1

Consolidated Financials

IFRS 10 Consolidated Financials

IFRS 11 Joint arrangements
IFRS 12 Disclosures of Consolidat ed Financials
IFRS3 Business Combination
IAS28 Investment in Associat e

Why Consolidation? Accounitng Concept - Substance overfonn

Legal Economic
legal is not required under accounitng Acconitng says always economic nature of a transaction
 IFRS 10 IAS28 IFRS 9

80% A 51% 20% shareholding to 50% share

1% shareholding to 19% share holding
shareholding to holding
Control Significant influence N either control nor significant influence
60% B
nsdier as Subsidi, Consdier as Associate Consdier as investment

60% C Consolidation Equity Accounting Financial instrument

You are able to You are able to influe nce the

You cant set the policies
setthe policies policies of another company

Majority of
cannot Appointed a single director
Board can Appointed one or two director
208 PATRONIC m Walk in the footsteps of a top tutor

On 1 August 2007 Patronic purchased 18 rrullion of a total o f 24 mlllion equity shares in

Sardonic. The acqulSitlon w as through a share exchange of two shares In Patronic for rvery
three shares In sardonic. Both oompanles have shares with a par value of Sl e~h. The
market pnce of Patronlc's shares at 1 August 2007 was SS.75 per share. Patronic wfll also
pay In <ash on 31 July 2009 (two y Hrs alte< ~qulsltion) S2.4 2 per .c;qu,red share of
Sardonic. Patronlc's cost o f capital Is 10'! per annum. The reserves o f Sardonic: on 1 April
2007 were 569 milllon.
Patronk: has held an Investment of 3°'6 of the equity shares In Acerbic for many years.
Acerbic made a profit o f S6 million In the year.
The summaris<!d statement of profit or loss for the t hree companies for t he year ended
31 March 2008 are:
Parron/c 5atdotlk
$000 $000
Revenue 150,000 78,000
Cost of sales (94,000) (51,000)

Gross profit 56,000 27,000

Distribution ex>sts (7,400) (3,000)
Admlnistrative expenses (U,500) (6,000)
Finance costs (note (11)) (2,000) (9()())

ProRt before w 34,100 17,100

Income w expense (10,400) (3,600)

Profit for the period 23,700 13,500

The folfowin& infom,ation Is relevant:

(ij The fair values o f the n et assets of Sardonic a t the date o f acquisition were equal to
their arry~ i>mounb with the exception of p,opcrty a nd pla nt. Property and plant
had faiT values o f $4.1 million a nd $VI mi1lion respectively In excess of their carrying
amounts The lncn,ase In th e fair value or th" p,operty would creat.. additional
d~tlon of S200,000 in the consor.dated fina ncial statements in the P0St
acquisition P"(lod to 31 March 2008 a nd the plant had a remaining fill, of four years
(stnieht.flne de1>redation) at t he date o f acquisition of Sardonic. Al depreciation Is
treated as part of cost o f sales.
The fair values have not been reRected in Sarclonlc's linanclal statements.
No fair value adjustments were required on the acquisition of Aee rbic.
(ii) The flnanc:e costs of Patronlc do not lnc:lude the finance cost on the d efe<red
consideration
(Ill) Prior to its acquisition, Sardonic h&d been a 1ood customer of Patronlc.. In the ~ar to
31 March 2008, Patronlc sold coods at a sellinc pnce of $1.25 mllllon per mon1h to
Sardonic both before a n d after its acquisition. Patronlc made a profit of 2°"' on the
cost or these sales. At 31 March 2008 Sardonic stUI held inventory of $3 miDion (at
cost to Sardonic) of c oods purchased in the post acquisition period from Pavonlc..
(iv) Patronlc has a po6cy of valuing non-rontrolfing interests using the fair value at the
&it.. of acqu!Sitlon, which was $30.S million. An Impairme nt test on the coodwill of
Sardonic conducted on 3'1 Ma rch 2008 concluded that it should be writttn down by
S2 million. TI,., value o r t he Investment In Aafblc was not Impaired.
(v) All items In the above sa,tement of profit or losses a re di,e med to accrue evenly over
the ~ ar.
(vf) tanore deferred tax.

Required:
(a) Calculate t he cooclwill orislnc on t he o<qulsilion of Sotdon lc at l Aucust 2007.
(8 marb)
(bl Pfel)¥e the consolld.,ted statement of pro fit or loss for the Patronlc Group for the
year fflded 31 Mar<h 2008.
Note: Assume t hat the lnve<tnMent in A<·e rbk has been a«ounted for usinc the
equity method since its acquisition. (17 marks)
 Consolidated Statement of Financial positi'on.

This is five step proce.ss.

IFirst thing need to be done is to create a proforma consolidated Balance Sheet.

I

Assets
NCA
!Land P+S
' Building Adjustment-Add Dep On FV Adjsutment-Gain on NCA sale+Add Dep on NCA transfer
'
Goodwill (W3) Investment in Subsidiary W3
Pat ent P+S+lntangible Assets-Add Amort in lntang
Iinvestment P+S-lntragroup Loans
Investment in Associate W -14 later in class

CA
lnvenotry P+S- PURP+Goods In Transit
Receiables P+S-lntragroup balances-Cash in Transit
Cash P+S+Cash in Transit

Total Assets TN CA+TCA

Equity and l iabilites

Equity
ISC Parent Co
I

'SP Parent Co
GRE ws
GRR W6
Total Parent shareholders Eq uity

NCI W4
Total Equity )00()()(

liabilites
NCl
Loan P+S-lntragroup Loans
Debent ures P+S
, Lease obligation P+S
Equal
Cl
Payables P+S-lntragroup balances+Goods in Transit
Tax Payable P+S
Overdrah P+S

Equity and Liabilites TE+TNCl+TCl

 Workings
Wl
Group Structure

Parent 80% Subsidiary

35% 20% NCI
Associate

W· 2
Net Asset s of Subsidiary A @ RD less AQ date Assat.s ·Ua blulities: Net Assats
Column 1 Column2 Column 3 Capltal=Net Assets
Acquistoin Date Repoting Date Post Acqusltion
SC xxxx xxxx 0
From Subsidiary SP xxxx xxxx 0
Equity portion of 8 / S RE xxxx xxxx Differnece
RR xxxx xxxx Dlffernece
FV adjustments xxxx xxxx Dlffernece Revalution Surplus
lntangiable Assets xxxx xxxx Dlffernece
Add Dep related to FV 0 (XXXX) Differnece
Add Amorti on lntangi 0 (XXXX) Differnece
PURP (If Sub Is seller) 0 (XXXX) Differnece
Add Dep Onn NCA transfer 0 xxxx Differnece
Total xxxxx xxxxxx xxxxx
140,000
W-3 Full GW Partial GW
Goodwill of Subsidiary A FVModel Cost Model FV
Considerat io n paid by parent Company 1sopoo xxxxxx 80% 150,000 150,000
, NCI o n Acq Date 38,000 XXXXXX 20% 28000 38000

Total Consideration 188,000 XXXXXX 178, 000 188, 000

Less Net Asset of Subsidirary A@ Acq Date (W-2) 140poo (XXXXXX) 140,000 140,000

Goodwill @ Acq date 48,000 XXXX 38,000 48,000

Im pairment of GW (XXXX)

Goodwill® RD xxxx

Full Goodwill Partial GoodwiU

If in Question you are provided with the FV of NCI. IN question no FV of NCI is aviaiable then NCI
should be calcualted by Multplying NCI% with
NA of subsidiary @ Acq Date. As calcualted in
W- 2
 W-4
NCI Subsidiary A
NCI of Sub A @ acqusitoin dat e Same as in W3 xxxxxx
Add Post Acq Reserves x NCI% W2xW1 xxxxxx
Less Impairment of GW x NCI% W3xW1 Only if FV or (XXXXXX) Don' t pereform this step
market value if partial GW used.
of NCI

NCI @ Reporting Date xxxxxx

W·S
Group Retained Earnings
Retained Earnings of Parent on RD xxxxxx
Post Acq RE of subsidiary Ax Parent% WlxW2 xxxxxx

Impairment of GW Sub AX Parent% parent share (XXXXX) If Partial GW used then

considered, Total impairment of GW
Only if FVor should be charged to GRE
market value
of NCI

PUPR Sub A ( if Parent seller) (XXXXX)

Income from assocaite xxxxxx

Associate Case Dividend from Associate (XXXXX) Later in Class
PURP * P% (If parent seller) (XXXXX)
GRE@RD xxxxxx
W-6
Group Revalution Reserves
Revaluation reserves o f parent @ RD xxxxxxx
Post Acqusition RR of Subsidiary Ax Parent% W2xW1 xxxxxxx

GRR(§)RO xxxxxx

W7
PURP 1 Inventory
When transaction was incurred between Parent and sbsidiary or exchange any
Provision for unrealized profits 2 Non Current
goods or NCA.
Assets
1 PURP on Inventory
a Mark-up
b Margin

When applying markup and margin you need to make sure that this calcualtion should only
consider goods left with t he Group.
 2 Non Current Assets
Carrying Value Depricition Carrying value Parent company sold an item of machinery to the subsidiary company
at Transfer date During post transfer Reporting Oat.e for$ 100,000 with a remaining useful life of 10 years. At the time of
1st March 20Xl 31st Dec 20Xl transfer the value of machine in Parent books of accounts was$
Parent With transfror 60,000. The transfer took place on 1st of March 20Xl.
what Is th• amount of PURP that require an a djustment In croup
Subsidiary With transfree consoidated financials for the year ended 31st Dec 20Xl.

Difference

This is the PURP.

Cash Consideration
Deferr•d Consld•ratlon
Contlncent consideration
Share Excahnge

Cash consideration This means the cash transferred to t he shareholders of subsidiary.

Deferred Consideration The amount of consideration which was commited by the parent company but needs to be paid at some point later.
WE need to follow the same process as Dismentling cost
W e need to calculate the present value of deferred consideration and this present value should be used for Goodwill calcualtion.
Lat er we need to apply the process of unwinding of discount which should be charged as finance cost to the group statement under WS.
Cont.Incant Considuatlon The amount of consideration which was commited by the parent company depending upon the fulfilment of certain conditions.
WE need to follow the same process as Dismentling cost
W e need to calculate the present value of Contingent consideration and this present value should be used for Goodwill calcualtion.
Lat er we need to apply the process of unwinding of discount which should be charged as finance cost to the group statement under WS.
Share Excahnge Consideration should be the value calculated based on the number of shares issued by parent company X market value of p arent company share
W·9
NCI
Fair v11lu•
1 Ei1her fair value of NCI was provided in question.
2 Share price of the subsidiary company was given and we need to multipfy the market price with the shares o f subsidiary held with NCI.

Coot model = need to multiply the NCI% with the NA of Subsidiary at Acq date (W-2)

W·lO Goodwlll
l Positive Goodwill Then this goodwill must be recorded as asset in consolidated FS. And must be reviewed for impairment annually.
2 Negetive Goodwill When a.ssets acquired in a subsidiary were of higher value compared to the consideration delivered. It named as barga in purchase.
This bargain purchase should be recorded as income in group FS.
W-11 Intra Group Balances Recoverable amount
1 Any trade between parent and subsidairy on credit terms.
Grossing up GW
Parent Subsidiary Partial GW
Seller Buyer %age of Partial GW

Credit Sales Credit Purchases 100% of GW is

100,000 100,000

If on reporting date these balances are outstanding then we need to eliminate.

w-12 In t@ Group Loc1ns

1 Parent has given a loan to Subsidiary or vice versa.

We need to elimiate both loan given and loan received along with interest inccome and Expense from consolidated FS.

W-13 Cash or goods intransit

1 During the intragroup trading either parent company or subsidiary company has Dispatch stocks/ inventory o r sent cash to the other group company which was
not yet recevied by other group entity, this needs to be elimiated.
How to eliminate?
2 We need to complete the transaction assuming either goods or cash was delivered to the other group entity on RD.
3 Then eliminate any intra group balances.
Mid Year Aqusition
1 In case of balance sheet there is no special rules for mid year acqusition. You need to follow the same procedure above with only few important aspects.
2 Under Working 2: We need to make sure that Add Dep and Add Amort is any must be only charged for half a year.
3 Under Working 5: We need to consider that unwinding of discount on deferred and contingent consideration must be time propotioned.
Consolidated Statement of comprehensive income

First Step is always create a performa consolidated income statement

Revenue P+S- intra group

Cost of Goods sold P+S+Add 0ep on Fv adjustment-intra group sales+PURP-NCA intragroup exch add dep

GP xxxx
Admin Exp P+S+add amort int angi
Distru Exp P+S
Selling Exp P+S
Goodwill impairment W3
Investment income P+S-intragroup loan investment- Divident from sub
Income from Associate IAS 28
Gain on 0ispusal of NCA P+S-PURP on 0isp of NCA
PBIT xxxxx
Interest Exp P+S+DC/CC unwinding of disc- lntraGRoup loan interest

PBT xxxx
Taxation P+S

Net Profit XYZ

Profit attributable to: W -3

NCI ABC
Parent DEF
xvz
Other comprehensive income
Revalution Surplus P+S
FVTOCI gain/ Losses P+S
Total OCI LMN

TOTAL comprehensive income .=XYZ+tMN

TCI attributable to: W -4

NCI GHI
Parent KLM
.=XYZ+tMN
 Workinc for consolidat•d SOCI

Wl
lntn1 eroup tradlnc
1 Sal■s and purch11ses of inv■ntory.

1 Elimitate the sales value from both revenus and COGS.

2 PURP on inventory not yet sold to any third party. We need to increase COGS.

Example Parent sold $1000 worth goods to Subsidiary@ markup of 20%. 25% of the goods are still with Subsidairy company.
Unsold inventory to third party
PURP
Individual F.S
P11rent Subsidairy Group Aft■r Adjustm■nts Group b■for• 11djustm■nt
Sales 6,000 6,200 12,200 13,200
COGS
01 100 80 180 180
Purhcases 5,000 3,500 8,500 9,500
Cl 300 108 408 450

COGS 4,800 3,472 8,272 9,230

GP 1,200 2,728 3,928 3,970 42

3,928
 2 Non Current Assets
Gian on Disposal of NCA Eliminate
Additional Dep impact reducue

Carrying Value Depricition Carrying value

at Transfer date During post transfer Reporting Date

Parent Wrth transfror 60,000 5,000 55,000

Subsidiary Wrth transfree 100,000 8,333.33 91,667

Difference 40,000 3,333 36,667

iub
36,667
Deducted from SOCI Reduce Exp from SOCI Adjust in SOFP

3 intra group loans if parent had given loan to subsiudiary

Parent had recorded interest income

Subsidiary had recorded interest Exp

4 Dividend If subsidiary had given dividen to parent then such dividends must be eliminate.
6 Impairment of Goodwill W -3

5 NCI Calcualtion
W-3 Net profi t to NCI
Profit of Subsidairy xxxxx Multiply wit h NCI% xxxxx
PURP (If Sub Seller) (XXXX) Multiply wit h NCI% (XXXX)
Additoina Dep (XXXX) Multiply wit h NCI% (XXXX)
Additoina Amor (XXXX) Multiply with NCI% (XXXX)
If Full GW Method is used Impairment of GW (XXXX) Multiply wit h NCI% (XXXX)

Adjusted Profit of Subsi xxxxxx

NCI Profit Share Multiply with NCI% ABC ABC

W-4 Total Comprehensive income to NCI

Profit of Subsidairy xxxxx Multiply wit h NCI% )0()()()(

PURP (If Sub Seller) (XXXX) Multiply w ith NCI% (XXXX)

Additoina Dep (XXXX) Multiply with NCI% (XXXX)
Additoina Amor (XXXX) Multiply wit h NCI% (XXXX)
If Full GW Method is used Impairment of GW (XXXX) Multiply wit h NCI% (XXXX)
OCI of Sub xxxxx Multiply w ith NCI% )0()()()(

Adjusted Total Compre Income of Sub xxxxxx

NCI TCI Share Multiply with NCI% GHI GHI

Mid year Acqusition
Sub was acquired half the year throuh
First Step is always create a performa consolidated income statement

Revenue P+S/12 • 6-1ntra group sales

Cost of Goods sold P+S/12"6-lntra group Purchases+PURP-Add Dep on ltra Group Sales of NCA

GP xxxx

Admin Exp P+S/12* 6

Distru Exp P+S/12• 6
Selling Exp P+S/12 • 6+Any addiotnal Dep or amortization on FV adjustment on Acq and charged by Sub
Goodwill impairment W-3
Investment income P+S/12• 5- intra Grp- Intra Group Dividend
Gain on Dispusal of NCA P+S/12•6-Gain on Disposal of NCA to Subsidary
PBIT xxxx 3
Interest Exp P+S/12* 6- intra Grp- Intra Group Dividend
Income From Associate w-s
PBT xxxx
Taxation P+S/12•6

Net Profit XYZ

4
Profit attributable to: W-3
NCI ABC 6
Balancing Figurie Parent DEF
s
Other comprehensive income
Revalution Surplus P+S/12"6
FVTOCI gain/ Losses P+S/12• 6
LMN
Total OCI .=XYZ+LMN

TOTAL comprehensive income

TCI attributable to: W-4

NCI GHI
Parent KLM
.=XYZ+LMN