Chapter 15 Group accounts: consolidated statements of financial performance Flashcards
1.1 Principles of the P+L
The CP+L takes the following form: from revenue to profit for the year include 100% of parents figures and 100% of subsidiaries figures. After profit for the year deduct the share of profits due to non-controlling interest. Make adjustments for intra group items such as sales of goods and dividends.
2.1 Consolidated P+L adjustments – acquisitions part way through period
The subsidiary’s results should only be consolidated from the date of acquisition. this will require time appointment of the results in the year of acquisition. after time apportioning the results, deduct intra-group items as normal.
2.2 Intra-group trading
The effect of intra-group trading needs to be eliminated from the consolidated P+L. such trading will be included in the sales revenue of one group company and the purchases of another. Consolidated sales revenue is parents revenue plus subsidiaries revenue less intra-group sales.
2.3 Inventory PURPs
If any goods sold intra-group are included in closing inventory, their value must be adjusted to the lower of cost and net realisable value to the group. The required adjustment is Dr Cost of sales of the seller (unrealised profit figure) and Cr Closing inventory in CFP (unrealised profit figure).
2.4 Transfers of non-current assets
If one company sells a non-current asset to another, the following adjustments are needed in the P+L:
- Ant profit or loss arising on the transfer must be deducted from the appropriate category
- The depreciation charge must be adjusted so it is based on the cost of the asset to the group
The PURP adjustment is calculated in the same way as for the CSFP, however if the transfer of the non-current asset took place in a previous year, then only the depreciation charge is adjusted for the year.
2.5 Intra-group interest and management charges
Interest or management charges payable in the P+L of the subsidiary should be cancelled against the receivable in the parent company.
2.6 Impairment of goodwill
Impairment charge for the current year is passed through the consolidated P+L. if the proportionate (share of net assets) basis has been used to calculate NCI, take the impairment charge through the parents column. If the fair value method has been used, take the charge through subsidiaries column.
2.7 Fair value adjustments
When a FV uplift on PPE or an internally generated intangible in subsidiary is recognised on consolidation, this will give rise to FV depreciation/amortisation. The charge for the year will go through subsidiary s column.
2.8 Intra-group dividends
A payment of a dividend by subsidiary to parent is cancelled out. This will reduce the investment income in parents column by the amount of the dividend paid to the parent.
3.1 Statement of changes in equity
Brought forward figures: non-controlling interest b/f is NCI% of subsidiaries net assets at the beginning of the year. Group retained earnings b/f is 100% of parents retained earnings b/f plus parents % of subsidiaries post acquisition retained earnings b/f less goodwill impairment b/f.
Total comprehensive income: These numbers are taken from the consolidated P or L for the year. Profit attributable to parent’s shareholders is included in the retained earnings column. Profit attributable to NCI is included in the NCI column.
Dividends: When parent pays a dividend this reduces group retained earnings. When subsidiary pays a dividend, the NCI will receive a share of the dividend. NCI is therefore reduced by NCI % × subsidiary’s dividend paid.
3.5 Acquisitions part way through a reporting period
On acquisition of a subsidiary, a new non-controlling interest enters the group. This needs to be shown as an addition in the CSOCE as follows:
- B/fwd X
- Profit for the year X
- Dividends paid (X)
- Added on acquisition X*
- C/fwd X
*NCI at acquisition calculated under share of net assets or fair value method.
4.1 UKGAP differences
FRS 102 requires annual amortisation of goodwill balances. This creates an additional expense in the P+L in addition to any impairment which may also be deemed necessary. NCI balances in the CSOCE could be different due to the lack of availability of the fair value method for valuing NCI.
