Chapter 8

The consolidated
statement of financial position

Objectives
• Familiarise with the
basic procedures
required to produced
a consolidated
statement of financial
position.

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 1. Consolidation procedures
Contents
2. Goodwill
3. NCI
4. Intra-group trading
5. Acquisition of a subsidiary
part way through the year
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1
• Basic consolidation consists
of two procedures:
– Cancel out items which
Consolidation appear as an asset in one
procedures company and a liability in
another.
– Add together all the
uncancelled assets and
liabilities on a line by line
basis.

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 1
If the parent acquired
shares in the subsidiary
at a price greater or less
than their face value →
Goodwill arises
Consolidation
procedures
If the parent have not
acquired all the shares
of the subsidiary (partly
owned) → NCI arises

2
• Goodwill arising on
consolidation is
recognised as an
intangible asset in the
consolidated statement
of financial position.

Goodwill

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 2
Goodwill
• Goodwill formula:
Consideration transferred X
Less net asset (acquired company) at the acquisition
date:
Ordinary share (X)
Share premium (X)
Retained earnings at acquisition (X)
Fair value adjustments at acquisition (X)
Goodwill X
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2
Goodwill
• Goodwill and pre-acquisition profits (profit
before we make the acquisition).
• In this case, any pre-acquisition retained
earnings of a subsidiary are not aggregated
with the parent.

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 2
Goodwill
• Group retained earnings formula with pre-
acquisition profits:
Parent Subsidiary
Per question X X
Pre-acquisition earnings (X)
X
Post-acquisition earnings of S X
Group retained earnings X
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3
Non-controlling interest
• NCI shows the extent to which net assets
controlled by the group are owned by other
parties.
• NCI formula
Fair value of NCI at acquisition X

Plus NCI’s share of post acquisition retained X

earnings (and other reserves)
NCI at reporting date X

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 3
Non-controlling interest
• NCI and goodwill calculation
Consideration transferred X
Fair value of NCI at acquisition X
Less net asset (acquired company) at the acquisition
date:
Ordinary share (X)
Share premium (X)
Retained earnings at acquisition (X)
Fair value adjustments (X)
Goodwill X
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When an intra-group
trading happen, we
Intra-group trading have to remove
unrealised profit for
consolidation.

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 Acquisition of a subsidiary part way 5
through the year
• When a parent acquires a subsidiary part way
through the year, the profits for the period
need to be apportioned between pre- and
post- acquisition. Only the post-acquisition
profits are included in the group’s
consolidated statement of financial position.
• We should assume that profits have accrued
evenly over the year.

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