FAC2602
Learning
Unit 6 2022
, LEARNING OUTCOME
You should be able to consolidate the financial statements of a group of companies
where the interest in a subsidiary was acquired on a date other than at the end of the
financial year in accordance with International Financial Reporting Standards.
OVERVIEW
6.1 INTRODUCTION .................................................................................................. 2
6.2 APPORTIONMENT OF ITEMS IN THE STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME .................................................................. 2
6.3 APPORTIONMENT OF ITEMS IN THE STATEMENT OF CHANGES IN EQUITY
.............................................................................................................................. 3
6.4 PRESENTATION OF THE CONSOLIDATED STATEMENT OF PROFIT OR
LOSS AND OTHER COMPREHENSIVE INCOME AND THE CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY ............................................................ 3
6.5 EFFECTIVE DATE OF ACQUISITION ................................................................. 9
6.6 EXERCISE ........................................................................................................... 9
SELF-ASSESSMENT .................................................................................................... 16
KEY CONCEPTS
• Current-year profit apportionment
• Allocate profits pre-acquisition
• Allocate profits post-acquisition
• Pro forma consolidation entries
1
, ASSESSMENT CRITERIA
After studying this learning unit, you should be able to:
• allocate the profit of the subsidiary in the year of acquisition
between the pre- and post-acquisition periods
• draft the consolidated annual financial statements where the
interest in a subsidiary was acquired on a date other than at the
end of the financial year in accordance with IFRS
• do the pro forma consolidation journal entries
6.1 INTRODUCTION
In the preceding learning units, the date of acquisition of an interest in a subsidiary has
always been the first day of the subsidiary's accounting period. In practice, the effective
date on which the delivery of shares takes place very rarely coincides with the end of a
financial year. The purchase of an interest in a subsidiary at a date other than the
accounting date is known as the interim acquisition of a subsidiary. We therefore need to
allocate items in the statement of profit or loss and other comprehensive income (to pre-
and post-acquisition date periods) to determine the amount of retained earnings at the
effective date of acquisition, which is a prerequisite for determining the goodwill at the
date of acquisition.
6.2 APPORTIONMENT OF ITEMS IN THE STATEMENT OF PROFIT OR
LOSS AND OTHER COMPREHENSIVE INCOME
If it is not practicable to apportion the profit or loss of the subsidiary for any financial year
with reference to the facts, we may treat it as if it accrued evenly from day to day during
the year and apportion it accordingly.
We must examine income and expenditure items individually to determine the basis on
which we should apportion each item between the period before acquisition and the
period since acquisition.
2
Learning
Unit 6 2022
, LEARNING OUTCOME
You should be able to consolidate the financial statements of a group of companies
where the interest in a subsidiary was acquired on a date other than at the end of the
financial year in accordance with International Financial Reporting Standards.
OVERVIEW
6.1 INTRODUCTION .................................................................................................. 2
6.2 APPORTIONMENT OF ITEMS IN THE STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME .................................................................. 2
6.3 APPORTIONMENT OF ITEMS IN THE STATEMENT OF CHANGES IN EQUITY
.............................................................................................................................. 3
6.4 PRESENTATION OF THE CONSOLIDATED STATEMENT OF PROFIT OR
LOSS AND OTHER COMPREHENSIVE INCOME AND THE CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY ............................................................ 3
6.5 EFFECTIVE DATE OF ACQUISITION ................................................................. 9
6.6 EXERCISE ........................................................................................................... 9
SELF-ASSESSMENT .................................................................................................... 16
KEY CONCEPTS
• Current-year profit apportionment
• Allocate profits pre-acquisition
• Allocate profits post-acquisition
• Pro forma consolidation entries
1
, ASSESSMENT CRITERIA
After studying this learning unit, you should be able to:
• allocate the profit of the subsidiary in the year of acquisition
between the pre- and post-acquisition periods
• draft the consolidated annual financial statements where the
interest in a subsidiary was acquired on a date other than at the
end of the financial year in accordance with IFRS
• do the pro forma consolidation journal entries
6.1 INTRODUCTION
In the preceding learning units, the date of acquisition of an interest in a subsidiary has
always been the first day of the subsidiary's accounting period. In practice, the effective
date on which the delivery of shares takes place very rarely coincides with the end of a
financial year. The purchase of an interest in a subsidiary at a date other than the
accounting date is known as the interim acquisition of a subsidiary. We therefore need to
allocate items in the statement of profit or loss and other comprehensive income (to pre-
and post-acquisition date periods) to determine the amount of retained earnings at the
effective date of acquisition, which is a prerequisite for determining the goodwill at the
date of acquisition.
6.2 APPORTIONMENT OF ITEMS IN THE STATEMENT OF PROFIT OR
LOSS AND OTHER COMPREHENSIVE INCOME
If it is not practicable to apportion the profit or loss of the subsidiary for any financial year
with reference to the facts, we may treat it as if it accrued evenly from day to day during
the year and apportion it accordingly.
We must examine income and expenditure items individually to determine the basis on
which we should apportion each item between the period before acquisition and the
period since acquisition.
2
