Consolidated Statement of Profit or Loss and Other Comprehensive INcome

Question 1

Key points of the Consolidated SPLOCI

Answer 1

As the parent controls the subsidiary, in order to show the groups performance we show 100% of the parents and subsidiaries revenue and expenses, however as their is a non-controlling interest we must show the proportions of the profits owned by the group and by the NCI.

To be removed:

• Must strip out intercompany items.
• The parent which show dividends from the subsidiary which must be removed and replaced with: “all of the income generated from and/or expenditure caused by the resources the parent controls”

Question 2

Pro-forma for the CSPLOCI

Answer 2

All values are 100% Parent + 100% Subsidiary

Revenue
less:Cost of Sales

Subtotal: Gross Profit

less:Operating expenses
Subtotal: Profit from operations

Investment Income
Subtotal: Profit before tax

less: Income tax expense
Total profit for the year

Other comprehensive income

Total comprehensive income

Question 3

Adjustments
Mid-Year acquisitions
Dividend Income
Interest Income
Impairement of goodwill
Fair Value depreciation
Intra group trading
Provisions for unrealised profits (PURP)

Answer 3

Time apportionment for mid-year acquisitions
- Identify the number of months between acquisition and reporting date and divide by 12 to apportion the value. i.e. value x n/12

exclude: Dividend Income
- If the sub pays a dividend then some of the dividend will be due to the parent as they own the majority shares.
- Any dividends received from the Sub after the date of acquisition are removed from Investment Income.

Interest Income
- Parent loaned sub $2m @ 10% interest.
- $2m x 0.1 = $200k (Time apportion if necessary)
To remove intercompany transaction.
Dr Investment Income $200k
Cr Finance Expense $200k

Impairment of goodwill
- FV Method or Net Assets Method.

IF: Fair Value method is used
- Adjustment is made to Subsidiaries Column under Admin Expenses as the impairment affects the Group and the NCI

IF: Net Assets Method is used
- Adjustment is made to the Parents column under Admin Expenses as the Group bears the full cost of the impairment.

Add: Fair Value Depreciation

• If the PPE of the sub was revalued upon acquisition/consolidation the sub and group will have different NBV’s and depreciation.
• Calculate the difference in NBV and divide by remaining UEL
• Add the extra depreciation charge to the groups accounts

Intra Group Trading
- Sales and Purchases between parent and Sub need to be excluded.
- Parent sells goods to Sub for $20k.
in Consolidated SPL
Dr Revenue $20k
Cr Cost of Sales $20k

Exclude: Provision for Unrealised Profits (PUP)
- Intra group traded inventory that has not been sold yet.
- Sub sells goods to Parent for $300k at gross profit margin of 10%[300 x 0.1]). 20% of stock remain at Y/E. $30k x 0.2 = $6k
Dr Cost of sales (CSPL) $6k expense
Cr Inventory (CSFP) $6k asset

If Sub sells to Parent then also reduce the NCI’s share of the Profit After Tax (PAT) by their share of the PUP. Otherwise no adjustment to PAT.

NCI% of PAT
less: NCI% of PUP
Net PAT of NCI.