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The Consolidated Statement of Financial Position

The basic method of preparation

• the assets and liabilities of the parent and the subsidiary are added together on a line-by-line basis.
• The investment shown in the parent's SoFP (i.e. the investment in the subsidiary) is replaced by a goodwill figure.
• The share capital and share premium balances are not added together; only the balances related to the parent are used in the consolidation. This reflects the fact that the consolidated SoFP shows all of the assets and liabilities under the control of the parent entity.
• The amount attributable to non-controlling interests (i.e. the other shareholders where the parent owns less than 100% of the ordinary share capital) is calculated and shown separately on the face of the consolidated SoFP.
• The group share of the subsidiary's profit is calculated and added to overall group retained earnings.

The mechanics of consolidation

The group structure

This is where you establish whether there is a parent-subsidiary relationship (i.e. does the parent have control?). It is important to consider all aspects of control as well as percentage shareholding. You do need to identify the percentage shareholding of the parent and the non-controlling interest in order to prepare the remaining workings. You will also need to be aware of the date control was achieved.

Net assets of subsidiary

The total of share capital and share premium from the subsidiary statement of financial position should be unchanged at both the date of acquisition and the reporting date.

Goodwill

Non-controlling interest

Group retained earnings

Pre-acquisition profits are the retained earnings of the subsidiary which exist at the date when it is acquired. These profits belong to the previous shareholders as they were earned under their ownership. The new parent cannot lay claim to these profits so they are excluded from group retained earnings.

Post-acquisition profits are those profits recognised in retained earnings by the subsidiary at the year-end but earned since the new parent purchased their shareholding. As these were earned under the ownership of the new parent an appropriate percentage (based upon the parent's % ownership) can be recognised in group retained earnings.

Illustration

In order to illustrate the various workings involved in a consolidated statement of financial position we will use the example of D group.

The statements of financial position of D and J as at 31 December 20X8 are included below:

D acquired an 80% holding in J on 1 January 20X8. At this date J's retained earnings stood at $20,000.On this date, the fair value of the non-controlling shareholding in J was $12,500.

The consolidated statement of financial position of D Group as at 31 December 20X8

Workings

(W1) Group structure

(W2) Net assets of J

(W3) Goodwill

(W4) Non-controlling interests

(W5) Group retained earnings

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Tags:	groups;consolidated financial statements;parent;subsidiary;Control;IFRS 10;financial statements;financial statement;statement of financial position;the statement of financial position;balance sheet;annual accounts;group accounts;consolidations