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Understanding Consolidations in Statement of Comprehensive Income

This guide explains the principles of consolidating financial statements, specifically focusing on the Statement of Comprehensive Income. Key points include how to reflect control by adding the parent and subsidiary figures, canceling intra-group transactions, and adjusting for unrealized profits. It covers the consideration of non-controlling interests and addresses post-acquisition profit calculations. Real-world examples illustrate the application of these principles, ensuring clarity for financial reporting and compliance.

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Understanding Consolidations in Statement of Comprehensive Income

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  1. Financial Statements 2 Consolidations 3 – Statement of Comprehensive Income

  2. Basic principles • Top part reflects control – add line-by-line parent plus 100% of subsidiary • Cancel intra-group transactions – turnover, cost of sales, dividend income • Remove unrealised profit by adding to cost of sales • Bottom section reflects ownership – after profit after tax deduct non-controlling interest • If subsidiary purchased during the year, consolidate post-acquisition profit only

  3. Example 12 • Statement of Comprehensive Income for the year ended 31 December 2009 H S Group £000 £000 £000 Turnover 2,000 1,500 Cost of sales 1,400 1,200 Gross profit Dist’n and admin 300 200 Profit before taxation Tax 120 40 Profit after tax Non-controlling interest (6) Profit for the year

  4. Example 13 W1 non-controlling interest PAT belonging to pref shareholders x NCI share (90%) = PAT belonging to ord shareholders x NCI share (10%) = Total

  5. Example 13 • Dividend income due from S must be eliminated from the consolidated figures • Dividend due: • Preference • Ordinary dividend • Goodwill impairment is added to admin expenses

  6. Example 13 Statement of Comprehensive Income for the year ended 31 December 2009 H S Adj Group £000 £000 £000 £000 Turnover 6,527 2,983 Cost of sales 5,092 2,007 Gross Profit Distribution 602 309 Admin 103 102 Profit before tax Taxation 300 250 Profit after tax Non-controlling interest W1 Profit for the financial year

  7. Trading between group members • Remove inter-company sales and cost of sales • Remove unrealised profit by adding it to cost of sales • If S made the profit, deduct in MI calculation

  8. Example 14 PUP on closing inventory Left in inventory Profit = Turnover 4,017 + 3,921 Cost of sales 3,204 + 2,970

  9. Example 14 H S Group £000 £000 £000 Turnover W1 Cost of sales W1 Gross profit Dist’n and admin 506 691 Profit before taxation Taxation 150 120 Profit after tax Non-controlling interest Retained profit for the year

  10. Example 15 S has been acquired six months through the year Only the post-acquisition profits may be included so the profits of S must be time apportioned In the consolidation workings include just 6/12 of each figure in S’s statement of comprehensive income

  11. Example 15 H S Time Group app’d £000 £000 £000 Turnover 2,000 Cost of sales 1,400 Gross profit 600 Dist’n and admin 300 Profit before taxation 300 Tax 120 Profit after tax 180 Non-controlling interest Retained profit for the year

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