Consolidated statement

of financial position
BY DR. IMRAN RAMZAN
After this session: Learning outcomes
1. prepare a consolidated statement of financial position for
a simple group (parent and one subsidiary)
2. deal with non-controlling interests
3. describe and apply the required accounting treatment of
consolidated goodwill
4. account for impairment of goodwill
Basic Principles
The basic principle of a consolidated statement of financial position
is that
1. It shows all assets and liabilities of the parent and
subsidiary.
2. Intra-group items are excluded, e.g. receivables and
payables shown in the consolidated statement of financial
position only include amounts owed from/to third
parties.
Method of preparing a consolidated
statement of financial position
1. The investment in the subsidiary (S) shown in the parent’s
(P’s) statement of financial position is replaced by the net
assets of S.
2. The cost of the investment in S is effectively cancelled
with the ordinary share capital and reserves of the
subsidiary, leaving goodwill as a balance.
Method of preparing a consolidated
statement of financial position
This produces a consolidated statement of financial position
showing:
1. the net assets of the whole group (P + S).
2. the share capital of the group which always equals the
share capital of P only and.
3. the retained earnings, comprising profits earned by the
group (i.e. all of P’s historical profits + post-acquisition
profits made by S).
The following statements of financial position have been prepared at
31 December 2023.
P ($'000) S ($'000)
Non-Current Assets
Property, plant & equipment 85.00 18.00
Investment in Subsidiary 55.00
Current Assets 160.00 84.00

Total Assets 300.00 102.00

Equity
Ordinary $1 Shares 65.00 20.00
Retained earnings 100.00 35.00

Total Equity 165.00 55.00

Current liabilities 135.00 47.00

Total Liabilities and Equity 300.00 102.00

P acquired 100% of the shares in S on 31 December 2023 at a cost of

$55,000.
The following statements of financial position have been prepared at 31 December 2023.

Ayesha & Co. ($'000) Essence Cosmetics ($'000)

Non-Current Assets
Land 25.00 15.00
Property, plant & equipment 85.00 35.00
Investment in Subsidiary 55.00
Current Assets
Cash and Cash Equivalents 65.00 35.00
Accounts Receivable 25.00 20.00
Advances to Suppliers 45.00 -
Short-Term Investments 35.00 -
Total Assets 335.00 105.00
Equity
Ordinary $1 Shares 65.00 35.00
Capital and reserves 20.00 -
Retained earnings 100.00 20.00
Total Equity 185.00 55.00
Current liabilities
Accounts Payable 65.00 25.00
Rent Payable - 15.00
Utilities Payable 24.00 5.00
Accrued Expenses 61.00 5.00
Total Liabilities and Equity 335.00 105.00

Ayesha & Co. acquired 100% of the shares in Essence Cosmetics on 31 December 2023 at a
cost of $55,000.
IFRS 3 Business Combinations - Goodwill
IFRS 3 governs accounting for all business combinations
other than joint ventures.
Goodwill:
Goodwill is an asset representing the future economic
benefits arising from other assets acquired in a business
combination that are not individually identified and
separately recognized.
Treatment of goodwill
Positive goodwill
1. Capitalised as an intangible non-current asset.
2. Tested annually for possible impairments.
3. Amortisation of goodwill is not permitted by the IFRS Standard.
Negative goodwill
1. Arises where the cost of the investment is less than the value of net assets purchased.
2. IFRS 3 does not refer to this as negative goodwill (instead it is referred to as a bargain
purchase)
3. Any negative goodwill remaining is credited directly to the statement of profit or loss, or
retained earnings
Non-controlling interests
1. In some situations a parent may not own all of the shares in the subsidiary,
e.g. if P owns a controlling 80% interest in the ordinary shares of S, there is a
non-controlling interest of 20%.
2. However, P still controls S.
Accounting treatment of a non-controlling interest
1. in the consolidated statement of financial position, include all of the net
assets of S (to show control)
2. show the net assets of S which belong to the non-controlling interest within
the equity section of the consolidated statement of financial position
The following statements of financial position have been prepared at
31 December 2023. Aliza acquired 16,000 ordinary
Aliza ($'000) Al-Nisa ($'000) $1 shares in Al-Nisa on 1
Non-Current Assets January 2023, when Al-Nisa’
Property, plant & equipment 85.00 18.00 retained earnings stood at
Investment: Shares in Al-Nisa 60.00
$20,000 and its share premium
Current Assets 160.00 84.00
was $10,000. On this date, the
fair value of the 20% non-
Total Assets 305.00 102.00
controlling shareholding in Al-
Nisa was $12,500. The Aliza
Equity
Group uses the fair value
Ordinary $1 Shares 65.00 20.00
method to value the non-
Share premium 35.00 10.00
controlling interest.
Retained earnings 70.00 25.00
Required: Prepare the
Total Equity 170.00 55.00 consolidated statement of
financial position of Aliza as at
Current liabilities 135.00 47.00 31 December 2023.
Total Liabilities and Equity 305.00 102.00
The following statements of financial position have been prepared at
31 December 2023.
P acquired 16,000 ordinary $1
P ($'000) S ($'000)
shares in S on 1 January 2023,
Non-Current Assets
Property, plant & equipment 75.00 35.00
when S’ retained earnings
Investment: Shares in S 50.00
stood at $58,000 and its share
Current Assets 145.00 114.00 premium was $10,000. On this
date, the fair value of the 20%
Total Assets 270.00 149.00 non-controlling shareholding in
S was $10,500. The P Group
Equity uses the fair value method to
Ordinary $1 Shares 45.00 20.00 value the non-controlling
Share premium 30.00 10.00 interest.
Retained earnings 65.00 72.00
Required: Prepare the
consolidated statement of
Total Equity 140.00 102.00
financial position of Aliza as at
Current liabilities 130.00 47.00
31 December 2023.

Total Liabilities and Equity 270.00 149.00

Test yourself…!