9 The consolidated statement of profit or loss and other comprehensive income Flashcards
The consolidated statement of profit or loss combines the financial statements of parent and subsidiary (subsidiaries) to present the results for the accounting period as the results of a single economic unit.
It is customary in practice to prepare a working paper (known as a consolidation schedule) on which the individual statements of profit or loss are set out side by side and totalled to form the basis of the consolidated statement of profit or loss. True/ false
The consolidated statement of profit or loss combines the financial statements of parent and subsidiary (subsidiaries) to present the results for the accounting period as the results of a single economic unit.
It is customary in practice to prepare a working paper (known as a consolidation schedule) on which the individual statements of profit or loss are set out side by side and totalled to form the basis of the consolidated statement of profit or loss
Intra-group sales and purchases are eliminated from the consolidated statement of profit or loss. True/false
Intra-group sales and purchases are eliminated from the consolidated statement of profit or loss.
Only the post-acquisition profits of the subsidiary are brought into the consolidated profit or loss.
As explained above, the figure for retained earnings carried forward must be the same as the figure for retained earnings in the consolidated statement of financial position. We have seen in previous chapters that retained earnings in the consolidated statement of financial position comprise:
(a) The whole of the parent company’s retained earnings
(b) A proportion of the subsidiary company’s retained earnings. The proportion is the group’s share of post-acquisition retained earnings in the subsidiary. From the total retained earnings of the subsidiary we must therefore exclude both the non-controlling share of total retained earnings and the group’s share of pre-acquisition retained earnings.
What is the purpose of consolidated statement of profit or loss
Purpose To show the results of the group for an accounting period as if it were a single entity
What is Sales revenue to profit for year and the Reason for it?
Sales revenue to profit for year
100% P + 100% S (excluding adjustments for intra-group transactions)
Reason To show the results of the group which were controlled by the parent company
What is Intra-group sales an Unrealised profit on intra-group sales?
Intra-group sales Strip out intra-group activity from both sales revenue and cost of sales Unrealised profit on intra-group sales (a) Goods sold by P. Increase cost of sales by unrealised profit (b) Goods sold by S. Increase cost of sales by full amount of unrealised profit and decrease non-controlling interest by their share of unrealised profit
What is Depreciation consolidated statement of profit or loss?
If the value of S’s non-current assets have been subjected to a fair value uplift then any additional depreciation must be charged to profit or loss. The non-controlling interest will need to be adjusted for their share.
What is Transfer of noncurrent assets and Non-controlling interests. Give a reason
Transfer of noncurrent assets
Expenses must be increased by any profit on the transfer and reduced by any additional depreciation arising from the increased carrying value of the asset.
Non-controlling interests
S’s profit after tax (PAT) X Less: *unrealised profit (X) *profit on disposal of non-current assets (X) additional depreciation following FV uplift (X) Add: **additional depreciation following disposal of non-current assets X X NCI% X *Only applicable if sales of goods and non-current assets made by subsidiary. **Only applicable if sale of non-current assets made by subsidiary
Reason
To show the extent to which profits generated through P’s control are in fact owned by other parties
The consolidated statement of profit or loss and other comprehensive income
The consolidated statement of profit or loss and other comprehensive income is produced using the consolidated statement of profit or loss as a basis.
The only items of other comprehensive income that are included in your syllabus are revaluation gains and losses, so a consolidated statement of profit or loss and other comprehensive income will be easy to produce once you have done the consolidated statement of profit or loss. True/ false
The consolidated statement of profit or loss and other comprehensive income
The consolidated statement of profit or loss and other comprehensive income is produced using the consolidated statement of profit or loss as a basis.
The only items of other comprehensive income that are included in your syllabus are revaluation gains and losses, so a consolidated statement of profit or loss and other comprehensive income will be easy to produce once you have done the consolidated statement of profit or loss
Disposals
The consolidated statement of profit or loss will include the results of subsidiaries disposed of up to the date of disposal.
When a subsidiary is disposed of, this must be accounted for in both the parent’s separate financial statements and the consolidated financial statements.
The consolidated statement of profit or loss will include the results of subsidiaries disposed of up to the date of disposal.
When a subsidiary is disposed of, this must be accounted for in both the parent’s separate financial statements and the consolidated financial statements.
Parent’s separate financial statements
This calculation is straightforward: the proceeds are compared with the carrying amount of the investment sold. The investment will be held at cost or at fair value if held as an investment in equity instruments:
$ Fair value of consideration received X Less carrying amount of investment disposed of (X) Profit/(loss) on disposal X/(X)
(a) Statement of profit or loss and other comprehensive income (2 reasons)
(b) Statement of financial position
There will be no non-controlling interest and no consolidation as there is no subsidiary at the date the statement of financial position is being prepared.
(i) Consolidate results and non-controlling interest to the date of disposal. (ii) Show the group profit or loss on disposal
The group profit or loss on disposal is the difference between the sales proceeds and the group’s investment in the subsidiary. This investment consists of the group’s share of the subsidiary’s net assets up to the date of disposal, plus any remaining goodwill in the subsidiary, minus any dividends received from the subsidiary during the period:
The basic proforma is as follows: $ $ Fair value of consideration received X Less: share of consolidated carrying amount at date of disposal net assets X goodwill X less non-controlling interests (X) (X) Profit/(loss) on disposal X/(X)
Where does unrealised profit on intra-group trading appear in the statement of profit or loss?
As a deduction from consolidated gross profit.
What amount should be presented in the consolidated statement of financial position in respect of a subsidiary which has been sold?
A subsidiary which has been sold is not owned at the end of the year, so no amount will be shown in the statement of financial position
