Bilal Zia, ACA

CONSOLIDATION NOTES
BASIC CONSOLIDATION PROCEDRES

Combine the financial statements line by line by adding together like items after allowing for
adjustments mentioned hereunder (IAS 27, 18)
ALLOCATION OF SUBSIDIARY EQUITY BETWEEN PARENT AND NCI
(Recognizing and measuring the identifiable assets acquired, the liabilities assumed and any NCI in the
acquire at acquisition date (10, IFRS 3))
1) This allocation is based solely on present ownership interests. (Options etc. are not considered)
2) All equity of subsidiary (as per IAS 32 definition) is allocated between NCI & COC (parent share)
and all liabilities are treated separately.
a. Liabilities inside group eliminated No goodwill arise by this elimination
b. Liabilities (e.g. TFC, preferences shares etc.) outside group presented separately and
not shown as part of NCI
3) PARENT INTEREST
a. Acquisition date equity (Share capital, preference shares classified as equity and other
pre acquisition reserves) attributable to parent is adjusted against COC. Goodwill
might arise on this elimination (see goodwill tab)
b. Parents share of post-acquisition changes in equity is shown in CFS.
i. % of attributing equity changes between parent and NCI to be used is
calculated on the basis of economic interest
1. Attribution of profit/loss
2. Attribution of OCI and other equity changes
4) GOODWILL (UNIDENTIFIABLE ASSET)
a. Goodwill is measured at the acquisition date as the excess of 1 over 2 below:
i. The aggregate of:
1. The fair value of consideration transferred.
2. The amount of any non-controlling interest recognised.
3. In a business combination achieved in stages, the acquisition date fair
value of the acquirers previously held equity interest in the acquire.
ii. The assets and liabilities recognised in accordance with IFRS 3. (32,IFRS 3).
b. Negative Goodwill charged to P&L after due verification (measured on collective
basis)
5) NCI
a. The equity in subsidiary not attributable, directly or indirectly, to a parent (IAS 27,
(def., 27)).
i. Instance of NCI holding the majority of equity (IAS 27, 41(a)).
b. NCI in the net assets consist of: (IAS 27, 18)
i. Amounts initially recognized under IFRS 3 at acquisition date
1. Measurement choice on initial recognition(IFRS 3, 19)
a. Full goodwill NCI recorded at fair value (at initial recognition)
b. Parent goodwill NCI recorded at its proportionate interest
ii. NCI share of post-acquisition changes in equity
1. Attribution of profit/loss (IAS 27, 18)
2. Effects of elimination of intercompany unrealized profits in full are
given proportionately to NCI
3. Attribution of OCI and other equity changes
4. Cumulative preference shares classified as equity parent share of
profits or losses is taken after adjusting for such dividends whether or
not declared (IAS 27, 36).
5. Attribution of losses to NCI might result in debit balance (IAS 27, 28).
6) DIVIDENDS AND RIGHT ISSUES BY SUBSIDIARY
a. Dividends in general Recognize income when right to receive is established (IAS 27,
38A) (IAS 18)
i. Out of pre-acquisition profits
1. In SFS Dr
Cash

Bilal Zia, ACA

CONSOLIDATION NOTES

Cr
Investment
CFS Goodwill is not changed after acquisition of control
ii.
post-acquisition profits
In SFS Cost or IAS 39
In CFS
a. Dividends attributable to parent eliminated
i. Income statement
ii. Balance Sheet
b. Dividends attributable to NCI shown in SOCIE
b. Bonus shares (Dividends in shares) essentially capitalization of reserves
i. In SPS
1. Parent books No entry
2. Subsidiary books
Dr
Reserves
Cr
Share Capital
ii. In CFS As goodwill is not changed after acquisition date so;
1. If capitalized out of post-acquisition reserves
a. COC is adjusted against initial figures
b. The balance is transferred to reserves
2. If capitalized out of pre-acquisition reserves
a. COC is adjusted against initial figures
b. The balance is transferred to reserves
c. Right shares Receipt of cash against money from existing shareholders or new
shareholders if existing sell their rights
i. In SFS
1. Parent Books
a. If company exercise rights
Dr
Cost of investment
Cr
Cash
b. If company does not exercise change in economic interest %
2. Subsidiary Books Subsidiary books
Dr
Cash
Cr
Share Capital
Cr
Reserves (Share Premium)
ii. In CFS As goodwill is not changed after acquisition date so;
a. Initial COC is adjusted against initial figures GW will turn out
to be same
b. The rest of COC is adjusted wholly against additional share
capital & premium
7) TRANSACTIONS BETWEEN PARENT AND NCI for example purchase/sale of subsidiary shares,
right issue waiver
a. Control is not lost G/L taken to SOCIE (IAS 27, (30,31))
b. Control is lost (IAS 27, (32-37)) (See Disposal Notes for details)
2.
Out of
1.
2.

SUBSEQUENT EFFECTS OF ACQUISITION DATE VALUES (IAS 27, 26)

1.

Subsidiary is recognized initially at fair value of identifiable assets at acquisition date. Resulting
effects on post-acquisition profits are adjusted when preparing CFS from individual FS if push
down accounting is not used.
a. IAS 16,38,40
i. Depreciation/ amortization
ii. Disposal
b. IAS 2
i. Sale of inventory

ELIMINATE INTRAGROUP TRANSACTIONS AND BALANCES AND UNREALIZED PROFITS IN FULL

(IAS 27,20)
1.

Transactions
a. Sales and purchases upstream/ downstream
b. Management charges: expense income
c. On inter-company loans etc. Interest payments receipt (including discounts and
premiums)

Bilal Zia, ACA

2.

3.

4.
5.
6.

d.
Balances
a.
b.
c.
d.
e.
Unrealized
a.

CONSOLIDATION NOTES

Dividends payment (SOCIE) receipt (income statement)

Trade payable receivables

Loan investment (Section 208 CO 1984)
Preference shares classified as liabilities - investment
TFC liability - investment
Dividends payable receivable
profits/losses
Profits/losses
i. Items carried at cost/WDV subsequently
1. Fixed assets (PPE)
2. Inventory
3. Land
ii. Items carried at fair value subsequently
b. Losses indication of impairment
c. Impact of defer tax (IAS 12)
d. Upstream transaction effect on NCI profit share
e. Downstream transaction no effect on NCI
Transfer from one period to other
Transfer from pre-acquisition reserves to post acquisition reserves
Look for un-reconciled balances and un recorded transactions
a. Items in transit
b. Non recording by one party

UNIFORM ACCOUNTING POLICIES (IAS 27, (24,25))

1.
2.
3.

IAS 2: FIFO vs Weighted Average

IAS 16,38,40: Cost vs Revaluation Model
IAS 39: Amortized cost vs FVTPL

SAME YEAR ENDS (IAS 27, (22,23)

1.

Events after balance sheet date IAS 10: IAS 10 is applied on CFS as a whole so there might be
events regarding subsidiary which non-adjusting for subsidiary individual financial statements but
are adjusting for CFS.

Bilal Zia, ACA

CONSOLIDATION NOTES

INVESTMENT ACCOUTING

Passive Investment (0-20%) IFRS 9

o SFS IFRS 9 fair value accounting
o CFS IFRS 9 fair value accounting
Significant influence (20%-50%)IAS 28
o SFS Cost and IFRS 5/IFRS 9 fair value accounting
o CFS Equity method of accounting
Joint Control (equal votes) IAS 31
o SFS Cost and IFRS 5/IFRS 9 fair value accounting
o CFS Equity method of accounting
Control (> 50%) IAS 27
o SFS Cost and IFRS 5/IFRS 9 fair value accounting
o CFS Equity method of accounting

Bilal Zia, ACA

CONSOLIDATION NOTES