Consolidated Financial Statement
• When a parent company acquires a majority shareholding (> 50%) of an entity
then it is said to have assumed control of it
• Control surrounds the concept of being influential and making key decisions
relating to the entity that the company has acquired
• The entity acquired is referred to as a subsidiary and IFRS requires us to produce
consolidated financial statements that reflect the financial position of the group
• The parent and subsidiary are looked at as a single entity, their financial
statements are consolidated on a line-by-line basis
• However, there will be adjustments and particular workings which will need to
be considered when producing the Consolidated Statement of Financial Position
(Pay attention to acquisitions during the year, pro rata where necessary - e.g.
depreciation, profit)
W1 - Group Structure
Illustration: On 1 January 20X1, Pro acquired 75% of Sun’s 65,000 ordinary shares.
• “Acquired 75%” shows that Pro has attained control of Sun’s and owns 75% of
their shares.
Parent —— Subsidiary: 75%
• As the parent has only acquired 75% of shares, that means there is 25% which
belongs to other investors
Parent —— Subsidiary: 75%, Parent: 75% / NCI: 25%
• These other investors are known as non-controlling interests (NCI) and they
should also be highlighted in W1. They are not part of the group structure so
adjustments will need to be made to account for items in the Consolidated
Statement of Financial Position (CSFP) that they are also entitled to a portion of
, W2 - Net assets of subsidiary
When valuing a subsidiary, net assets are what is considered to be its worth.
• We use this calculation as it becomes extremely relevant in measuring how
much consideration was given to acquire the subsidiary in comparison to what
it’s worth
o This difference is goodwill (W3)
• Post-acquisition reserves refer to the difference of the balances from when the
subsidiary was acquired and what it was at the reporting date. The total will be
allocated to the Parent and NCI according to the % of the subsidiary shares
they own
Share Capital and Retained Earnings (at acquisition) are taken from the Statement of
Financial Position of the Subsidiary
o Share Capital of subsidiary remains the same at acquisition and
reporting date
o Retained Earnings - Information is usually given on the balance of
retained earnings when the parent acquired the subsidiary. SFP
balance shows the retained earnings at the reporting date
FV (Fair Value) of Asset: In this working, we typically are referring to the revaluation of a
Non-current Asset (NCA) such as Property, Plant and Equipment
• If the asset is revalued and found to have realised a gain in its value then we
recognise this gain at acquisition and at the reporting date
• When a parent company acquires a majority shareholding (> 50%) of an entity
then it is said to have assumed control of it
• Control surrounds the concept of being influential and making key decisions
relating to the entity that the company has acquired
• The entity acquired is referred to as a subsidiary and IFRS requires us to produce
consolidated financial statements that reflect the financial position of the group
• The parent and subsidiary are looked at as a single entity, their financial
statements are consolidated on a line-by-line basis
• However, there will be adjustments and particular workings which will need to
be considered when producing the Consolidated Statement of Financial Position
(Pay attention to acquisitions during the year, pro rata where necessary - e.g.
depreciation, profit)
W1 - Group Structure
Illustration: On 1 January 20X1, Pro acquired 75% of Sun’s 65,000 ordinary shares.
• “Acquired 75%” shows that Pro has attained control of Sun’s and owns 75% of
their shares.
Parent —— Subsidiary: 75%
• As the parent has only acquired 75% of shares, that means there is 25% which
belongs to other investors
Parent —— Subsidiary: 75%, Parent: 75% / NCI: 25%
• These other investors are known as non-controlling interests (NCI) and they
should also be highlighted in W1. They are not part of the group structure so
adjustments will need to be made to account for items in the Consolidated
Statement of Financial Position (CSFP) that they are also entitled to a portion of
, W2 - Net assets of subsidiary
When valuing a subsidiary, net assets are what is considered to be its worth.
• We use this calculation as it becomes extremely relevant in measuring how
much consideration was given to acquire the subsidiary in comparison to what
it’s worth
o This difference is goodwill (W3)
• Post-acquisition reserves refer to the difference of the balances from when the
subsidiary was acquired and what it was at the reporting date. The total will be
allocated to the Parent and NCI according to the % of the subsidiary shares
they own
Share Capital and Retained Earnings (at acquisition) are taken from the Statement of
Financial Position of the Subsidiary
o Share Capital of subsidiary remains the same at acquisition and
reporting date
o Retained Earnings - Information is usually given on the balance of
retained earnings when the parent acquired the subsidiary. SFP
balance shows the retained earnings at the reporting date
FV (Fair Value) of Asset: In this working, we typically are referring to the revaluation of a
Non-current Asset (NCA) such as Property, Plant and Equipment
• If the asset is revalued and found to have realised a gain in its value then we
recognise this gain at acquisition and at the reporting date
