BASIC CONSOLIDATION TECHNIQUES

Consolidated Statement of Financial Position

✓ Net assets: 100% P plus 100% S

✓ Share capital: P only
✓ Reserves: 100% P plus group share of post-acquisition retained reserves
of S less consolidation adjustments
✓ Non-controlling interest: NCI at acquisition plus NCI share of S's post
acquisition retained reserves

The next section is a recap of the techniques you should remember from your
earlier studies. The ACR syllabus introduces a range of extra complications in
consolidations, but the basics will always form part of any question.

Step 1
Read the question and draw up the group structure (W1), highlighting useful
information:
o Percentage owned
o Acquisition date
o Pre-acquisition reserves.

Step 2
Draw up a proforma taking into account the group structure identified:
o Leave out cost of investment
o Put in a line for goodwill
o Put in a line for investment in associate
o Remember to include non-controlling interests
o Leave lines in case of any additions.

Step 3
Work methodically down the statement of financial position, transferring:
o Figures to proforma or workings
o 100% of all assets/liabilities controlled at the year end aggregated in
brackets on face of proforma, ready for adjustments
o Cost of subsidiary/associate and reserves to group workings, setting them
up as you work down the statement of financial position
o Share capital and OCE (parent only) to face of proforma answer
o Open up a (blank) working for non-controlling interests

Step 4
Read through the additional notes and attempt the adjustments showing workings
for all calculations.
Do the double entry for the adjustments onto your proforma answer and onto your
group workings (where the group workings are affected by one side of the double
entry).
Examples:

Cancel any intragroup items eg current account balances, loans.

Adjust for unrealised profits:

Unrealised profit on intragroup sales X

% held in inventories at year end %
= UnRealised profit (URP) X
(adjust in the books of seller)

Make fair value adjustments:

Acq'n date Movement Year end

Inventories x (x) x
Depreciable non- current assets x (x) x
Non-depreciable non-current assets x (x) x
Other fair value adj x/(x) (x)/x x/(x)
x x x

Step 5
Complete goodwill calculation

RM RM
Consideration transferred x
Non-controlling interests x
(at FV or proportionate of net asset)
x
Less: FV of net identifiable assets at acq
Share capital x
Retained Earnings at acq x
Other Reserves at acq x
FV Adj x/(x) x
GW before xx
Less: Impairment loss on GW (to-date) (x)
GW (CSOFP) xx
Step 6
Complete the consolidated retained earnings calculation

Parent Subsidiary Associate

As per Q x x x
Less: Pre-acq RE (x) (x)
x x
Adjustments x/(x) x/(x) x/(x)
Adjustments x/(x) x/(x) x/(x)
Post-acq RE after adj y z
Share of post-acq RE:
Subsidiary [y * ?%] x/(x)
Associate [z * ?%] x/(x)
Less: Grp share of IL to-date (x)
To CSOFP xxx

Note: Other reserves are treated in a similar way

Step 7
Complete 'Investment in associate' calculation

RM
Cost of associate (COI) x
Share of post-acq RE [z * ?%] x

Less: Grp IL on associate to-date (x)

To CSOFP xx

Step 8
Complete the non-controlling interest calculation

RM
NCI at acq (fr GW workings) x
NCI share of post-acq reserves [y * NCI%] x

Less: NCI sh of IL [if NCI measured at FV @ acq] (x)

To CSOFP xx
Consolidated Statement of Profit or Loss and Other
Comprehensive Income

The SOPLOCI shows a true and fair view of the group's activities since acquisition
of any subsidiaries.

(a) The top part of the SOPLOCI shows the income, expenses, profit and other
comprehensive income controlled by the group
(b) The reconciliation at the bottom of the SOPLOCI shows the ownership of those
profits and total comprehensive income

Step 1
Read the question and draw up the group structure and where subsidiaries/
associates are acquired in the year identify the proportion to consolidate. A timeline
may be useful.

Step 2
Draw up a pro-forma
o Remember the non-controlling interest reconciliation at the foot of the
statement.

Step 3
Work methodically down the SOPLOCI, transferring figures to proforma or
workings:
o 100% of all income/expenses (time apportioned x /2 if appropriate) in
brackets on face of proforma, ready for adjustments
o Exclude dividends receivable from subsidiary

Step 4
Subsidiary's profit for the year (PFY) and total comprehensive income (TCI) (for
NCI) to face of proforma in brackets (or to a working if many adjustments).
Associate's PFY and other comprehensive income (OCI) to face of proforma in
brackets.
o Go through question, calculating the necessary adjustments showing
workings for all calculations, transfer the numbers to your proforma and
make the adjustments in the non-controlling interests working where the
subsidiary's profit is affected.
Step 5
Calculate 'Share of profit of associate' and 'Share of other comprehensive income
of associate' (where appropriate):

RM
Associate’s Profit for the Year (PFY) x
Less: IL recognized on associate during the period (x)
To CSOPL (shown before grp profit before tax) xx

Sh of OCI of Associate
= Associates OCI x Group % x

Note: Both the associate's profit or loss and other comprehensive income are
calculated based on after tax figures.

Step 6
Complete non-controlling interests in subsidiary's PFY and TCI calculation:

PFY TCI
As per Q (time apportioned, if appropriate) x x
Adjustments (E.g. URP on sales made by S) x/(x) x/(x)
Impairment Loss [If NCI at FV @ acq] (x) (x)
xx xx
NCI share [x NCI%] x x