Consolidated statement of Profit or Loss Flashcards
What are the basic steps for consolidation of the Statement of Profit or Loss?
- Combine parent and subs Income, expenses and other comprehensive income on a line by line basis. Note where acquisition was part way through the year Subs lines will need to be time apportioned.
- Remove intra group items
- Make consolidation adjustments - PUP, Fair value and Impairment
- Show the split of profit and other comprehensive income between the Parents and NCI.
How is the NCI share of the subs profit and other comprehensive income calculated?
Subs profit after Tax X
PUP (where sub is seller) (X)
Fair value dep’n (X)
Impairment (X)
Adjusted Subs Profit X
Other comprehensive income X
Total Comprehensive income X
Adjusted profit and TCI can then be multiplied by the NCI % to give the value attributable to the NCI.
What are the adjustments that may need to be applied?
Dividend Income - Div’s paid by Sub to P will need to be adjusted out of P’s investment income. Will have been paid from Subs retained earnings.
Interest Income - Intra group loans with finance costs will require adjustments for interest income and finance costs. Watch out for part periods.
Impairment of Goodwill - If under fair value method cost of impairment should be charged to the consolidated SPL.
Fair value Dep’n - Extra Dep’n to charge due to fair value. Include current year charge as an expense in CSPL.
Intra Group Trading - Sales/purchases between the group will need to be excluded.
Provision for Unrealised Profits - Goods sold intra group still in inventory at year end, Increase COS which will reduce profit. When the sale is from Sub to P NCI profit must be adjusted by their share of the PUP.
What happens to the adjustments when the acquisition happens mid year?
- Revenue & expenses are assumed to accrue evenly so are time apportioned.
- Dividends - Pre acquisition included in Net assets, post acquisition are removed.
- Intra Group - Remove transactions that occurred after acquisition
- PUP’s - will relate to inventory left in stock at year end so do not require adjustments.
- Fair Value Dep’n - will need to be pro rated.
- NCI - remember to pro rate sub’s profit after tax.
What is meant by an associate for consolidation purposes?
An associate is an entity over which an investor has significant influence but not control. These are accounted for using equity accounting.
What is equity accounting in relation to associates?
Essentially where the parent equity in the associate is accounted for:
- The financial statements are not consolidated line by line, instead:
- The value of the investment is shown as
- SFP Non Current Asset - Investment in associate
- SPL Below profit from operations - Share of Associate profit.
How does equity accounting affect the standard consolidation workings?
W1 - The Associate/Asset is shown outside of the group structure.
W5 - Consolidated reserves/retained earnings - the parent share of associates post acquisition earnings, Impairment of investment and PUP adjustments are included.
W6 Investment in Associate - this is an additional working that is required.
How is the investment in associate calculated?
Cost of investment X
P% of associates Post acquisition reserves X
Impairment of investment (X)
PUP adjustment (X)
These are the other side of the double entry shown in W5.
What about inter group trading & Fair values?
- Balances with associates - Are not eliminated
- Trading with associates - is not eliminated
- Dividends from associates - removed, replaced with share of associate profit.
- PUP adjustments - Required where sale of goods between P and A occurs and inventory is unsold at year end, adjustment is limited to the parents % share.
- SFP reduce group retained earnings
- SFP reduce investment in associate
- SPL reduce share of associate profit.
How is the share of associate profit calculated?
Parent share of associate profit for the year X
Total impairment for the year (X)
PUP adjustment (X)
Where should the disposal of subsidiary be reflected?
Parent individual statements
- On the SPL after profit from operations
- Tax on any gain is taken from the parents individual statements
Consolidated Financial Statements
- Gain/loss on disposal in SFP, calculated as
Sales Proceeds
Less sum of:
Net assets of the subsidiary at disposal W2
Net goodwill at disposal W3
Less NCI at Disposal.
NOTE - this will be a different value to the parent accounts.
What about consolidation of results - should this continue?
CSPL
- Subsidiary results are consolidated with the parent up to the date of disposal, time apportioned as required.
- Profit/Loss on disposal is taken from the calculation
CSFP
- Subsidiary results are not consolidated, by the reporting date sub is no longer part of the group.
- Profit/loss from disposal is included in retained earnings.
