Consolidated statement of profit or loss

Question 1

What are the basic principles of consolidated statement of profit or loss?

Answer 1

• from revenue down to profit for the year include all of P’s income and expenses plus all of S’s income and expenses
• after profit for the year show split of profit between amounts attributable to parent’s shareholders and those attributable to the non-controlling interest (to reflect ownership)

Question 2

What is the standard approach when producing a consolidated statement of profit or loss?

Answer 2

• group structure diagram
• proforma statement of profit or loss, combining income and expense for both parent and subsidiary
• workings for any adjustments detailed in the question, e.g. PUP, fair value, depreciation
• non-controlling interest share of profit

Question 3

Non-controlling interest calculation?

Answer 3

Subsidiary’s profit after tax x
Less
- Fair value depreciation (x)
- PUP (where sub. is seller) (x)
- Impairment (if fair value method) (X)
= Adjusted subsidiary profit x
NCI %

Question 4

Intra-group trading

Answer 4

Consolidated sales revenue = P’s revenue + S’s revenue - intra-group sales
Consolidated cost of sales = P’s COS + S’s COS - intra-group sales

Question 5

Mid-year acquisition procedure for consolidated statement of profit or loss

Answer 5

• identification of the net assets of S at the date of acquisition in order to calculate goodwill
• time apportionment of the results of S in the year of acquisition. For this purpose, unless indicated otherwise, assume that revenue and expenses accrue evenly
• after time-apportioning S’s results, deduction of post-acquisition intra-group items as normal

Question 6

What transactions we need to pay attention as they may no be at market value?

Answer 6

• intra-group loans
• intra-group sales/purchases
• unrealised profit
• shared costs/assets