from S Ltd included in consolidated retained earnings in the other before adding assets
£ Assets/Liabilities in
and liabilities line-by-line.
Share of post-acquisition retained earnings of S Ltd (80% 350 (W2)) 280 groups members
need to be
Answer to Interactive question 3 CANCELLED
£ £
DR Seller's (S Ltd's) retained earnings (adjust in net assets working) 3,000
OUT
CR Inventories in CSOFP (1/2 6,000) 3,000
WORKINGS
(1) Group structure
P Ltd

80%

S Ltd

CHAPTER 11
CIA3001 Corporate Accounting
ICAEW 2020 Consolidated statement of financial position 505

CHAPTER 11
CIA3001
Step 2 Corporate Accounting
Make balances agree by adjusting for in-transit items in the receiving company's books.

4 Intra-group balances 4 Intra-group

Step 3 balances
Intra-group trading Cancel intra-group balances.

Outstanding amounts in respect of intra-group trading are usually Worked example: Intra-group trading
recorded in the statement of financial position in current accounts (= Extracts from the statement of financial position of Impala Ltd and its subsidiary Springbok Ltd at
31 March 20X4 are as follows.
receivable or payable account for a fellow group company). Impala Ltd Springbok Ltd
£ £
Make balances Receivable from Springbok Ltd 25,000 –
agree by adjusting Payable to Impala Ltd – (20,000)
Cancel
Check that current
for in-transit items
accounts agree
before cancelling.
in the receiving Springbok Ltd sent a cheque for £5,000 to Impala Ltd on 28 March 20X4, which Impala Ltd did
They may not
agree if goods or
company's books-
normally done by intra-group not receive until 2 April 20X4.
pushing forward
cash are in-transit
at year end.
the transaction in
recipient’s
balances. Solution
accounts
Steps 1 and 2
STEP 1 STEP 2 STEP 3 Assume that Impala Ltd had received the cash from Springbok Ltd.
Impala Ltd Springbok Ltd
£ £
Receivable from Springbok Ltd (25–5) 20,000 –
Cash and cash equivalents 5,000 –
Payable to Impala Ltd – (20,000)

Step 3
Cancel inter-company balances on consolidation, leaving just the cash in transit in the
consolidated statement of financial position
£
Cash and cash equivalents 5,000
 Step 2
Make balances agree by adjusting for in-transit items in the receiving company's books.

Step 3
Cancel intra-group balances.

Worked example: Intra-group trading

CHAPTER 11
CIA3001 Corporate Accounting
Extracts from the statement of financial position of Impala Ltd and its subsidiary Springbok Ltd at
31 March 20X4 are as follows.
Impala Ltd Springbok Ltd CHAPTER 11
CIA3001 Corporate Accounting
£ £
4 Intra-group balances
Receivable from Springbok Ltd
Payable to Impala Ltd
25,000
–
–
(20,000)
CLASS ACTIVITY:
Springbok Ltd sent a cheque for £5,000 to Impala Ltd on 28 March 20X4, which Impala Ltd did Self test Questions
not receive until 2 April 20X4.
q Chapter 11: Questions
Solution
- 1, 2, 3, 4, 5, 7, 8, 9, 11
Steps 1 and 2
Assume that Impala Ltd had received the cash from Springbok Ltd.
Impala Ltd Springbok Ltd
£ £ HOMEWORK:
Receivable from Springbok Ltd (25–5) ❌
20,000 –
q Continue with the rests of the questions
Cash and cash equivalents 5,000 –
Payable to Impala Ltd – ❌
(20,000)
that you have not attempted in both
Step 3
Cancel inter-company balances on consolidation, leaving just the cash in transit in the Chapters 10 and 11.
consolidated statement of financial position
£
Cash and cash equivalents 5,000

5 Unrealised intra-group profit

Section overview
The consolidated statement of financial position should show assets at their cost to the
group.
Any profit arising on intra-group transactions should be eliminated from the group
accounts until it is realised, eg, by a sale outside the group.

5.1 Introduction
One of the implications of the application of the single entity concept is that group accounts
should only reflect profits generated from transactions which have been undertaken with third
parties, ie, entities outside the group.

CIA3001 Corporate Accounting

Intra-group activities may give rise to profits that are unrealised as far as the group as a whole is
concerned. These profits can result from:
CHAPTER 11 intra-group trading when goods still held in inventory of buying company; and
intra-group transfers of non-current assets.

484 Financial Accounting and Reporting – IFRS ICAEW 2020

End of Week 5…