IFRS 10 Consolidatd Financial Statements

FIAC6212
Financial Accounting 2B
Learning unit 2
LU2: IFRS 10 Consolidated Financial
Statements
Prepared by Shan Anderson and adapted

5 February 2024 by Shanaaz Ebrahim 1
LU2: IFRS 10 Consolidated Financial Statements
Themes
• Application of the acquisition method.
• Consolidation at and after acquisition date of simple groups.
• Consolidation of complex groups (horizontal groups).
• Group Statements (GS) (18th ed)

 Volume 1 Chapters 3, 4 & 7

To establish the principles for the

Objective of IFRS 10
preparation & presentation of consolidated
financial statements when an entity
controls another entity.
IFRS 10:
• Requires a parent that controls 1 or more subsidiaries to
present consolidated financial statements;
• Defines the principle of control;
• Outlines the principles to determine whether an investor
controls the investee;
• Sets out the accounting requirements for the preparation of
consolidated financial statements.
Control determines which entities are consolidated
An investor controls an investee when it is exposed (or has
rights) to variable returns from the investee & has ability to
influence those returns through its power over the investee.
Control therefore exists only if the investor has ALL of the

following:
power over investee

exposure or rights to variable returns
ability to use power to affect returns
NBNB Link between power & returns

Consolidation procedures
Combine Eliminate
like items of Offset CV of intragroup
assets, NCI share of
parents assets,
liabilities, net assets is
investment NCI share of liabilities,
equity, disclosed
with their P/L & OCI is equity,
income, separately
portion of separately income,
expenses & from the
the identified in expenses &
cash flows interests of
subsidiary's the CFs on
of the the owners
equity SOPLOCI. transactions
parent & of the
between
the (per IFRS 3). parent.
entities of
subsidiaries. the group.

Consolidation of a wholly owned
subsidiary at acquisition (Part 1)

Parent Subsidiary
P Ltd S Ltd
Separate entity Separate entity
PS Ltd Group
Combined entity

Example
The following represent the abridged statements of the financial
position of Mickey Ltd and its wholly owned subsidiary Minnie
Ltd at 31 December 2022, the date on which Mickey Ltd acquired
its interest in Minnie Ltd.
Mickey Ltd Minnie Ltd
R R
ASSETS
Investment in Minnie Ltd- at cost 100 000 -
Bank 30 000 50 000
Trade and other receivables 40 000 50 000
170 000 100 000
EQUITY AND LIABILITIES
Ordinary shares at R1 each 90 000 60 000

Retained earnings 80 000 40 000
170 000 100 000
Prepared by Shan Anderson and adapted by
5 February 2024 Shanaaz Ebrahim 8
Required:
1. Prepare the pro-forma consolidation journal entry at the
acquisition date of Minnie Ltd by Mickey Ltd for the year
ended 31 December 2022.
2. Prepare the consolidated statement of financial position of
the Mickey Ltd Group as at 31 December 2022.

Solution
J1 DR CR
Ordinary share capital (Minnie Ltd) 60 000
Retained earnings (Minnie Ltd) 40 000
Investment in Minnie Ltd (Mickey Ltd) 100 000
Elimination of equity of subsidiary at acquisition date

Mickey Ltd group
Consolidated statement of financial position as at 31 December 2022
R
Non-current assets -
Investment in Minnie Ltd – at cost (100 000 + 0 – 100 000 (J1)) -
Current assets 170 000

Bank (30 000 + 50 000) 80 000
Trade and other receivables (40 000 + 50 000) 90 000
Total assets 170 000
Total equity
Equity attributable to owners’ of the parent 170 000
Ordinary share capital (90 000 + 60 000 – 60 000 (J1)) 90 000
Retained earnings (80 000 + 40 000 – 40 000 (J1)) 80 000

Consolidation of a partly owned
subsidiary at acquisition (Part 2)

Example
The following represent the abridged statements of Congo Ltd
and Zambia Ltd, a partly owned subsidiary as at 31 December
2022, the date on which Congo acquired its interest in Zambia
Ltd. Congo Ltd Zambia Ltd
R R
ASSETS
Investment in Zambia Ltd – 10 000 shares 30 000 -
Bank 10 000 37 500
40 000 37 500
EQUITY AND LIABILITIES
Ordinary shares at R1 each 35 000 12 500

40 000 37 500
Required:
1. Calculate the percentage interest owned by Congo Ltd in
Zambia Ltd.
2. Prepare the analysis of equity of Zambia Ltd.
3. Prepare the pro-forma consolidation journal entry at the
acquisition date of Zambia Ltd by Congo Ltd for the year
ended 31 December 2022.
the Congo Ltd Group as at 31 December 2022.

Solution
% interest = Number of ordinay shares parent owns
10 000/12 500 = 80%
Number of total ordinary shares of sub
Analysis of owners’ equity of Zambia Ltd

Total At (80%) Since (80%) NCI (20%)
R R R R
Share capital 12 500
Retained earnings 25 000
37 500 30 000 7 500
Goodwill - -
Consideration 30 000 7 500
paid

J1 DR CR
Ordinary share capital (SOCIE) (Zambia Ltd) 12 500
Retained earnings (SOCIE) (Zambia Ltd) 25 000
Goodwill (SFP) -
Investment in Zambia Ltd (SFP) (Congo Ltd) 30 000
Non-controlling interest (SFP) / (SOCIE) 7 500

Congo Ltd Group
Consolidated statement of financial position as at 31 December 2022
R
Non-current assets
Investment in Zambia Ltd (30 000 + 0 – 30 000 (J1)) -

Bank (10 000 + 37 500) 47 500
Total assets 47 500
Total equity 47 500

Non-controlling interest 7 500

Total equity and liabilities 47 500

Example
Guinea Ltd acquired its interest in Togo Ltd at 30 June 2022. Each share carries one
vote. The following represent the condensed trial balances of Guinea Ltd and Togo Ltd
at 30 June 2020:
Guinea Ltd Togo Ltd
R R
Debits:
Property, plant and equipment 55 000 105 000
Investment in Togo Ltd
-60 000 shares of R1 each 70 000 -
-10 000 debentures of R1 each 10 000 -
Bank 5 000 35 000
Loan to Togo Ltd 15 000 -
155 000 140 000
Credits:
Share capital – ordinary shares of R1 each 100 000 100 000
Debentures - 14 000
Loan from Guinea Ltd - 15 000
Trade and other payables 35 000 5 000
5 February 2024 Prepared by Shan Anderson and adapted by155 18
000Ebrahim
Shanaaz 140 000
Required:
1. Prepare the pro-forma consolidation journal entries for the
year ended 30 June 2022.
the Guinea Ltd Group as at 30 June 2022.

Solution
J1 DR CR
Ordinary share capital (SOCIE) (Togo Ltd) 100 000
Retained earnings (SOCIE) (Togo Ltd) 6 000
Goodwill (SFP) (Balancing) 6 400
Non-controlling interest (SFP) 42 400
(100 000 + 6 000) x 40%)
Investment in Togo Ltd (SFP) (Guinea Ltd) 70 000


J2 DR CR
Loan from Guinea Ltd (Togo Ltd) 15 000
Loan to Togo Ltd (Guinea Ltd) 15 000
Elimination of intercompany loans
J3 DR CR
Debentures (Togo Ltd) 10 000
Investment in Togo Ltd (Guinea Ltd) 10 000
Elimination of investment in debentures

Guinea Ltd group
Consolidated statement of financial position as at 30 June 2022
R
Non-current assets 166 400
Property, plant and equipment (55 000 + 105 000) 160 000
Investment in Togo Ltd (ordinary shares) (70 000 + 0 – 70 000 (J1)) -
Investment in Togo Ltd (debentures) (10 000 + 0 – 10 000 (J3)) -
Loan to Togo Ltd (15 000 + 0 – 15 000 (J2)) -
Goodwill (J1) 6 400

Bank (5 000 + 35 000) 40 000
Total assets 206 400

Total equity 162 400
Non-controlling interest 42 400
Liabilities
Non-current liabilities 4 000
Debentures (0 + 14 000 – 10 000 (J3)) 4 000
Loan from Guinea Ltd (0 + 15 000 – 15 000 (J2)) -
Current liabilities 40 000
Trade and other payables (35 000 + 5 000) 40 000
Total equity and liabilities 206 400

Consolidation of a partly owned
subsidiary after acquisition (Part 3)

• All profits that the subsidiary makes after the date of

acquisition become profits of the group and should therefore
be included in the consolidated annual financial statements.
• All components of equity of a subsidiary which was formed
after the date of acquisition form part of the total equity of
the group.
• As consolidation takes place after the date of acquisition of
the interest in the subsidiary, the full set of financial
statements have to be consolidated, namely the statements
of financial position, statements of profit or loss and other
comprehensive income and statements of changes in equity
of the parent and subsidiary.
P Ltd acquired a 80% interest in S Ltd on 1 January 2019. You are

required to draft the consolidated financial statements for the
year ended 31 December 2022.
The analysis of owners’ equity will be divided into three parts:
P Ltd (80%) (20%)
Total At Since NCI
R R R R
At acquisition
1 January 2019
Since acquisition to beginning of current year

2 January 2019 to 31 December 2021
Current year
1 January 2022 to 31 December 2022

• Consolidation is prepared as if the parent company owns

100% of the subsidiary. Consolidated profit is then split
between equity attributable to owners of the parent
(balancing figure), and the portion attributable to non-
controlling owners (taken from AOE).
• The profit attributable to the non-controlling owners is

disclosed separately on the consolidated statement of profit
or loss and other comprehensive income and in the
consolidated statement of changes in equity.

Example
The following represent the abridged statements of Moss Ltd and Vine Ltd as
at 28 February 2022:
Statement of profit or loss and other comprehensive income for the year
ended 28 February 2022:
Moss Ltd Vine Ltd
R R
Profit before tax 110 000 88 000
Income tax expense (35 000) (26 000)
Profit for the year 75 000 62 000
Other comprehensive income - -
Total comprehensive income for 75 000 62 000
the year
5 February 2024 Prepared by Shan Anderson and adapted by Shanaaz Ebrahim 27

Statements of changes in equity for the year ended 28 February

2022:
Share Capital Retained earnings
Moss Ltd Vine Ltd Moss Ltd Vine
Ltd
Balance at 01/03/2021 200 000 100 000 310 000 275 000
Ordinary shares at R1
Profit for the year 75 000 62 000

Dividends paid (10 000) -
Balance at 28/02/2022 200 000 100 000 375 000 337 000

Additional information:
Moss Ltd acquired 80 000 shares in Vine Ltd on 1 March 2018, when Vine Ltd.’s
retained earnings were R190 000. Goodwill at acquisition was nil.
Required:
1. Prepare the pro-forma consolidation journal entries for the year ended
28 February 2022.
2. Prepare the consolidated statement of profit or loss and other

comprehensive income for the Moss Ltd group for the year ended 28 February
2022.
3. Prepare the consolidated statement of changes in equity for the Moss Ltd
group for the year ended 28 February 2022.
Solution
Analysis of equity of Vine Ltd (80 000 / 100 000) = 80% NCI = 20%
TOTAL (R) AT (R) SINCE (R) NCI (R)
(Moss Ltd) (Moss Ltd)
80% 80% 20%
AT – 01/03/2018
Ordinary share capital 100 000
Retained earnings 190 000
290 000 232 000 58 000
Equity represented by goodwill - -
Consideration paid 232 000 58 000
SINCE to BEG
(02/03/2018 –28/02/2021)
Retained earnings 85 000 68 000 17 000
(275 000 – 190 000)
CURRENT YEAR
(01/03/2021 – 28/02/2022)
Profit for the year 62 000 49 600 ①12 400
TOTAL 117 600 87 400

J1 DR CR
Ordinary share capital (SOCIE) (Vine Ltd) 100 000
Retained earnings (SOCIE) (Vine Ltd) 190 000
Investment in Vine Ltd (SFP) (Moss Ltd) 232 000
Non-controlling interest (SOCIE) 58 000
(R190 000 + R100 000) x 20%
J2 DR CR
Retained earnings (SOCIE) 17 000
Opening balance retained earnings allocated to non-
controlling interest shareholders
J3 DR CR
Non-controlling interest (P/L) 12 400
Current year profits allocated to non-controlling
interest shareholders

MOSS LTD GROUP
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 28 FEBRUARY 2022
R
Profit before tax (110 000 + 88 000) 198 000
Income tax expense (35 000 + 26 000) (61 000)
Profit for the year 137 000
Other comprehensive income -
Total comprehensive income for the year 137 000
Profit attributable to:

Owners of the parent (Balancing) ④ 124 600
Non-controlling interest (AOE) ① 12 400
137 000
Total comprehensive income attributable to:
Owners of the parent (Balancing) ④ 124 600
Non-controlling interest (AOE) ① 12 400
137 000

MOSS LTD GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY
2022
Share capital Retained Total Non- Total

earnings controlling
R interest
R R R R
Balance –
01/03/2021 200 000 ②378 000 578 000 ③ 75 000 653 000
Total
comprehensi
ve income for
the year ④ 124 600 124 600 ① 12 400 137 000
Dividends (10 000) (10 000) - (10 000)
paid
Balance –
28/02/2022 200 000 492 600 692 600 87 400 780 000
② R310 000 + R68 000 (AOE) = R378 000

③ R58 000 (AOE) + R17 000 (AOE) = R75 000


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FIAC6212

Prepared by Shan Anderson and adapted

• Group Statements (GS) (18th ed)

Prepared by Shan Anderson and adapted

To establish the principles for the

Control therefore exists only if the investor has ALL of the

power over investee

NBNB Link between power & returns

Prepared by Shan Anderson and adapted

Prepared by Shan Anderson and adapted

Prepared by Shan Anderson and adapted

Ordinary shares at R1 each 90 000 60 000

Prepared by Shan Anderson and adapted

Ordinary share capital (Minnie Ltd) 60 000

Retained earnings (Minnie Ltd) 40 000

Investment in Minnie Ltd (Mickey Ltd) 100 000

Elimination of equity of subsidiary at acquisition date

Prepared by Shan Anderson and adapted

Investment in Minnie Ltd – at cost (100 000 + 0 – 100 000 (J1)) -

Current assets 170 000

Total assets 170 000

Prepared by Shan Anderson and adapted

Prepared by Shan Anderson and adapted

EQUITY AND LIABILITIES

Ordinary shares at R1 each 35 000 12 500

Prepared by Shan Anderson and adapted

Analysis of owners’ equity of Zambia Ltd

Prepared by Shan Anderson and adapted

Prepared by Shan Anderson and adapted

Current assets 47 500

Total assets 47 500

Total equity 47 500

Non-controlling interest 7 500

Prepared by Shan Anderson and adapted

Prepared by Shan Anderson and adapted

Investment in Togo Ltd (SFP) (Guinea Ltd) 70 000

Prepared by Shan Anderson and adapted

Loan from Guinea Ltd (Togo Ltd) 15 000

Loan to Togo Ltd (Guinea Ltd) 15 000

Elimination of intercompany loans

Debentures (Togo Ltd) 10 000

Investment in Togo Ltd (Guinea Ltd) 10 000

Elimination of investment in debentures

Prepared by Shan Anderson and adapted

Current assets 40 000

Total assets 206 400

Non-controlling interest 42 400

Total equity and liabilities 206 400

Prepared by Shan Anderson and adapted

Prepared by Shan Anderson and adapted

• All profits that the subsidiary makes after the date of

P Ltd acquired a 80% interest in S Ltd on 1 January 2019. You are

Since acquisition to beginning of current year

Prepared by Shan Anderson and adapted

• Consolidation is prepared as if the parent company owns

• The profit attributable to the non-controlling owners is

Prepared by Shan Anderson and adapted

5 February 2024 Prepared by Shan Anderson and adapted by Shanaaz Ebrahim 27

Statements of changes in equity for the year ended 28 February

Profit for the year 75 000 62 000

5 February 2024 Prepared by Shan Anderson and adapted by Shanaaz Ebrahim 28

2. Prepare the consolidated statement of profit or loss and other

TOTAL 117 600 87 400