IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

METHOD OF CONSOLIDATION
Acquisition method is based on the concept of single economic entity.
Single economic entity results in elimination of:
• Investment in subsidiary by underlying asset and liabilities
• Share Capital and pre-acquisition reserves of subsidiary
• Intra group balances – sales & purchases, payables & receivables, loans & advance
• Unrealized gain on sale and purchase of fixed assets and inventory (opening and
closing both), however, losses on sale or purchase are assumed to be impairment
losses and need not be eliminated.
• Interest and dividend from Subsidiary
• The resultant deferred tax arising on temporary differences because of elimination of
profits / gains on intra-group transactions will be recognized.
• The consolidated financial statements will be prepared using same accounting
policies for like transactions.
CONSOLIDATION WORKING
The Statement Of Financial Position
1. Prepare the working in following steps:
W 1: Establish group structure
 Percentage of holding by Parent company %
W 2: Net assets of subsidiary
at acquisition date at reporting date
Share capital XXX XXX
Reserves:
Share premium XXX XXX
Retained earnings XXX XXX
XXX XXX
W 3: Goodwill calculation
 Purchase consideration XXX
Add: NCI at acquisition date (at fair value or proportionate share) XXX
XXX
Less: Fair value of net assets at acquisition XXX
Goodwill (balancing figure) XXX
Less: Impairment of goodwill (subsequently) XXX
Goodwill after impairment XXX
W 4: Non-controlling interest
 NCI at acquisition date (W3) XXX
Add/Less: Share of post-acquisition reserves (W2) XXX
Less: Impairment (fair value method only) XXX
XXX
W 5: Group retained earnings
 Parent's retained earnings (100%) XXX
Add/Less: Parent's % of Subsidiary's post-acquisition retained earnings XXX
Less: Parent share of impairment (W3) XXX
XXX