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8/22/2019 F7_ConsolidatedSFP
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We have to combine elements of the statement of financial position of parent, subsidiary and
associate in order to make a single statement that gives a view of the entire group. Below you
will find rules for preparing the Consolidated Statement of Financial Position. We have
presented rules of consolidation in such a sequence which will be helpful to you in answering
exam question.
Steps for preparing Consolidated SOFP
Step 1: Draw the layout of the consolidated statement of financial position. You shouldkeep space of two pages for your statement of financial position before you start your
workings. Your layout should be as follows:
Parents Group
Consolidated Statement of Financial Position as at DD/MM/YYYY
Details $ $
Step 2: Start doing workings. Leave two pages for the statement before workings. Layoutof working is shown later. From steps 3 to 8 are the workings.
Step 3: Do Working 1: Determine the group structure by calculating parent controlpercentage over subsidiary and associate.
Example
Name of parent company
P acquires 8000000 $1 shares of S and 3000000 $1 shares of A. S and A both have a
share capital of $10,000,000. Draw the group structure?
Answer: Calculation, P
% of Subsidiary = 8/10 x 100 = 80% A
% of Associate = 3/10 x 100 = 30% S
30%
80%
This structure is drawn in the working section of your answer
Consoli dat ed St at ement of Financi al p osi t i on
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Step 4: Do Working 2: Calculate total consideration (investment) made by the parent inorder to purchase subsidiarys shares. There are many forms of consideration a parent can
make. They are:
Cash consideration
Deferred consideration Contingent consideration Share for share Exchange
It is always possible that more than one form of consideration has been made by the parent
and in that case we have to add all the consideration together. See the example below. Total
consideration in subsidiary is calculated as it is required in the calculation of goodwill of the
subsidiary.
Example
Pink ltd acquired 8000 shares out of 10000 share capital of Sink ltd. Pink paid initial
cash consideration of $1 for every share acquired. Additionally Pink exchanged 2
shares for every 4 shares acquired in Sink when the market price of Pink share is
$3/share. It was also agreed that Pink would pay a further $2m in three years time.
Current interest rates are 10% pa. The terms of the business combination further
provide for the payment of an additional $2 million after 2 years if the performance of
Sink reaches a specified level in the two years period. The directors of Pink estimated
that the fair value of the contingent consideration at current reporting date is $1
million. Calculate the total consideration made by parent at reporting date?
Answer: Investment in Sink:
$
Cash consideration ($1 x 8000) 8,000
Share exchange (8000/4 x 2 x $3) 12,000
Deferred consideration [$3,000,000 x 1/(1+0.1)] 2,253,944
Contingent consideration 1,000,000
Investment in Sink 3,273,944
This calculation is shown in the workin section of our answer.
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Step 5: Do Working 3: If there is an associate, carrying the value of investment inassociate is also to be calculated. Investment in associate is shown under the non -current
asset heading in the consolidated statement of financial position. It is calculated by
following method:
Step 6: Do Working 4: Perform calculations for intra-group and fair value adjustments.Make sub-headings by giving name of your calculation for example, URP (unrealized profit)
for intra-group transaction, additional/reduced depreciation for fair value, etc.
Cost of investment in Associate:
$
Cost of investment* XXX
(+) Parents share of post acquisition profit XXX
(-) Impairment of investment in associate XXX
(-) PUP** (If parent is the seller) XXX
Carrying value of investment in associate XXX
*Cost of investment can be found in parents statement of financial position under non-
current asset will be told directly in the question.
**PUP is the short form of Provision for unrealized profit.
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Step 7: Do Working 5: Calculate subsidiarys net asset value for both the acquisition dateand reporting date. It can be calculated as shown below:
Step 8: Do Working 6: Calculate Goodwill. Follow the proforma below for calculating value ofgoodwill that needs to be recognized at the reporting date.
Subsidiarys Net Asset
Details Acquisition date Reporting date
Share Capital X
Reserves:
Share Premium X X
Revaluation Reserve X X
Retained Earning X X
General Reserve X X
Fair value adjustment*:
Additional/(Excess) value of Non-Current
assets (W4)
X/(X) X/(X)
Revaluation X/(X)
Excess/Reduced Depreciation (W4) X/(X)
PUP in goods or non-current asset
(if Subsidiary is seller) (W4)
(X)
Net Asset A B
Post acquisition profit** (A-B) C
*Fair value adjustments are made depending on the situation mentioned in the question. Detail
explanation is mentioned later.
**Difference between the value of subsidiarys net asset i.e. (A-B) is the post acquisition profit of
subsidiary i.e. C. This figure will be needed for calculating group retained earning and NCI atreporting date.
Goodwill Calculation
Details Reporting Date ($)
Cost of Investment (W2) XX
(+) NCI value @ acquisition*(No. of shares x market price per share) or
(NCI % x fair value of Ss net asset)
X
(-) Fair value of Subs net asset @ acquisition (X)
Goodwill @ acquisition X
(-) Impairment of goodwill (X)
Carrying value of goodwill XX
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Step 9: Do Working 7: Calculate NCI value at the reporting date by following the proforma below:
Step 10: Do Working 8: Calculate Group retained earnings at the reporting date byfollowing the proforma below:
Step 11: Besides the workings of consolidation, students may need to perform otherworkings for Lease, construction contracts, financial assets and liabilities, tax and deferred
tax, asset impairment etc. Give each working a sequential number so that a reference can
be made in the actual statement.
NCI value at reporting date
Details $
NCI value at acquisition XNCI % of post-acquisition profit* X
NCI % of goodwill impairment (for fair value method only) X
NCI value at reporting date XX
*Post-acquisition profit is calculated in the net asset calculation table which is shown
Group Retained Earnings
Details $
Parents full retained earning X
Less: Unrealized Profit(URP) for intra-group sale of goods (if sold by
Parent to Subsidiary)
(X)
Less: Unrealized Profit(URP) for intra-group sale of Non-current asset (if
sold by parent to subsidiary
(X)
Less: Parents % of URP due to transaction between parent and associate
(for both sale of goods and non-current asset, between parent &
associate, whoever the seller is)
(X)
Less: Parent % of goodwill impairment (X)
Less: Parent % of impairment of investment in associate (X)
Less: Unwinding discount on deferred consideration (X)
Less: Loss on Parents other investment for fair value valuation (X)
Add: Gain on Parents other investment for fair value valuation X
Add: Parents % of Subsidiarys post acquisition profit (calculated in net
asset calculation
X
Add: Parents % of Associates post acquisition profit X
Group retained earning @ reporting date XX
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Step 12: Go back to the consolidated statement of financial position layout which you havedrawn as per step 1. Now we shall start writing our statement of financial position in the
following manner:
I. Non-current Assets:For each tangible non-current asset, add both parents and subsidiarys carrying valuewhich is shown in their respective statement. Also add or deduct any adjusting amount
that relates to intra-group sale of non-current asset and non current asset fair value
issues. You might have done some workings in W4 regarding these adjustment,
therefore dont forget to refer it to your workings by just writing W4. Making
reference to your workings makes easier for the examiner to check your performance.
Goodwill:We have calculated the value of goodwill at reporting date in our working 6. Since
Goodwill is a non-current asset therefore under non-current asset heading, goodwill
is shown by making a reference to your working.
Investment:In the parents statement of financial position, investment figure is shown. It may
comprise 3 areas of investment made by parent; they are investment in subsidiary,
investment in associate and other investment. Some time separate figures are
shown for each investment which makes our task easier.
- Investment in Subsidiary needs to be eliminated thus not included inconsolidation.
- Investment in Associate calculation is already done in working 3. It is shownseparately from other investment.
- Other investment of parent is adjusted for any gain or loss arising by recognizingthem at their fair value and then added with subsidiarys all of the investments.
Subsidiarys investments are also adjusted for any gain or loss arising due to fair
value recognition. See earlier in this chapter for details. Entire separate workings
can be shown for other investment.
Intangible Assets:All the intangible asset of parent shall be shown in the statement at their carrying
value. Any intangible asset of subsidiary shall also be shown in the consolidated
statement of financial position at their fair value less accumulated amortization (i.e.
total amortization from the date of acquisition till reporting date).
II. Current Assets:For each current asset, add both parents and subsidiarys amount together and deduct
any intra-group transaction adjustments. If you have done any workings with these
regards, then make reference of your working.
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III. Equity:Under the equity section of consolidated statement of financial position, only parents
share capital, share premium and other reserves of parent are shown. Subsidiarys share
capital, share premium and other reserves are not included in consolidated statement
of financial position.
Group retained earning:Group retained earning is calculated in working 8. This group retained earning is
shown under equity section after share and share premium.
NCI:We have already calculated NCI value at reporting date in working 7. After group
retained earning, NCI value is shown in the statement.
IV. Non-current Liability:For each non-current liability, both parents and subsidiarys non-current liabilities are
added together and shown.
Differed Consideration:Total liability for deferred consideration is shown under non-current liability. You
may show separate workings for your calculation of deferred consideration and
refer to your workings.
V. Current liability:For each current liability add both parents and subsidiarys amount together and
add/deduct any intra-group transaction adjustments. If you have done any workings
with these regards, then make reference of your working.