Question

P acquired 75% of the shares in S on 1 January 20X7 when S had retained earnings of £15,000. The market price of S’s shares at the date of acquisition was £1.60. P values non-controlling interest at fair value at the date of acquisition. Goodwill is not impaired.

P S

Property, plant and equipment 80,000 60,000

Shares in S 68,000

Total Non Current Assets 148,000 60,000

Current Assets 52,000 35,000

Total Assets 200,000 95,000

Share capital - £1 shares 100,000 50,000

Retained earnings 70,000 25,000

Total Equity 170,000 75,000

Current liabilities 30,000 20,000

Total Equity and liabilities 200,000 95,000

1. Prepare the consolidated balance sheet of P Group

2. Explain and comment the process of consolidation?

Answer 1

Consolidated Statement of Financial position of P group
		Amount
Assets
Property, plant and equipments (80000+60000)		140000
Goodwill (WN.1)		23000
Total Non-Current Assets		163000
Current Assets (52000+35000)		87000
Total Assets		250000
Equity and liabilities
Share Capital @ £1 each		100000
Retained earnings (WN.2)		77500
Non-controlling interest (WN.3)		22500
Total equity		200000
Current Liabilities (30000+20000)		50000
Total equity and liabilities		250000
Working Notes
Calculation of Goodwill/(Capital Reserve)
Consideration transferred		68000
Non-controlling interest at acquisition		20000
12500 share @ £ 1.60 each
Net Assets of S at acquisition		65000
Goodwill		23000
Retained earnings
P earnings		70000
Share of S		7500
(25000-10000)*75%
		77500
Non-controlling interest at year end
Non-controlling interest at acquisition		20000
Post-acquisition share in income		2500
(25000-15000)*25%
		22500

Explain and comment on the process of consolidation?

Consolidation of the investee (S) shall begin from the date investor (P) obtains controls of the investee and ceases when the investor loses controls of the investee.

Goodwill is recognized as of the acquisition date measured as the excess of (i) over (ii)

1. The aggregate of the consideration transferred and the amount of any non-controlling interest in the subsidiary in accordance with IFRS 3 (Business Combinations).
2. The net of the acquisition date amounts of identifiable assets acquired and the liabilities assumed measured in accordance with IFRS 3.

Non-controlling interests

A parent presents non-controlling interest in its consolidated statement of financial position within equity, separately from the equity of the owners of the parents in accordance with IFRS 10.

A holding entity on the basis of present ownership interest attributes the profit or loss and each component of other comprehensive income to owners of the parent and to the non-controlling interest.   

Consolidate financial statements

1. Combine like assets, liabilities, equity, income, expense and cash flows of the parent with those of its subsidiaries.
2. Offset (eliminate) the carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary.
3. Eliminate in completely intragroup assets, liabilities, equity, income, expense and cash flows relating to transactions between entities of the group (profit or losses resulting from intragroup transactions that are recognized in assets, such as inventory and fixed assets).