CIA3001

CORPORATE
ACCOUNTING
ICAEW Strategic Credits

Week 5 Consolidated statements

of financial performance

Semester 1, 2022/2023
 CHAPTER 12: Consolidated
Statements of Financial
performance
1 Consolidated statement of profit or loss
2 Intra-group transactions and unrealized
profit
3 Consolidated statement of profit or loss
workings
4 Acquisitions made part-way through a
reporting period
5 Dividends
6 Other adjustments
7 Consolidated statement of changes in
equity
1 Consolidated statement of profit or loss
Basic principles:
In Chapter 10 we introduced the basic principles and
mechanics involved in the consolidation of the
statement of profit or loss as follows:
Consolidatedstatement of profit or loss (Control)
£
Revenue X
Cost (X)
Profit after tax(PAT) X
(Ownership)
Attributable to:
Ownersof P(β) X
Non-controllinginterest(NCI %* S’sPAT) X
X
1 Consolidated statement of profit or loss
OWNER- SINGLE
CONTROL Dividend SHIP PROFITS ENTITY
Income are CONCEPT Transacti
from S SHARED ons
between: between
Parent (P) group
member
and
Replaced by s are
Non- ELIMII
line-by-line
Controlling NATED
S’s INCOME Interests
and
EXPENSES (NCI)
to derive to
the Profit
After Tax
(PAT) figures PAT is SPLIT
between profit
attributable to
P (balancing
figure, β) and
Shows that NCI
the
INCOME
forthe
GROUP is
generated NCI calculated
from P’s as NCI’s share
CONTROL of S’s PAT after
of S’s NET consolidation
ASSETS adjustments
 2 Intra-group transactions and unrealised profits
Intra-grouptrading

When one company in a group sells goods to another group

member an identical amount is added to the revenue of the first
company and to the cost of sales of the second.

Yet as far as groupasa single entityisconcerned, nosalehas taken place.

The consolidated figures for salesrevenueandcostof sales should
represent sales to, and purchases from thirdparties.

An adjustment is therefore necessary to reduce the sales revenue

and cost of sales figures by theamount of intra-group sales made
during the year. This adjustment is made as follows:
2 Intra-group transactions and unrealised profits
Intra-grouptrading
NOTE:
This adjustment has no effect on profit and hence will have no effect
on the non-controlling interest (NCI) share of profit.

Add across Deduct SINGLE

P and S amount of ENTITY
STEP revenue STEP intra-group CONCEPT

1 and P and 2 sales from

revenue and
S cost of
sales cost of sales

Control concept:
100% of S (all
Revenue and Costs)
2 Intra-group transactions and unrealised profits
Unrealisedprofitsontrading

If any items sold by one group company to another are

includedin inventories(ie, have not been sold on outside the
group by the end of the reporting period), their carrying
amountmustbeadjustedtothelowerof costand NRV tothegroup
(asfor CSFP), again applying the single entity concept.
 2 Intra-group transactions and unrealised profits
Unrealisedprofitsontrading

Steps to set up the provision for unrealised profit

(PURP) are:

Calculate Make a
the provision
Calculate against
amount of the intra-
inventories inventories
STEP remaining
STEP group STEP to reduce
1 2 profit 3 themto cost
at the end included to the
of the in it. group(or
reporting NRV if
period lower)
 2 Intra-group transactions and unrealised profits
Unrealisedprofitsontrading
NOTE:
1. Provision is set up by increasing cost of sales by the amount of the
unrealised profit. (If closing inventory is reduced, cost of sales is
increased.)

2. This provision should always be set against the selling company's profit.
o As a result, where the seller is a subsidiary that is not wholly owned,
the provision reduces the profit for the year for NCI calculations.

3. If the purchasing company sold on to a third party, any profit earned on

those goods will have been realised as far as the group is concerned, so no
adjustment is necessary.
SINGLE
ENTITY
Make provision CONCEPT
against the
inventories to
reduce them
to cost to the group
(or NRV if lower).
 2 Intra-group transactions and unrealised profits

Intragroup Trading

Remove sale from Create PURP(ie,

revenue and cost of increase cost of sale
sale(adj column) of selling company)

Does not affect Affects NCI if S is

NCI selling company
2 Intra-group transactions and unrealised profits

Interactive question 1: Unrealised profits

Whales Ltd owns 7 5 % of Porpoise Ltd. The gross profit for each company for the year ended 31
March 20X7 is calculated as follows:
Whales Porpoise
Ltd Ltd
£ £
Revenue 120,000 70,000
Cost of sales (80,000) (50,000)
Gross profit 40,000 20,000

During the year Porpoise Ltd made sales to Whales Ltd amounting to £30,000. £15,000 of these
sales were in inventories at the year end. Profit made on the year end inventories items
amounted to £2,000.

Requirement
Calculate group revenue, cost of sales and gross profit.
 2 Intra-group transactions and unrealised profits
NOTE:
Whales • The IG sale is deducted from Sales, hence (30k)
• The IG sale is deducted from COS, but because COS is a minus,
75% Sells -(30k) gives rise to a +30k.
Porpoise • The overall impact, i.e. (30)k +30k is 0.
• Hence the IG sale is eliminated.
• P sells to W, Hence P obtains the URP, therefore URP is placed
under Porpoise’s column.
Answer to Interactive question 1
Whales Porpoise
Ltd Ltd Adj Consol
£ £ £ £
Revenue 120,000 70,000 (30,000) 160,000
C of S – per Q (80,000) (50,000) 30,000
– PURP (2,000) (102,000)
GP 40,000 18,000 – 58,000

Points to note:
1 The intra-group sale is eliminated in the adjustments column. It has no effect on the overall
profit.
2 The unrealised profit is eliminated by increasing the cost of sales of the selling company.
Where the selling company is the subsidiary this will reduce the profit figure on which the
calculation of non-controlling interest is subsequently based.
2 Intra-group transactions and unrealised profits
Non-current asset transfers
The consolidated statement of profit or loss should include
depreciationof non-current assets based on COST to the
group, and should excludeanyprofitorlosson non-current
asset transfers between group members.
This is consistent with the treatment in the consolidated
statement of financial position.
2 Intra-group transactions and unrealised profits
The adjustment is made as follows:

If the sale is in the current

If the sale took place in a
reporting period, eliminate the
previous reporting period, adjust
profit or loss on transfer and
the depreciation only.
adjust the depreciation in full.

Depreciation is adjusted against

the seller even though it is the The profit or loss is eliminated
purchaser who recorded it. This against the seller. This
is because the depreciation automatically affects the non-
adjustment reflects the realisation controlling interest where S was
of the profit over time, ie, over the seller (ownership).
the asset's life (ownership).
 2 Intra-group transactions and unrealised profits

Worked example: Non-current asset transfers

(Based on Interactive question 4 in Chapter 11)
P Ltd owns 8 0 % of S Ltd. P Ltd transferred to S Ltd a non-current asset (NCA) at a value of
£15,000 on 1 January 20X7. The original cost to P Ltd was £20,000 and the accumulated
depreciation at the date of transfer was £8,000. The asset has a total useful life of five years,
which is unchanged.

At 31 December 20X7 the adjustment in the consolidated statement of financial position (CSFP)
was calculated by comparing
£
Carrying amount of N C A with transfer (15,000  2/3) 10,000
Carrying amount of N C A without transfer
((20,000 – 8,000)  2/3) (8,000)
2,000
Adjustment made in CSFP was:
£ £
D R Seller's retained earnings 2,000
CR Non-current assets 2,000
2 Intra-group transactions and unrealised profits

Dt PL Seller/ gain on transfer 3,000

Dt Asset 5,000
Ct Acc Depn 8,000
 2 Intra-group transactions and unrealised profits

(b) Increase/(decrease) the depreciation charge, so that it is calculated on the asset's cost to
the group. In this case, decrease the charge by
£
Depreciation without transfer ((20,000 – 8,000)/3) 4,000
Depreciation with transfer (15,000/3) (5,000)
(1,000)

£ £
DR N C A carrying amount in CSFP 1,000
CR Selling company profit or loss for year (heading where 1,000
depreciation charged)
Point to note: The non-current asset note to the consolidated statement of financial position
should include this debit in accumulated depreciation. The overall effect is an adjustment of
£2,000 in both the consolidated statement of profit or loss and consolidated statement of
financial position.
2 Intra-group transactions and unrealised profits

Interactive question 2: Non-current asset transfers

P Ltd owns 8 0 % of S Ltd. P Ltd transferred a non-current asset to S Ltd on 1 January 20X7 for
£15,000. The asset originally cost P Ltd £12,000 and depreciation to the date of transfer was
£4,800. The profit on transfer has been credited to depreciation expense. The asset has a useful
life of five years, which is unchanged. Total depreciation for 20X7 was £35,000 for P Ltd and
£25,000 for S Ltd.
Requirement
Show the adjustments required for the above transaction in the consolidated statement of profit
or loss for the year ended 31 December 20X7.

80% Transfers
S

“DOWNSTREAM” sales
 2 Intra-group transactions and unrealised profits
NOTE:
NOTE: • We then now, need to adjust the
• The URP arising from the transfer OVERCHARGED depreciation.
is calculated as follows: Simpler way to calculate the
OVERCHARGED depreciation is as
Transfer Price (TP) £15.0k follows:
Less: Book Value
Cost. 12.0k Dep (based on TP; 15k/3 yrs) £5.0k
Acc Dep (4.8k) (7.2k) Dep (based on ORIGINAL
URP 7.8k cost and Useful life; 12k/5 yrs) (£2.4k)
OVERCHARGED Dep 2.6k
Remove this URP as this is IG
The Dep has been OVERCHARGED.
Therefore, to adjust, ADD it back.

Depreciation – per Q (35,000) (25,000)

N C A PURP (15,000 – (12,000 – 4,800)) (7,800)
Depreciation adjustment
((15,000/3) – ((12,000 – 4,800*)/3)) 2,600 (65,200)
* 4,800 is 2/5 of cost
3 Consolidated statement of profit or loss workings
As questions increase in complexity a
formal pattern of workings is needed.

1)Establish group structure

3 Consolidated statement of profit or loss workings
(2) Prepare consolidation schedule
P S Adj Consol
£ £ £ £
Revenue X X (X) X
Cost of sales – Per Q (X) (X) X (X)
– PURP (seller's books) (X) or (X)
Expenses – Per Q (X) (X) (X)
– Goodwill impairment (if any)* (X) (X)
Tax – Per Q (X) (X) (X)

Profit X

May need workings for (eg)

– PURPs
– Goodwill impairment

(3) Calculate non-controlling interest (NCI) £

S PAT × NCI%: NCI% × X = X
3 Consolidated statement of profit or loss workings
• If the non-controlling interest is measured
at fair value, then the NCI% of the
impairmentloss will be allocated to the
NCI.

-This is based upon the NCI

shareholding.
3 Consolidated statement of profit or loss workings
Interactive question 3: Statement of profit or loss workings
Pathfinder Ltd owns 7 5 % of Sultan Ltd. Statements of profit or loss for the two companies for the
year ending 30 September 20X7 are as follows.
Pathfinder Sultan
Ltd Ltd
£ £
Revenue 100,000 50,000
Cost of sales (60,000) (30,000)
Gross profit 40,000 20,000
Expenses (20,000) (10,000)
Investment income from Sultan Ltd 1,500 –
Profit before tax 21,500 10,000
Income tax expense (6,000) (3,000)
Profit for the year 15,500 7,000
During the year one group company sold goods to the other for £20,000 at a gross profit
margin of 40%. Half of the goods remained in inventories at the year end.
Requirements
(a) Prepare extracts from Pathfinder Ltd's consolidated statement of profit or loss for the year
ended 30 September 20X7 showing revenue, cost of sales, gross profit and non-controlling
interest, assuming that the intra-group sales have been made by Pathfinder Ltd to Sultan
Ltd.
(b) Prepare the whole of Pathfinder Ltd's consolidated statement of profit or loss for the year
ended 30 September 20X7, assuming that the intra-group sales have been made by Sultan
Ltd to Pathfinder Ltd.
3 Consolidated statement of profit or loss workings

(a)

Revenue (W2) 130,000

Cost of sales (W2) (74,000)
Gross profit 56,000
Non-controlling interest (W3) 1,750

WORKINGS
(1)

75%

S
3 Consolidated statement of profit or loss workings

(2) Consolidation schedule

Pathfinder Sultan
Ltd Ltd Adj Consol
£ £ £ £
Revenue 100,000 50,000 (20,000) 130,000
C of S – per Q (60,000) (30,000) 20,000
– PURP (W 4) (4,000) (74,000)

NOTE:
• Profit margin is at 40%, Selling price is set at 100% for £20k.
• Because the sales of £20k reflects an IG, it needs to be
ELIMINATED.

100%  £20k
40%  40% x £20k
100%
= 8k
However, only HALF remained in inventories.
Therefore only HALF of the profit arising from the sales are
UNREALISED, i.e. £8k x ½ = £4k
3 Consolidated statement of profit or loss workings
NOTE:
Because Pathway is the Parent, and Pathway sells to Sultan, the sales is a
DOWNSTREAM SALES and thus, the URP DOES NOT AFFECT NCI for
requirement a).
Pathfinder Sultan
Ltd Ltd Adj Consol
£ £ £ £
Expenses (10,000)
Income tax (3,000)
Profit 7,000

(3) Non-controlling interest

£
Sultan Ltd 25%  7,000 (W2) 1,750

(4) PURP
% £ £
Selling price 100 20,000
Cost (60) (12,000)
Gross profit 40 8,000 ½= 4,000
3 Consolidated statement of profit or loss workings

(b) Consolidated statement of profit or loss for the year ended 30 September 20X7
£
Revenue (W2) 130,000
Cost of sales (W2) (74,000)
Gross profit 56,000
Expenses (W2) (30,000)
Profit before tax 26,000
Income tax expense (W2) (9,000)
Profit for the year 17,000

Profit attributable to:

Owners of Pathfinder Ltd () 16,250
Non-controlling interest (W3) 750
17,000
3 Consolidated statement of profit or loss workings
WORKINGS
(1) Group structure
As part (a)
(2) Consolidation schedule
Pathfinder Sultan
Ltd Ltd Adj Consol
£ £ £ £
Revenue 100,000 50,000 (20,000) 130,000
C of S – per Q (60,000) (30,000) 20,000
– PURP (W4) (4,000) (74,000)
Expenses (20,000) (10,000) (30,000)
Income tax (6,000) (3,000) (9,000)
Profit 3,000

(3) Non-controlling interest

£
Sultan Ltd 25%  3,000 (W2) 750

(4) PURP
As part (a)
NOTE:
1. Because Sultan is the Subsidiary, and Sultansells to Pathway (Parent), the sales
is an UPSTREAM SALES and thus, the URP AFFECTS the NCI for
requirement b).
2. The Consolidated figure for Revenue at £130k and COS of £74k is STILL THE
SAME as per requirement a).
 4 Acquisitions made part-way through a reporting
period
Method of apportionment
When we looked at the statement of financial position
we saw that consolidated retained earnings included
only the post-acquisition profits of the subsidiary

This principle also applies to the consolidated

statement of profit or loss.

If the subsidiary is acquired during the accounting

period, the entire statement of profit or loss of the
subsidiary should be split between pre-acquisition and
post-acquisition proportions.

Only the post-acquisition figures should be included

in the consolidated statement of profit or loss.
4 Acquisitions made part-way through a reporting
period
Points to note:
1 Assume revenue and expenses accrue evenly over the
year unless it is indicated otherwise – therefore time-
apportion results of the subsidiary from the date of
acquisition.

2 Time-apportion totals for revenue, cost of sales,

expenses and tax first, then deduct post-acquisition
intra-group items.

3 Recognise as an expense any goodwill impairment

losses arising on the acquisition (calculation of goodwill
was dealt with in Chapter 11). Note that if the NCI is
held at fair value, part of that impairment loss will be
allocated to the NCI.
4 Acquisitions made part-way through a reporting
period
Interactive question 4: Mid-year acquisition
P Ltd acquired 7 5 % of S Ltd on 1 April 20X7. Extracts from the companies' statements of profit or
loss for the year ended 31 December 20X7 are as follows.
P Ltd S Ltd
£ £
Revenue 100,000 75,000
Cost of sales (70,000) (60,000)
Gross profit 30,000 15,000
Since acquisition P Ltd has made sales to S Ltd of £15,000. None of these goods remain in
inventories at the year end.

Requirement
Calculate revenue, cost of sales and gross profit for the group for the year ending 31 December
20X7.
4 Acquisitions made part-way through a reporting
period

Revenue 100,000 56,250 (15,000) 141,250

C o s t of Sales (70,000) (45,000) 15,000 (100,000)
Gross profit 30,000 11,250 – 41,250
 5 Dividends
Treatment
Dealing with intra-group dividends is made a bit more
complicated by the fact that:
- dividends received are shown as income in the statement
of profit or loss; but
- dividends paid are shown in the statement of changes in
equity.

Nevertheless the single entity concept must be applied to

dividends paid by the subsidiary, by:
- cancelling P's dividend income from S in P's statement of
profit or loss against S's dividends in S's statement of changes in
equity; and
- leaving the uncancelled amount of S's dividends to be
shown as the dividends to the non-controlling interest (NCI)
in the consolidated statement of changes in equity (see section 7
below).
 6 Other Adjustments
Redeemable (and some irredeemable) preference shares
Redeemable (and some irredeemable) preference shares
are treated as a financial liability (under IAS 32,
Financial Instruments: Presentation) rather than as part
of equity.

Consequently, distributions to shareholders are classed as

finance costs rather than as dividends.

On consolidation finance income received/receivable in

the parent's books is cancelled against the amount
paid/payable in the subsidiary's books, leaving only the
portion paid/payable to third parties as a finance cost.

Intra-Group (IG)
 6 Other Adjustments
Interest and management charges
Interest or management charges paid/payable in the
statement of profit or loss of the subsidiary (expense)
should be cancelled against the interest or management
charges received/receivable in the statement of profit or
loss of the parent company (income).

Intra-Group (IG)
 6 Other Adjustments
Fair value adjustments on acquisition
Where a non-current asset is adjusted to fair value
on acquisition, or an intangible asset is recognised
for the first time, the consolidated statement of
profit or loss is adjusted to:
□ Include the excess depreciation on the fair
value adjustment
□ Include amortisation of the intangible asset.
7 Consolidated statement of changes in equity
Structure of CSCE
The CSCE - link between the consolidated statement of
profit or loss or consolidated statement of profit or loss and
other comprehensive income and the figures for equity
shown in the consolidated statement of financial position,
in that it shows the movement between retained earnings
and reserves brought forward at the start of the year and
those carried forward at the end of the year.

As can be seen in the proforma layout in Chapter 2, the

CSCE concentrates on transactions with shareholders
(including the NCI) in their capacity as shareholders.
The CSCEs of both companies are added together on a line
by line basis (income and expenses) much, then allocated
between the parent and the NCI.
7 Consolidated statement of changes in equity
There are separate analysis columns for each type of
share capital and reserves, together with a total column.

– There will nearly always be entries for total

comprehensive income for the year and dividends
paid/payable.
-Total comprehensive income for the year will be the
profit for the year plus any items of other comprehensive
income.

– There will sometimes be entries for issues of share

capital and revaluations of non- current assets (dealt
with in Chapter 4).

-Revaluation gains or losses will be shown as part of

total comprehensive income.
7 Consolidated statement of changes in equity
Non-controlling interest (NCI) in subsidiaries: there is only a
single column
–There will nearly always be entries for the NCI's share of S's
total comprehensive income for the year and dividends
paid/payable.

–There will sometimes be entries for the revaluations of S's non-

current assets (dealt with in Chapter 4).

–In practice there will sometimes be entries for issues of share

capital by S, but these fall outside the syllabus.

–Transfers between reserves in S should never be shown, because

they contra out against each other in this single column.

–If a partly-owned subsidiary is acquired during the year

there will be an entry for NCI added on the acquisition of a
subsidiary (see section 7.4).
7 Consolidated statement of changes in equity

Worked example: CSCE

The following are extracts from the financial statements for the year ended 30 June 20X8 of
William plc and Rufus Ltd.
William plc Rufus Ltd
£ £
Profit from operations 196,000 95,000
Dividends from Rufus Ltd 24,000 –
Profit before tax 220,000 95,000
Income tax expense (70,000) (30,000)
Profit for the year 150,000 65,000
Dividends paid 20,000 30,000
Share capital (£1 shares) 200,000 50,000
William plc purchased 40,000 shares in Rufus Ltd some years ago. William plc's retained
earnings at 1 July 20X7 were £270,000.
Prepare the consolidated statement of profit or loss and the consolidated statement of changes
in equity for William plc for the year ended 30 June 20X8, as far as the information permits. You
should assume that Rufus Ltd had no retained earnings at 1 July 20X7. NCI is measured on the
proportionate basis.
 7 C onsolidated statement of changes in equity
Solution
Consolidated statement of profit or loss for the year ended 30 June 20X8
£
Profit from operations (196 + 95) 291,000
Income tax expense (70 + 30) (100,000)
Profit for the year 191,000
Profit attributable to: Owners of
William plc (p) (balancing figure) 178,000
Non-controlling interest (20%  65) (FromQuestion) 13,000
191,000
Point to note: The amount attributable to the owners of William plc can be separately calculated,
omitting the intra-group dividend (as William plc's shareholders are given their share of Rufus
Ltd's profits, they cannot also be given their share of a dividend paid out of those profits):
1 0 0 % of (150,000 – 24,000) + 8 0 % of £65,000 = £178,000.

NOTE:
• Usually, the profit attributable to the NCI is calculated first.
• Then, the profit attributable to the owners of the P (William) is usually determined by
working backwards.
• This is because, calculating the profit attributable to NCI first and then working
backwards to determine the profit to owners of P is muchFASTER.
• But, you should note that the profit attributable to P can also be determined by:
1) Taking the whole profit of the parent (Adjusted for any IG, as the example above,
Dividend receivable fromthe S) and
2) Add to 1) the Parent’s ownership % of the S’s profit for the year (as calculated above).
 7 Consolidated statement of changes in equity
Consolidated statement of changes in equity for the year ended 30 June 20X8
Attributable to owners
of William plc Non-
Share Retained controlling
(FromQuestion) capital earnings Total interest Total
£ £ £ £ £
Balance at 1 July 20X7 (W) 200,000 270,000 470,000 10,000 480,000
Total comprehensive income
for the year – 178,000 178,000 13,000 191,000
Dividends (W)paid to OUTSIDE party O–NLY (20,000) (20,000) (6,000) (26,000)
Balance at 30 June 20X8 200,000 428,000 628,000 17,000 645,000

WORKING
NCI share of Rufus Ltd's: dividend 2 0 %  30,000 = £6,000
Opening NCI balance at 1 July 2 0 %  50,000 = £10,000
20x7*
 7 Consolidated statement of changes in equity
Some companies transfer amounts from retained earnings to named
reserves. Such transfers are made in the analysis columns in the CSCE.
They do not impact the NCI.
In the analysis columns in the CSCE:

Group
transfers P% of S's transfers
P's transfers between
between = reserves + between reserves
reserves
This reflects the treatment of reserves attributable to the owners of P
in the consolidated statement of financial position, i.e, they include P's
reserves and P's share of S's post-acquisition reserves.
 7 Consolidated statement of changes in equity
Retained earnings brought forward
To calculate each of the group reserves brought forward,
simply do a working, as you would for the consolidated
statement of financial position, but at the start of the year.
Therefore each group opening reserve will be:

P's Goodwill
Group reserve
P% of S’s
impairment
reserve = b/f + post-
± (to start of year)
acquisition
reserve b/f and
b/f
(1) any other
(2) adjustments
to opening position

(3)
7 Consolidated statement of changes in equity
Point to note:
The NCI amount brought forward will be the
NCI share of S's equity (i.e, NCI's share of
S's capital and reserves) brought forward or
fair value of NCI plus NCI share of the
subsidiary's post-acquisition reserves.
7 Consolidated statement of changes in equity

Continuing the facts from Worked example: C S C E above, you should now assume that Rufus
Ltd's retained earnings at 1 July 20X7 were £120,000.
You have also now ascertained that when William plc purchased its 40,000 shares in Rufus Ltd,
Rufus Ltd's retained earnings stood at £70,000. NCI is measured at fair value. The fair value of
the NCI at the date of acquisition was £25,000.
Three years ago a goodwill impairment loss of £10,000 was recognised in William plc's
consolidated financial statements.

Prepare the consolidated statement of changes in equity for William plc for the year ended
30 June 20X8 taking account of the additional information.
 7 Consolidated statement of changes in equity

Answer to Interactive question 5

Consolidated statement of changes in equity for the year ended 30 June 20X8
Attributable to owners
of William plc Non-
Share Retained controlling
capital earnings Total interest Total
£ £ £ £ £
Brought forward (W) 200,000 302,000 502,000 33,000 535,000
Total comprehensive income
for the year – 178,000 178,000 13,000 191,000
Dividends – (20,000) (20,000) (6,000) (26,000)
Carried forward 200,000 460,000 660,000 40,000 700,000
 7 Consolidated statement of changes in equity

WORKING
£
Group retained earnings b/f
(1)William plc RE on 1/1/20X7 RE as at acq date 270,000
(2)Rufus Ltd (80%  (120,000 – 70,000)) P - William’s % of S - Rufus’s post- acq reserve b/f 40,000
(3)Goodwill impairment to date (10,000  80% ) (8,000)
302,000

£
NCI b/f
Fair value at acquisition 25,000
Share of post-acquistion retained earnings ((120,000 – 70,000)  20%) 10,000
Goodwill impairment (10,000  20%) (2,000)
33,000
 7 Consolidated statement of changes in equity
Acquisition during the year
In the consolidated statement of changes in equity where a controlling
shareholding (but not 100% shareholding) in a subsidiary is acquired in
the year:
- There is no brought forward NCI at the start of the period;
- The NCI arising on acquisition is brought in as a single line. The
amount is the same as that included in the goodwill calculation (ie, it is
measured either at fair value or as a proportion of the net assets of the
subsidiary at acquisition)
- The NCI share of profits and other comprehensive income for the year
is the amount allocated to it in the CSPLOCI based on the time-
apportioned results of the subsidiary.
7 Consolidated statement of changes in equity
Joseph plc acquired an 8 0 % interest in Mary plc on 1 October 20X8, measuring the NCI as a
proportion of the net assets of Mary at that date. The following figures relate to the year ended
31 March 20X9.

Revenue 800,000 550,000

Costs (400,000) (350,000)
Profit before tax 400,000 200,000
Income tax expense (140,000) (50,000)
Profit for the year 260,000 150,000

Brought forward 400,000 300,000

Total comprehensive income for the year 260,000 150,000
Carried forward 660,000 450,000

Share capital 500,000 100,000

N C I is measured on the proportionate basis

Prepare the consolidated statement of profit or loss and the consolidated statement of changes
in equity for the Joseph plc group for the year ended 31 March 20X9.
 7 Consolidated statement of changes in equity

Revenue (Joseph + half Mary) 1,075,000

Costs (Joseph + half Mary) (575,000)
Profit before tax 500,000
Income tax (Joseph + half Mary) (165,000)
Profit for the year 335,000

Profit attributable to:

Owners of Joseph plc () Working Backwards 320,000
Non-controlling interest (W1) 15,000
335,000
7 Consolidated statement of changes in equity

Consolidated statement of changes in equity for the year ended 31 March 20X9
Attributable to owners
of Joseph plc Non-
Share Retaine controllin
capita d Total g interest Total
l earnings £ £ £
£ £
Brought forward 500,000 400,000 900,000 – 900,000
Total comprehensive From (W1)
income for the year – 320,000 320,000 15,000 335,000
Added on acquisition From (W2)
of subsidiary (W2) – – – 95,000 95,000
Carried forward 500,000 720,000 1,220,000 110,000 1,330,000
 7 Consolidated statement of changes in equity

WORKINGS
(1) Non-controlling interest in profit for the year
£
2 0 % of (150,000  50%) 15,000

(2) Non-controlling interest added on acquisition

£ £
Share capital 100,000
Retained earnings b/f 300,000
Profit for first half of current year (150,000  50%) 75,000
20% of 475,000 95,000
 Homework:
Chapter 12: Self Test questions 3, 4 and
11 and 12