Chapter 17
Consolidated Financial Statements
Group Accounts
Many entities carry on part of their business by controlling other companies, known as subsidiaries.
The financial statements of the investing entity will recognise the following:
Investments in subsidiaries at cost (or as per IFRS 9Â Financial Instruments) in the statement of financial position and
Dividends received from a subsidiary when its right to the dividend is established (when it is declared) in the statement of profit or loss.
Key Point
Since IFRS 9 is not examinable in Financial Accounting, investments in subsidiaries are stated at cost in the statement of financial position of the investing company.
Controlling interests may result in the control of assets that have a very different value to the cost of investment. In this case, the individual accounts will not provide the owners of the parent with a true and fair view of what their investment represents.
In Example 1 below, group accounts are needed to provide users of financial statements with more meaningful information reflecting the investment’s substance. (This substance is not reflected in the investing entity’s separate financial statements.)
The group accounts required by IFRS Accounting Standards are consolidated financial statements; the relevant standard is IFRS 10 Consolidated Financial Statements.
Example 1
A parent company invested in 80% of another company, which now makes it a subsidiary of the parent company.
Parent
Subsidiary
$
Investment in 80% of Subsidiary
560
Other net assets (Assets less Liabilities)
440
700
1,000
Share capital
500
250
Retained earnings
450
The investment of $560 in P’s accounts is, in substance, the cost of owning 80% of S’s net assets (80% × $700 = $560).
The owners of P cannot know this from looking at P’s statement of financial position alone. Therefore, a consolidated financial statement should be prepared to present the substance of the investment.
Group Accounting Terms
A business combination is a transaction in which an acquirer obtains control of another business.
A parent company with subsidiaries will prepare a separate financial statement known as the consolidated financial statements. It is the financial statements of a group presented as those of a single economic entity.
Parent – A parent is a company, or other entity, that controls one or more subsidiaries.
Subsidiary – A subsidiary is an entity that is controlled by another entity, known as the parent
Control – An investor controls its investment if it may receive varying returns from its investment and can affect those returns through its power over the subsidiary. IFRS 10 states that an investor controls an investee if it has all the following:
power over the investee
exposure, or rights, to variable returns from its involvement with the investee
the ability to use its power over the investee to affect the amount of the investor’s returns.
Consolidated Financial Statements – Consolidated financial statements are the financial statements of a group where the assets, liabilities, income, expenses and cash flows of the parent and its subsidiaries are presented as a single set of financial statements. It is also known as group financial statements.Both the parent and subsidiary are still distinct legal entities.However, the group is not a separate legal entity; it exists for accounting purposes.
Non-Controlling Interest – A non-controlling interest is the part of the equity of a subsidiary that the parent does not own. For example, a parent invests in 60% of a subsidiary. The remaining 40% is the non-controlling interest.
Trade Investment – A trade investment is an investment in shares of another company to gain wealth, which is not significant enough for the investment to be classed as a subsidiary or an associate.Typically, this investment will be less than 20% of another company’s equity shares. A trade investment is also known as a simple investment.
Control
For a group structure to exist, there has to be a parent and a subsidiary. IFRS Accounting Standards use the term “power” to consider whether an investor is a parent having control over a subsidiary. Any of the following can achieve control:
Ownership
The parent owns more than 50% of the voting rights of the subsidiary. Holders of equity shares have voting rights, but holders of preference shares do not because their voting rights are restricted.
Control by Agreement
The parent has agreed with other investors that it should control more than 50% of voting rights.
Board Appointment
A parent has the power to appoint and remove the board of directors of a subsidiary
Board Voting
The parent can cast a majority of votes at board meetings of a subsidiary.
Power over the Investee
The parent has existing rights that allow it to direct the relevant activities of the investee. It has a legal right to govern the financial and operating policies of the investee.
Example 2
Entity A holds 40% of the voting right in entity B. It also holds share options which, if it were to exercise them, would take its shareholding in entity B to 80%. The share options can be exercised at any time.
Ignoring any other issues, it would be probable that entity A had control over entity B through both its current shareholding and its potential future shares. Entity B would be recognised as a subsidiary of entity A.
Â
Exam advice
For calculation purposes in the exam, it is assumed that control exists if the parent has more than 50% of the ordinary (equity) shares (giving them more than 50% of voting rights) unless specifically told otherwise.
Example 3
The following are examples of situations that could exist:
Chen Co owns 60% of the shares in Xiu Co. It is assumed, unless it can be shown otherwise, that owning more than 50% of the shares in a company gives control. Thus Chen Co would control Xiu Co by virtue of owning more than 50% of the shares.
Liu Co owns 45% of the shares in Zhang Co. However, Liu Co’s shares are special founders shares that give Liu Co 10 votes per share, while all other shares are entitled to 1 vote per share in meetings of the company. For the sake of an example, if there were 100 shares in issue, Liu Co’s 45 shares would give the company 450 votes, while the 55 shares held by other shareholders would give them only 55 votes in total. Thus Liu Co would have control.
Lee Co owns 45% of the shares in Wang Co, but thanks to a shareholders’ agreement, has the right to appoint 7 of the 10 directors of Wang Co. While Lee Co owns less than 50% of the shares in Wang Co, the ability to appoint 7 out of 10 directors is likely to give Lee Co control over the company.
Hiu Co owns 60% of the shares of Jung Co but may only appoint 2 of the 7 directors. The case of Hiu Co is the opposite to that of Lee Co; Hiu Co owns more than 50% of the shares, which we would expect would give Hiu Co control. However, the agreement that gives Hiu Co the power to appoint only 2Â of the 7 directors would mean that Hiu Co does not have control.
Zhao owns 30% of the equity shares of Deng, and 70% of the preference shares. Preference shares have no votes in general meetings. Zhao Co owns less than 50% of the equity shares in Deng so does not control that company. Preference shares have no votes, so the fact that Zhao Co owns 70% of the preference shares has no relevance.
Activity 1
For each statement below, state whether they are True or False.
A branch has separate legal authority from its owner.
For a business to be a subsidiary, it must be owned 100% by its parent.
Some companies establish operations abroad as subsidiaries to involve local investors.
*Please use the notes feature in the toolbar to help formulate your answer.
Many companies operate in groups. This is because they will be linked to established brands with customer loyalty or prestige. Some businesses will operate as groups to bring together different parts of the production process.
For example, a manufacturer of electronic goods may buy the shares of a major supplier of its components.
Preparing the Consolidated SFP
Format of CSFP
Example 4
Pamtish Co owns a subsidiary called Sassam Co and now prepares the Consolidated Statement of Financial Position.
·        Tangible non-current assets: The non-current assets (Property, plant and equipment) in the SFPs of Pamtish Co and Sassam Co are added together.
·        Goodwill: Goodwill is the difference between the fair value of Pamtish Co’s investment in Sassam Co and the fair value of Sassam Co’s net assets.
·        Current Assets: The current assets in the SFPs of Pamtish Co and Sassam Co are added together.
·        Share Capital: Only the share capital value of Pamtish Co is reflected in the CSFP, not Sassam Co‘s.
·        Retained Earnings: The retained earnings figure = Pamtish Co’s retained earnings + Pamtish Co’s share of Sassam Co’s retained earnings after Pamtish Co acquired Sassam Co. (post-acquisition profits).
·        Non-Controlling Interest: Non-controlling interest is the share in the group’s net assets that belong to Sassam Co’s other shareholders.
There is a separate subtotal before non-controlling interest to emphasise how much of the group belongs to Pamtish Co and how much to Sassam Co’s other shareholders.
·        Non-current liabilities: The non-current liabilities in the SFPs of Pamtish Co and Sassam Co are added together.
·        Current liabilities: The current liabilities in the SFPs of Pamtish Co and Sassam Co are added together.
Steps to Prepare the CSFP
The steps to prepare the consolidated statement of financial position are as follows
The assets and liabilities of the parent and subsidiary are totalled. The following adjustments are made to the assets and liabilities amount:
Any amounts owed from/ to each other are deducted
Adjust for inventory
Adjust for any unrealised profit
Adjust non-current assets to fair value if there are differences between fair value and carrying amount.
Only the parent’s share capital and share premium are included in the CSFP.
Goodwill is the difference between the fair value of the parent’s investment in the subsidiary and the fair value of the subsidiary’s net assets.
The non-controlling interest is the subsidiary’s net assets that do not belong to the parent company.
The retained earnings to be reflected in the CSFP are the parent’s retained earnings and the parent’s share of the subsidiary’s post-acquisition retained earnings.
Example 6 (Wholly Owned)
Panna Co set up a subsidiary, Sesmond Co, on 1 January 20X1 and paid cash into the subsidiary’s bank account of $100,000 for Sesmond Co’s entire share capital of 100,000 $1 shares.
The SFP has been prepared for the year ended 31 December 20X1 as follows:
Panna Co
Sesmond Co
$’000
ASSETS
Non-current assets
Tangible non-current assets
3,500
950
Investment in subsidiary
100
3,600
Current assets
750
290
Total assets
4,350
1,240
EQUITY AND LIABILITIES
Equity
2,900
960
Total equity
3,900
1,060
Current liabilities
180
Total equity and liabilities
From the available SFP figures above, the following steps are made to prepare the consolidated CSFP.
Add the assets and liabilities:
Tangible non-current assets are $3,500 + $950 = $4,450
Current assets are $750 + $290 = $1,040
Current liabilities are $450 + $180 = $630
Insert parent’s share capital of $1,000
Calculate goodwill
Goodwill is nil in this scenario as shares were acquired at cost.
Calculate non-controlling interest (NCI)
There is no NCI as Panna Co owns 100% of the subsidiary, Sesmond Co.
Calculate reserves:
The parent’s retained earnings are $2,900.
The parent’s share of subsidiary’s post-acquisition retained earnings = 100% × $960 = $960
The total retained earnings to be reflected in the CSFP is $2,900 + $960 = $3,860
The Consolidated Statement of Financial Position is as follows:
Group
4,450
1,040
5,490
3,860
4,860
630
This is a simple example where the parent company sets up (not acquires) the subsidiary, which the parent owns wholly (100%).
In reality, parent companies may acquire subsidiaries that have been trading for a while and not wholly, leading to a non-controlling interest.
Activity 2
Passan Co set up a new subsidiary, Sinta Co, in a neighbouring country on 1 April 20X5. It contributed $500,000 for all of Sinta Co’s one million $0.50 shares. Passan Co and Sinta Co Statements of Financial Position as at 31 March 20X6:
Sinta Co
7,150
3,420
7,650
1,980
1,230
9,630
4,650
2,000
6,530
3,590
8,530
4,090
1,100
Prepare the consolidated SFP for the Passan Group at 31 March 20X6.Pre-Acquisition Reserves and Non-Controlling Interests
A parent company may acquire subsidiaries that have been trading for a while. The determination of pre and post-acquisition retained earnings must be established when preparing the consolidated statement of financial position.
Parent companies may also acquire part (between 50% to 99%) of a subsidiary, which leads to the existence of a non-controlling interest.
Pre-Acquisition Retained Earnings
When a parent acquires a subsidiary, the subsidiary may already have retained earnings in its SFP.
The subsidiaries retained earnings should not be included in the consolidated SFP because it does not belong to the group. The earnings were made before the subsidiary became part of the group and are known as pre-acquisition profits.
The CSFP should only include only the parent’s share of post-acquisition profits. It is calculated as:
Parent’s percentage of share capital x (Retained earnings at SFP date– Retained earnings when subsidiary acquired)
This amount is then added to the parent’s retained earnings.
In the FA/FFA exam, students may be given a figure for post-acquisition profits. This profit will be the profit for the year if the subsidiary was acquired at the start of the year.
Non-Controlling Interest
The non-controlling interest (NCI) is the share of the subsidiary’s net assets owned by shareholders in the subsidiary other than the parent. It is shown as a separate figure as part of equity in the CSFP. No adjustment should be made to the assets and liabilities for the proportion belonging to the NCI.
The non-controlling interest (NCI) to be presented in the CSFP is calculated as follows:
Fair value of NCI at acquisition + NCI’s share of post-acquisition profits
The Fair value of NCI at acquisition is calculated as follows:
Share price of the subsidiary at acquisition × Number of shares held by NCI
The NCI’s share of post-acquisition profits is calculated the same way as the parent’s share but applies the percentage of shares held by the NCI.
NCI’s percentage of share capital × (Retained Earnings at SFP date – Retained Earnings
                              when subsidiary acquired)
Example 7 (Partially Acquired)
Pareq Co bought 75% of the share capital of Suan Co on 1 July 20X7. In the year to 30 June 20X8, Suan Co made profits of $480,000. The fair value of the non-controlling interest at acquisition was $350,000. There was no goodwill arising on acquisition.
The SFP has been prepared for the year ended 30 June 20X8 as follows:
Pareq Co
Suan Co
$ ‘000
9,150
1,590
1,050
–
10,200
3,720
510
13,920
2,100
200
10,360
1,680
11,360
1,880
2,560
220
1. Add the assets and liabilities:
Tangible non-current assets are $9,150 + $1,590 = $10,740
Current assets are $3,720 + $510 = $4,230
Current liabilities are $2,560 + $220 = $2,780
2. Insert parent’s share capital of $1,000
3. Calculate goodwill: The scenario mentions that goodwill is nil.
4. Calculate non-controlling interest (NCI)
5. NCI at acquisition $350 + NCI Share of post-acquisition profits (25% × $480) = $470
6. Calculate reserves:
Parent’s reserves $10,360 + parent’s share of post-acquisition reserves (75% × $480) = $10,720
The consolidated statement of financial position is as follows:
Pareq Group Statement of Financial Position as at 30 June 20X8
10,740
4,230
14,970
10,720
11,720
Non-controlling interest
470
12,190
2,780
Activity 3
Paisley Co purchased 80% of Stranraer Co’s share capital on 1 January 20X2 for $4 per share. At that date, Stranraer Co’s share capital was 500,000 $1 shares, and its retained earnings were $1,500,000. There was no goodwill arising on acquisition.
The SFP has been prepared for the year ended 31 December 20X4 as follows:
Paisley Co
Stranraer Co
11,570
2,830
1,600
13,170
4,440
1,340
17,610
4,170
5,000
9,050
2,850
14,050
3,350
3,560
820
Prepare the consolidated SFP for the Paisley Group at 31 December 20X4.
Goodwill
When a parent acquires a subsidiary, it does not just acquire the tangible assets and liabilities of the subsidiary; It also acquires intangible assets such as the expertise and experience that are not reflected in the subsidiary’s financial statements.
The additional premium the parent pays for this expertise, experience, and other benefits is goodwill.
Goodwill on consolidation represents the difference between the value of the investment in the subsidiary and its net asset’s fair value.
Goodwill on consolidation can only arise if a parent acquires a subsidiary, it cannot arise if the parent sets up a subsidiary.
Goodwill arising on consolidation is included in the non-current asset section of the consolidated Statement of Financial Position. However, goodwill is not included in the parent’s SFP. The parent’s SFP shows the cost of the investment in the subsidiary.
The goodwill to be presented in the consolidated statement of financial position is calculated as follows:
Fair value of consideration
X
Fair value of non-controlling interest
Less fair value of subsidiary’s net assets at acquisition
(X)
Goodwill at acquisition
Goodwill is the premium paid for the subsidiary over the fair value of the subsidiary’s net assets acquired.
The premium is paid for the intangible worth the purchaser places on the subsidiary it has bought. It may relate to a brand, deemed future returns, expertise and experience of managers and staff in the subsidiary. There may also be synergies the parent seeks to drive from the acquisition, such as shared warehousing and finance departments.
Example 8
On 1 April 20X7, Ponsonby Co acquired 60% of the share capital of Smythe Co for $4,500,000. The value of the non-controlling interest on 1 April 20X7 was $2,600,000. The share capital figure in Smythe Co’s financial statements at this date was $2,000,000, and its retained profits were $3,240,000.
The goodwill is calculated as follows:
4,500
2,600
Less fair value of net assets at acquisition
(share capital 2,000 + retained earnings 3,240)
(5,240)
1,860
Activity 4
On 1 September 20X7, Peterhead Co acquired 75% of the share capital of Southtown Co for cash for $5.20 per share. At this date, Southtown Co’s share capital consisted of 500,000 $1 shares, and its retained earnings were $1,890,000.
Calculate the goodwill on the acquisition of Southtown Co.
Fair Value Adjustments
One of the components of the goodwill calculation is the:
Fair Value of Consideration
The fair value of cash consideration is the cash paid for the subsidiary’s shares. If the parent pays for the subsidiary’s shares by exchanging its shares for the subsidiary’s shares, fair value would be calculated as follows:
Fair Value = Number of parent’s shares given × Market price of parent’s shares
The new share issue by the parent will increase its share capital and share premium.
Fair Value of Subsidiary’s Net Assets
The fair value of the subsidiary’s net assets may differ from their carrying amount in its financial statements. This fair value difference is adjusted in the goodwill calculation.
The fair-value adjustment is also made to group non-current assets when they are added together.
In the FA exam, fair value adjustments at acquisition on the subsidiary’s property, plant and equipment (excluding depreciation adjustments) are considered. This is likely to be in relation to land, however, it is possible that another item of PPE could be included, with the instruction that depreciation should be ignored.
Example 9
Potiskum Co acquired 100% of the share capital of Sokoto Co on 1 January 20X7. Sokoto Co exchanged three $0.50 shares in Potiskum Co, valued at $2.50 each, for four $1 shares in Sokoto Co.
On 1 January 20X7, Sokoto Co had 1,200,000 $1 shares in issue and retained profits of $570,000. Land and buildings included in Sokoto Co’s accounting records at $1,900,000 had a fair value of $2,180,000 on 1 January 20X7.
2,250
(Share capital 1,200 + retained earnings 570 + FV adjustment on land & building 280)
(2,050)
The fair value of consideration is the investment in Sokoto Co held by Potiskum Co. Potiskum Co gives three shares in exchange for four in Sokoto Co.
The FV of consideration is 1,200,000 shares × 3/4 × $2.50 = $2,250,000
The FV adjustment of land and buildings is $2,180,000 − $1,900,000 = $280,000
Activity 5
Pembridge Co purchased 80% of the share capital of Shobdon Co on 1 August 20X0.
The consideration was one share in Pembridge Co for one share in Shobdon Co plus a cash payment of $0.30 per share. Pembridge Co has five million $1 shares in issue, and Shobdon Co has one million $0.25 shares in issue. The market value of Pembridge Co shares on 1 August 20X0 was $1.80.
The fair value of the non-controlling interest in Shobdon Co on 1 August 20X0 was $310,000. Shobdon Co’s net assets on its statement of financial position on 1 August 20X0 were $1,650,000, but a valuation of land and buildings at that date showed they were worth $250,000 more than their carrying amount in the statement of financial position.
Calculate the goodwill on the acquisition of Shobdon Co.
Activity 6
On 1 January 20X5, Padiham Co acquired 80% of the share capital of Salcombe Co for $2,090,000. The retained earnings of Salcombe Co were $740,000 on that date, and the non-controlling interest was valued at $630,000. Salcombe Co’s share capital has remained the same since the acquisition.
The following draft statements of financial position for the two companies were prepared at 31 December 20X8.
Padiham Co
Salcombe Co
Investment in Salcombe Co
2,090
Other assets
6,780
3,650
8,870
3,200
1,500
3,220
1,010
6,420
2,510
Liabilities
2,450
1,140
$630,000
$740,000
$1,010,000
$1,500,000
$2,090,000
Equity share capital
NCI as at acquisition
Investment in Salcombe Co held by Padiham Co
$1,140,000
$3,650,000
Intra-Group Trading
According to IFRS 10 Consolidated Financial Statements, any balances between the parent and the subsidiary must be cancelled on consolidation.
It is normal for group companies to trade with each other. For example, a subsidiary may act as a supplier of raw materials to the parent or as a distributor of finished goods from the parent.
The parent and subsidiary’s financial statements may have monies due to or from the other company.
These balances must be eliminated in the CSFP from the respective trade receivables and trade payables totals so that the statement reflects only the group’s trade receivables and trade payables.
Intercompany Trade Receivables and Trade Payables
Group member A owes money to group member B for purchasing goods from B. The debt will be included in the trade receivables of group member B (who sold the goods) and in the trade payables of group member A (who bought the goods).
The balances owing from each group member need to be deducted from the trade receivables and trade payables balance in the consolidated financial statements.
The journal entry to remove the trade receivables and trade payables in the CSFP is:
General Ledger Account
Category
Explanation
DR
Trade Payables
Liability
Remove the payable balance
CR
Trade Receivables
Asset
Remove the receivable balance
Example 10
Trade payables of the parent company include $1,500 due to the subsidiary, and trade payables of the subsidiary include $1,000 due to the parent.
Current Assets
(2,000 + 1,500) − 2,500
Current Liabilities
2,500
(3,500 + 2,500) − 2,500
The parent owes the subsidiary $1,500, so the balance is removed from the group figure. The subsidiary owes the parent $1,000, so the balance is removed from the group figure.
The total balance owed to each other is $1,500 + $1,000 = $2,500, and the journal entry to remove the balance in the SFP is DR Trade Payables $2,500 CR Trade Receivables $2,500.
Intercompany Sales of Inventory
If group member C has sold goods to group member D for a profit and those goods are still in the inventory of group member D at the SFP date, the profit is unrealised from the group’s viewpoint.
Since the goods have not yet been sold outside the group, the unrealised profit must be removed from the consolidated financial statements.
If the parent sells goods to the subsidiary, the unrealised profit is removed in the CSFP with the journal entry below:
Parent’s retained earnings
Eliminate the unrealised profit of the parent
Closing inventory
Reduce the inventory amount
If the subsidiary sells goods to the parent, the unrealised profit is removed in the CSFP with the below journal entry:
Parent’s % of subsidiary’s post retained earnings
Eliminate the unrealised profit of the subsidiary (parent %)
Non-controlling interest %
Eliminate the unrealised profit of the subsidiary (NCI %)
The complication is that part of the unrealised profit belongs to the non-controlling interest. It is deducted the same way the group’s share of the unrealised profit is removed from the group’s retained earnings.
Example 11
The following figures have been taken from the accounting records of the Padstow Group. Padstow Co owns 80% of the share capital of Saltash Co.
Padstow Co
Saltash Co
Inventory
480
270
Trade receivables
600
Trade payables
420
1,640
Padstow Group share of retained earnings of Saltash Co
Non-controlling interest in Saltash Co
1,310
At year-end, Padstow Co owed Saltash Co $18,000 for the goods it had purchased during the year. Padstow Co also had in inventory $15,000 of goods it had purchased from Saltash Co. Saltash Co had made a 50% markup on these goods.
Adjustment 1:
The intercompany trade leads to a trade receivable (subsidiary – Saltash Co) and trade payable (parent – Padstow Co) of $18,000 that needs to be removed. The journal entry is
$18,000
Adjustment 2:
The unrealised profit (URP) for the sale is $15,000 × 50/150% = $5,000. Note that only the profit element is deducted, not the whole inventory.
Since the unrealised profit is from the subsidiary’s sale to the parent, the journal entry is:
Subsidiary’s post retained earnings
5,000 × 80%
$4,000
5,000 × 20%
$1,000
$5,000
The group CSFP should be as follows once the intercompany trading and unrealised profits are adjusted:
(480 + 270) − 5 (Note 2)
745
(600 + 220) − 18 (Note 1)
802
(1,640 + 1,230) − 4 (Note 2)
2,866
1,310 − 1 (Note 2)
1,309
(420 + 180) − 18 (Note 1)
582
Activity 7
Petworth Co owns 80% of the share capital of Slindon Co. The current assets and liabilities of the two companies at 31 December 20X8 were as follows:
Petworth Co
Slindon Co
670
320
540
330
Bank and cash
240
1,450
Bank overdraft
–
140
430
In 20X8, Petworth Co sold goods that cost Petworth Co $70,000 to Slindon Co at a profit margin of 30%. At year-end, 40% of these goods remained in Slindon Co’s inventory. Slindon Co had not yet paid for goods sold that were 25% of the value of 20X8 sales by Petworth Co to Slindon Co.
Petworth Co uses a different bank from Slindon Co.
What figure would be included for inventory in the Petworth Group financial statements as at 31 December 20X8?
What figure would be included for trade receivables in the Petworth Group financial statements as at 31 December 20X8?
What figure would be included for bank and cash in the Petworth Group financial statements as at 31 December 20X8?
What figure would be included for trade payables in the Petworth Group financial statements as at 31 December 20X8?
Mid-Year Acquisitions
So far, it has been assumed that acquisitions occur at the start of the accounting period. In the real world, however, acquisitions can be made at any time (mid-year).
The subsidiary’s retained earnings at the acquisition date must be determined to calculate the goodwill on acquisition.
The consolidated financial statements include the subsidiary’s profits after the acquisition only.
Accounting for Mid-Year Acquisition
Subsidiary’s Profits
Unless told otherwise, it can be assumed that the subsidiary’s profits accrue evenly over the period. For example, if the acquisition takes place four months into the year, four months’ profits will be pre-acquisition profits, and eight months’ profits will be post-acquisition profits.
The fair value of net assets at the date of acquisition is the subsidiary’s opening share capital and reserves plus the profits from the start of the year until the date of acquisition.
The value of non-controlling interest is the value at the start of the year plus the value of the non-controlling interest’s share in profits from the beginning of the year up to the date of acquisition.
Post-Acquisition Profits
Only add profits of the subsidiary made after the date of acquisition to the group’s retained earnings, not the profits for the whole year. Add the non-controlling interest’s share of profits after the acquisition to the non-controlling interest at the date of acquisition.
Example 12
Powerstock Co acquired 80% of Sherborne Co’s shares for $530,000 on 30 September 20X3. On 30 June 20X4, Powerstock Co’s retained earnings were $770,000. Sherborne Co’s share capital on 30 June 20X3 was $200,000, and its retained earnings were $360,000. Sherborne Co did not issue any shares for the year to 30 June 20X4.
Sherborne Co made $80,000 in profits in the year to 30 June 20X4. The value of the non-controlling interest at the date of acquisition was $140,000. Powerstock Co has a financial year-end of 30 June 20X4.
To calculate the goodwill and retained earnings to be included in the CSFP, the pre and post-acquisition profits need to be determined:
The pre-acquisition period is three months:
pre-acquisition profits are ($80,000 × 3/12) = $20,000
post-acquisition profits are ($80,000 × 9/12) = $60,000
Calculate the Goodwill:
The FV of Sherborne Co’s net asset at acquisition = Opening Share Capital $200,000 + Pre-acquisition Profits (Opening 360,000 + during the year $20,000) = $580,000.
530
Less: Fair value of net assets at acquisition
(580)
90
Calculate the Retained Earnings:
The total retained earnings is Powerstock’s RE $770,000 + Powerstock’s share of Sherborne Co’s post-acquisition profit (80% x $60,000) $48,000 = $818,000
Activity 8 (Full Working CSFP)
Pontesbury Co acquired 70% of the share capital of Stokesay Co on 1 April 20X3. The share capital of Stokesay Co was 1,800,000 $1 shares, and Pontesbury Co offered five $0.50 of its shares for every three shares in Stokesay Co.
The market price per share of Pontesbury Co’s shares on 1 April 20X3 was $1.20, and the fair value of the non-controlling interest on the date of acquisition was $710,000.
Extracts from the statements of financial position for the two companies as at 31 March 20X4 are as follows:
Pontesbury Co
Stokesay Co
190
5,470
1,420
230
On 31 March 20X4, Stokesay Co had goods in inventory that it had purchased from Pontesbury Co for $50,000. Pontesbury Co charges a 25% markup on cost. Pontesbury Co had goods in inventory purchased from Stokesay Co for $100,000. Stokesay Co has a profit margin of 20%. At the year-end, Pontesbury Co owed Stokesay Co $30,000 for goods that Pontesbury Co had purchased.
Stokesay Co’s profit for the year to 31 March 20X4 was $150,000. No adjustments have been made to retained earnings or non-controlling interest for intra-company trading.
Complete the calculation of the goodwill on the acquisition of Stokesay Co.
Complete the consolidated SFP by entering the missing numbers.
Extracts from Pontesbury Group Consolidated Statement of Financial Position as at 31 March 20X4
Activity 9 (Full Working CSFP)
Pagham Co acquired 80% of the share capital of Sidlesham Co on 30 September 20X0. The accounting year end of both companies is 31 December.
Pagham Co exchanged one $1 share in Pagham Co plus a cash payment of $0.30 for one share in Sidlesham Co. On 30 September 20X0, the price of Pagham Co shares was $1.50. Sidlesham Co’s share capital throughout 20X0 was 2 million $1 shares and its profit for the year was $280,000.
The fair value of Sidlesham Co’s land and buildings on 30 September was $250,000 more than the value shown in Sidlesham Co’s accounting records.
The fair value of the non-controlling interest at the date of acquisition was $810,000.
Pagham Co and Sidlesham Co’s statements of financial position as at 31 December 20X0 are as follows:
Pagham Co
Sidlesham Co
18,740
3,110
2,880
21,620
3,320
640
24,940
3,750
6,600
Share premium
1,280
14,570
1,370
22,450
3,370
2,490
380
Prepare the Consolidated Statement of Financial Position for the Pagham Group for the year ended 31 December 20X0.
Activity 10 (Full Working CSFP)
Pickering Co acquired 70% of the share capital of Skipton Co on 30 June 20X4 for $2 per share. At that date, Skipton Co had two million $1 shares in issue and had retained earnings of $1,460,000. Land and buildings shown in Skipton Co’s accounting records on 30 June 20X4 for $3,200,000 were valued at $3,340,000.
On 31 March 20X5, Pickering Co owed Skipton Co $200,000 for goods it had purchased from Skipton Co during February 20X5. 50% of those goods were still in Pickering Co’s inventory on 31 March 20X5. Skipton Co makes a markup of 25% on the goods that it sells.
The Statements of Financial Position for Pickering Co and Skipton Co on 31 March 20X5 were as follows:
Pickering Co
Skipton Co
8,920
3,780
2,800
1,110
12,830
 
6,890
1,820
11,890
3,820
940
410
Prepare the Consolidated Statement of Financial Position for the Pickering Group for the year ended 31 March 20X5.
Preparing the Consolidated SPL
Format of CSPL
FA/FFA does not require a consolidated statement of other comprehensive income.
Example 13
Penzance Co owns a subsidiary called Scarborough Co and now prepares the Consolidated Statement of Profit or Loss.
Penzance Group consolidated statement of profit or loss for the year ended 31 December 20X3
$’000
Revenue
8,150
Cost of sales
(5,790)
Gross profit
2,360
Selling expenses
(680)
General and administrative expenses
(740)
Operating profit
Investment income
40
Profit before financing and income taxes
980
Interest expenses
(40)
Profit before income taxes
Income tax expense
(210)
Profit for the year
730
Profit attributable to:
Owners of Penzance
690
·        Revenue – Revenues for Penzance Co and Scarborough Co are added together. Any revenue from sales between them (intercompany trade) is deducted.
·        Cost of Sales – The cost of sales for Penzance Co and Scarborough Co are added together. Any sales value between them (as this is the cost of the sales for the company that has purchased the goods) is deducted.
Adjust (deduct) any provisions made for unrealised profit in the closing inventory. This will lead to lower closing inventory figures and higher cost of sales.
·        Investment Income – Investment income must exclude any dividends the subsidiary pays the parent.
·        Expenses – Sum the parent’s and subsidiary’s figures for selling, general and administrative, interest, and income tax expenses.
Note: The tax implications of intra-group sales are ignored as it is outside the scope of the syllabus.
·        Owners of Penzance – The equity owners (parent) of Penzance (subsidiary) value is = Penzance‘s (parent) profit + Penzance Co’s share of Scarborough Co’s profit − Penzance Co’s share of provision for unrealised profit on closing inventory
·        Non-Controlling Interest (NCI) – The NCI value is = NCI’s share of Scarborough Co’s profit − NCI’s share of provision for unrealised profit on closing inventory (when subsidiary sells to parent).
·        Profit for the Year – This is the group’s entire profit.
In respect of profit totals and subtotals in the CSPL:
Where a full CSPL is provided, a ‘Profit before income taxes’ subtotal will be shown. Although this is not a requirement of IFRS 18, it is expected that most companies will present this line.
Where there is no investing activity (and so operating profit and profit before financing and income taxes are the same figure), a question may state that ‘extracts’ or ‘summaries’ from the CSPL are provided, showing simply the ‘Operating profit’ subtotal. Alternatively, a question may also include the ‘Profit before financing and income taxes’ subtotal, with the figure for operating profit repeated.
Note: Throughout these study materials, where there is no investing activity, the line may be presented as ‘Operating profit/Profit before financing and income taxes’.
Steps to Prepare the CSPL
If the date of acquisition is at the start of the financial year, the subsidiary figures are included in the CSPL entirely.
If the subsidiary is acquired partway through the year, the subsidiary figures are pro-rated before being included in the CSPL.
The revenue and cost of sales need to be adjusted for any unrealised profits on closing inventory.
Revenue = Parent’s revenue + S’s revenue − Intergroup sales
Cost of Sales = Parent’s COS + Subsidiary’s COS − Intergroup sales + Unrealised profits
Add the rest of the figures for the parent and subsidiary in the statement of profit or loss and deduct any dividends paid by the subsidiary to the parent from investment income.
Split profit for the year between the parent and the non-controlling interest (NCI).
Example 14
Patterdale Co acquired 80% of the share capital of Seathwaite Co on 1 January 20X7.
There was no intra-group trading during 20X7.
Patterdale Co and Seathwaite Co statements of profit or loss for the year ended 31 December 20X7:
Patterdale Co
Seathwaite Co
8,170
(6,120)
(810)
2,050
Other operating expenses
(890)
(250)
Operating profit/Profit before financing and income taxes
1,160
170
(270)
Profit
890
130
Determine the date of acquisition:
The subsidiary, Seathwaite Co, is acquired at the start of the financial period. Therefore, there is no pro-rate of Seathwaite’s figures for the CSPL.
Revenue and Cost of Sale:
There is no intra-group trading after the date of acquisition.
Revenue = 8,170 + 1,230 = 9,400
Cost of Sales = 6,120 + 810 = 6,930
Other figures in the SPL:
There is no mention of dividends paid from Seathwaite to Patterdale Co. Add the other figures in the SPL together.
Share of Profit:
Patterdale’s share = Patterdale Co’s profits 890 + Patterdale Co’s share of Seathwaite Co’s profits (80% × 130) = 994
NCI’s share = 20% × 130 = 26
The Consolidated Statement of Profit or Loss is as follows:
Consolidated
9,400
(6,930)
2,470
(1,140)
1,330
(310)
1,020
Equity owners of Patterdale Co
994
26
Activity 11
Pooleybridge Co acquired 60% of the share capital of Seatoller Co on 1 January 20X9. There was no intra-group trading.
Pooleybridge Co and Seatoller Co statements of profit or loss for the year ended 31 December 20X9:
Pooleybridge Co
Seatoller Co
6,730
(4,370)
(1,240)
1,250
(770)
(450)
800
(840)
(320)
Prepare the consolidated SPL for the Pooleybridge Group for the year to 31 December 20X9.
Just as intra-group balances in the Statement of Financial Position must be eliminated on consolidation, so too the effects of all intra-group trading must be removed from the Consolidated Statement of Profit or Loss.
If the parent sells goods to the subsidiary (or vice versa), those sales must be eliminated so that the consolidated profit or loss reflects only those sales (and purchases) transacted with external parties.
To cancel intra-group sales, the total amount of all intra-group sales is deducted from both consolidated revenue and costs of sales. (The seller’s revenue will be the buyer’s purchase price.)
The sales price is deducted from the revenue and the cost of sales. The journal entry to remove the intercompany sales is:
Income
Revenue is deducted by the sale amount
Expense
COS is deducted by the sale amount
Any unrealised profit (URP) will also be removed from the closing inventory portion of the cost of sale. The journal entry to account for the unrealised profit is:
Closing inventory reduces, which increases the cost of sales (expense)
Reduce the closing inventory
The journal entry to account for the dividend paid from the subsidiary is:
Investment/Dividend income
Dividend income is removed
Dividends are paid out of the RE. Thus, the reversal is to the same account.
The following figures have been taken from the accounting records of the Pokesdown Group for the year ended 31 March 20X8. Pokesdown Co purchased 75% of the share capital of Southbourne Co on 1 April 20X7.
Pokesdown Co
Southbourne Co
5,740
3,120
3,030
During the year to 31 March 20X8, Pokesdown Co purchased goods for $120,000 from Southbourne Co and had $40,000 of these goods in inventory at 31 March 20X8. Southbourne Co has a 25% markup on the goods it sells to Pokesdown Co.
Southbourne Co purchased goods for $300,000 from Pokesdown Co and had $80,000 of these goods in inventory at the year’s end. Pokesdown Co makes a 20% profit margin on the goods it sells to Southbourne Co.
The subsidiary is acquired at the start of the financial period. Therefore, there is no pro-rate of the subsidiary’s figures for the CSPL.
Revenue and Cost of sales:
There are intra-group sales of 120 (S to P) and 300 (P to S).
There is an unrealised profit (URP) of (80 × 20/100) + (40 × 25/125) = 24
Revenue = Pokesdown 5,740 + Southbourne 3,120 − Intragroup sales (120 + 300) = 8,440
Cost of Sales = Pokesdown 3,030 + Southbourne 1,450 − Intragroup sales (120 + 300) + URP 24 = 4,084
There is no mention of dividends paid from the subsidiary to the parent company. Add the other figures in the SPL together.
Profit attributable to owners of Pokesdown Co:
Pokesdown profit = 730
Pokesdown’s share of Southbourne’s profit (75% × 380) = 285
URP [P to S: entire URP] = 16
URP [S to P: %] (75% × 8) = 6
Total profit attributable to the parent = 730 + 285 − (16 + 6) = 993
Profit attributable to NCI:
NCI’s share of Southbourne’s profit (25% × 380) = 95
URP [S to P: %] (25% × 8) = 2
Total profit attributable to NCI = 95 − 2 = 93
Extract of Pokesdown Group’s Consolidated Statement of Profit or Loss for the year ended 31 March 20X8
8,440
4,084
1,086
Profit attributable to owners of Pokesdown Co
993
Profit attributable to non-controlling interest
93
Activity 12
Plaistow Co has owned 70% of the share capital of Steyning Co for several years. During the year to 31 October 20X7, Plaistow Co made sales to Steyning Co at a value of $180,000 and with a profit margin of 40%. 50% of these goods remained in Steyning Co’s inventory at 31 October 20X7.
Steyning Co made sales to Plaistow Co at a value of $260,000 and a markup of 30%. 40% of these goods remained in Plaistow Co’s inventory at 31 October 20X7.
There was no opening inventory related to intra-group sales.
The following details are taken from the SPLs of both companies for the year ended 31 October 20X7:
Plaistow Co
Steyning Co
1,840
1,670
280
Activity 13
Poling Co acquired 75% of the share capital of Shipley Co on 1 April 20X2. During the year to 31 March 20X3, Poling Co sold goods costing $1,200,000 to Shipley Co for $1,600,000. On 31 March 20X3, 40% of these goods remained in Shipley Co’s inventory.
The summarised Statements of Profit or Loss for Poling Co and Shipley Co for the year ended 31 March 20X3 were:
Poling Co and Shipley Co’s Statements of Profit or Loss for the year ended 31 March 20X3
Poling Co
Shipley Co
9,200
4,100
(5,750)
(2,240)
3,450
(1,500)
(620)
1,950
(490)
1,460
920
9,200 + 4,100
9,200 + (75% × 4,100)
9,200 + 4,100 + 1,200
9,200 + 4,100 − 1,200
9,200 + 4,100 − 1,600
9,200 + (75% × 4,100) − 1,600
5,750 + 2,240
5,750 + 2,240 − 1,200
5,750 + 2,240 − 1,600
5,750 + 2,240 − 1,200 + (40% × 400)
5,750 + 2,240 − 1,600 + (40% × 400)
5,750 + 2,240 − 1,600 − (40% × 400)
1,460 + 920
1,460 + 920 − 160
1,460 + 920 − 160 − (25% × 920)
1,460 + 920 − 160 − (25% × 920) + (25% × 160)
1,460 + 920 − 160 + (25% × 920) − (25% × 160)
1,460 + 920 − 160 + (25% × 920)
When the parent company acquires a subsidiary partway through the year:
Only the subsidiary’s revenue and costs of the post-acquisition period will be included in the consolidated profit or loss.
The calculation of the NCI’s share of the subsidiary’s profit will be based on post-acquisition profits only.
This is because the subsidiary was only a part of the group for that period. Only intragroup trading after the date of acquisition is excluded on consolidation. For the pre-acquisition period, the subsidiary was not part of the group; Therefore, no adjustment should be made for transactions during that period.
Unless otherwise instructed, always assume that revenue and costs accrue evenly over time.
Example 16
Pewsey Co acquired all the share capital of Salisbury Co on 1 April 20X4.
The SPLs for the two companies for the year ended 31 December 20X4 are shown below.
Pewsey Co
Salisbury Co
4,750
2,940
(2,890)
(1,660)
(420)
860
(280)
(220)
740
Assume Salisbury Co’s income and expenses accrue evenly throughout 20X4. The revenues and cost of sales of the two companies include sales by Pewsey Co to Salisbury Co of $120,000 and sales by Salisbury Co to Pewsey Co of $200,000. There was no unsold inventory relating to these sales on 31 December 20X4.
The financial period is from 1 January 20X4 to 31 December 20X4, and the date of acquisition is 1 April 20X4.
The pre-acquisition period is from 1 Jan to 31 March = 3/12 months
The post-acquisition period is from 1 April to 31 Dec = 9/12 months
Only subsidiary figures after the date of acquisition are included in the CSPL. Therefore, the amount is pro-rated 9/12.
There are intra-group sales (post-acquisition) of 120 and 200, which must be excluded from the revenue and cost of sales.
Revenue = Parent 4,750 + Subsidiary (2,940 × 9/12) − Intragroup sales [(120 × 9/12) + (200 × 9/12)] = 6,715
Cost of Sales = Parent 2,890 + Southbourne (1,660 × 9/12) − Intragroup sales [(120 × 9/12) + (200 × 9/12)] = 3,895
There is no mention of dividends paid from the subsidiary to the parent company. Add the other figures in the SPL together. The subsidiary’s figures must be pro-rated to reflect only 9 out of the 12 months.
Profit Attributable to owners of Pewsey Co:
Pewsey profit = 740
Pewsey’s share of Salisbury’s profit (100% × 640 × 9/12) = 480
Total profit attributable to the parent = 740 + 480 =Â 1,220
Since Pewsey Co owns 100% of Salisbury Co, no NCI exists.
The consolidated statement of profit or loss is as follows:
Pewsey Group’s consolidated statement of profit or loss for the year ended 31 December 20X4
6,715
(3,895)
2,820
(1,155)
1,665
(445)
1,220
Activity 14
Pangbourne Co acquired 80% of the share capital of Sunningdale Co on 1 November 20X6. The summarised SPLs for the two companies for the year ended 30 June 20X7 are shown below.
Pangbourne Co and Sunningdale Co statements of profit or loss for the year ended 30 June 20X7
Pangbourne Co
Sunningdale Co
12,980
4,770
(8,120)
(2,430)
2,340
(2,310)
(1,440)
2,550
900
(600)
During the year to 30 June 20X7, Pangbourne Co sold goods for $150,000 to Sunningdale Co, and Sunningdale Co sold goods worth $105,000 to Pangbourne Co. There was no unsold inventory held by either company relating to these sales on 30 June 20X7.
Use the information provided to prepare the consolidated SPL for the Pangbourne Group for the year to 30 June 20X7.
Activity 15 (Full Working CSPL)
Pershore Co acquired 90% of the share capital of Stourport Co on 1 July 20X0. During the year to 30 June 20X1, Pershore Co sold goods costing $900,000 to Stourport Co for $1,200,000. 35% of these goods remained in Stourport Co’s inventory at 30 June 20X1. Stourport Co sold goods to Pershore Co for $1,000,000 at a profit margin of 25%. 20% of these goods remained in Pershore Co’s inventory at 30 June 20X1.
The summarised SPLs for the two companies for the year ended 30 June 20X1 are shown below:
Pershore Co
Stourport Co
15,440
8,000
(9,980)
(4,460)
5,460
3,540
(1,230)
(920)
(670)
(510)
2,110
(860)
(570)
2,700
1,540
Using the information provided above, prepare the consolidated SPL for the Pershore Group for the year to 30 June 20X1.
Activity 16 (Full Working CSPL)
Penshurst Co acquired 80% of the share capital of Sandling Co on 30 June 20X8. The summarised SPLs for the two companies for the year ended 30 September 20X8 are shown below.
Penshurst Co and Sandling Co statements of profit or loss for the year ended 30 September 20X8
Penshurst Co
Sandling Co
13,500
(14,970)
(6,420)
7,480
7,080
(2,390)
(1,820)
5,090
5,260
(1,400)
(1,360)
3,690
All Sandling Co’s revenue and expenses accrued evenly over the year to 30 September 20X8. This included sales worth $240,000 to Penshurst Co. Penshurst Co made sales worth $300,000 to Sandling Co between 1 October 20X7 and 30 June 20X8 and $130,000 between 1 July 20X8 and 30 September 20X8.
There was no inventory relating to these sales held by either company on 30 September 20X8.
The group revalued Non-current assets during the year ended 30 September 20X8 resulting in a gain on revaluation of $400,000.
Using the information provided above, prepare the consolidated SPL for the Penshurst Group for the year to 30 September 20X8.
Introduction to Associates
The consolidated financial statements include the financial results of a parent and its subsidiary. A subsidiary is an entity that can be controlled and owned by the parent.
A parent company may invest in another entity, which leads to the investor having significant influence over the company but not a controlling interest. As the company does not control the entity, it cannot be classified as a subsidiary. Instead, this is a relationship known as an associate.
Definition and Identification
Definition
An associate is an entity in which a company has invested and where the investor has significant influence over the investment entity.
Significant Influence:
A holding of 20% or more of the voting rights of the investee indicates significant influence, unless it can be demonstrated otherwise.
A holding of less than 20% presumes that the holder does not have significant influence, unless such influence can be clearly demonstrated (e.g. representation on the board).
Activity 17
For each of the following statements, state whether there is evidence of significant influence.
Goodwill arises on the acquisition of the investment.
There is a non-controlling interest in the investment.
The investor holds 10% of equity shares in the investment.
The investor has the power to participate in the operating policy decisions of the investee.
The investor assigns one of its directors to the senior management team of the investee.
Equity Accounting
The method used to account for associates is called equity accounting. IAS 28 Investment in Associates requires that the equity method of accounting be used to incorporate the results of the associate into consolidated financial statements.
Under equity accounting, the investor includes its share of the associate’s post-tax profits, whether or not the profits are distributed as dividends.
Equity accounting is only used in consolidated financial statements. If the investor does not prepare consolidated financial statements it will not use equity accounting.
Associates in the Financial Statements
The investor includes a single line item, ‘Investment in the Associate’, in the Non-current assets section at cost in its SFP, the same way an investment in a subsidiary would be accounted for.
IFRS 18 Presentation and Disclosure in Financial Statements requires that any dividends received from the associate are included in the investor’s SPLOCI as investment income in the investing category.
The CSFP includes a single line item, ‘Investment in Associate’, in the Non-current assets section at cost plus the investor’s share of post-acquisition profits.
The change each year will be the investor’s share of post-tax profit minus dividends. Dividends are deducted because they are an appropriation of profits. Bank and cash will increase by dividends received.
The investor’s share of profit for the year is included in the CSPL as a single item, ‘Share of profit of the associate’ above profit before tax.
The FA/FFA exam will not test associate calculations using the equity accounting method. However, the principles of equity accounting are examinable.
Example 17
Portslade Co acquired a 30% share of the equity share capital of Aldrington Co on 1 January 20X5 for $450,000.
Aldrington Co’s profits were $150,000 for the year to 31 December 20X5 and $180,000 for the year to 31 December 20X6. Portslade Co did not receive any dividends from Aldrington Co in 20X5 but received a dividend from Aldrington Co of $20,000 on 31 August 20X6.
Portslade Co also has two subsidiaries and therefore prepares consolidated financial statements.
Portslade’s financial statement is as follows:
Portslade Co’s own financial statements
Statement of financial position
Investment in associate
Statement of Profit or Loss and Other Comprehensive Income
20
The associate will be reflected in the consolidated financial statement as follows:
Portslade Group’s Consolidated SFP
Statement of Financial Position
529
Workings:
Cost of investment
Share of 20X5 profits (30% × $150,000)
45
Investment in associate at 31 December 20X5
495
Share of 20X6 profits (30% × $180,000)
54
Less: Dividend received from associate
(20)
Investment in associate at 31 December 20X6
Portslade Group’s consolidated SPL&OCI
Statement of Profit or Loss and Other Comprehensive income
Share of profit of associate
Effectively the journal entries are:
DR Investment in associate (SFP)
CR Share of profit of associate (SPLOCI) with share of associate’s profit for the year
DR Bank and cash
CR Investment in associate (SFP) with dividend received from associate in year
Activity 18
Pevensey Co acquired 40% of the ordinary (equity) shares of Alfriston Co on 1 January 20X3 for a cash payment of $260,000.
Pevensey Co’s share of Alfriston Co’s profits between 1 January 20X3 and 30 June 20X6 was $170,000.
Alfriston Co made post-tax profits of $120,000 for the year ended 30 June 20X7, and Pevensey Co received a dividend of $14,000 from Alfriston Co in November 20X6.
Use the information above to prepare Pevensey’s financial statements and the consolidated financial statements for the Pevensey Group for the year ended 30 June 20X7.
Pevensey Co’s own financial statements
SFP
SPLOCI
Pevensey Group’s consolidated financial statements
Share of profit of associates
Activity 19
Porchfield Co owns 30% of the equity share capital of another company, Alverstone Co. Porchfield Co prepares consolidated financial statements, and Alverstone Co is classified as Porchfield Co’s associate.
For each statement about the above scenario, determine whether it is True or False.
Dividends received from Alverstone Co are included in Porchfield Co’s Statement of Profit or Loss and Other Comprehensive Income.
Alverstone Co’s revenues and costs are added to the consolidated SPL on a line-by-line basis.
The consolidated SFP includes an amount for ‘Investment in Associate’, which is the original cost of investment plus Porchfield Co’s share of Alverstone Co’s profits.
