The Consolidated Statement of Financial Position

The stock side of the consolidated statement of financial position shows only the share capital of the parent company. THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION Because the investment was purchased on the last day of the financial year, profits after the acquisition of the subsidiary are $0. The group's share of post-acquisition profits (in this case 100%) will form part of the total consolidated retained earnings, offset by increases in net assets on the other side of the balance sheet in the future.

The example below shows the preparation of the consolidated statement of financial position one year after the first takeover. The difference between the investment cost and the fair value of the net assets acquired is known as goodwill on the acquisition. It is the E Group's policy to value minority interests on acquisition at its proportionate share of the fair value of the subsidiary's identifiable net assets.

The fair value of NCI in F on the acquisition date was estimated to be $2,500. The other component of equity is described in the statement of financial position above as 'equity attributable to the owners of the controlling entity', which is the description used in IAS 1. Also note that the value of goodwill changes due to fair value measurement. the NCI value.

It is the Group's policy to value minority interests on acquisition at its proportionate share of the fair value of the subsidiary's identifiable net assets.

Intragroup loans and preference shares

The treatment of unrealised profits on assets bought from group companies

Solution

Intra-group trading in non-current assets

However, inventories are usually sold quickly and can be expected to leave the group and thus realize a gain for the group shortly after the date of the statement of financial position. The consequences of intra-group trading are somewhat more complicated when it comes to non-current assets because they are likely to continue to be recognized in the group entity for more than one accounting period. Where there is an unrealized gain on the intra-group sale of a non-current asset item, consolidation adjustments must be made over the life of the asset to ensure that unrealized gains are eliminated.

Show the book value of the plant in the consolidated statement of financial position at 31.12.X0, 31.12.X1 and 31.12.X2 and explain the relevant consolidation adjustments. This is unrealized from a group perspective, as the asset was merely transferred from one group entity to another. The cost to the group of this asset is $100,000 and this is what should be shown in the group's property, plant and equipment.

However, the property, plant and equipment of F would (quite correctly from the point of view of F as a separate entity) include the asset at a cost of $120,000. THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION There is no adjustment to the non-controlling interests as the unrealized profit is made by the parent company. This means that the consolidation adjustment to property, plant and equipment and retained earnings on 31.12.X2 is $12,000.

Over time, the required adjustment decreases as the asset is used; the adjustment in this case decreases by $4,000 each year. The additional depreciation was charged by the partly owned subsidiary and therefore the NBI is affected by its share of the adjustment for depreciation.

Adjustments to achieve uniformity of accounting policy

Adjustments for fair value at the date of acquisition
Summary

Before proceeding to the consolidated statement of financial position, it is worth noting that G owns 80% of the shares of H (40,000 out of a total of 50,000). In Chapter 2, it was noted that goodwill was calculated using fair value measurements for assets and liabilities in the subsidiary at the date of acquisition, in accordance with the requirements of IFRS 3. For the moment, in this chapter, we will impli- cations of measurement at fair value on the post-acquisition ﬁnancial statements.

Sometimes the fair values of net assets at the point of acquisition are recognized in the subsidiary at the date of consolidation, where the accounting policy of the entity itself allows it. By the end of the year, half of these goods were still held in stock by Ark. The excess of fair value over carrying value in Ark's individual financial statements was due to assets included in property, plant and equipment.

None of the plant that was subject to a fair value adjustment on 1 January 20X5 had been sold by 31 December 20X7. We need to be careful when calculating this figure – the profit is expressed as a percentage of the group cost, not the intragroup selling price. This tells us that the fair value of the net assets of Ark was greater than the carrying value in the individual statement of ﬁnancial position of Ark at the date of acquisition.

Since the surplus is the result of a plant that is depreciated over 5 years, the fair value adjustment will also affect the final net assets (the acquisition was made three years ago). In this case, the minority shareholders do not have to charge any unrealized profit because the profit is generated by the parent company. The chapter also covered several additional complexities associated with the preparation of a consolidated statement of financial position, including intragroup trading and balance sheets, fair value adjustments, and adjustment to achieve consistency of accounting policy.

Preparing the consolidated statement of financial position could be tested with the shorter questions or with the long questions (i.e. for 25 marks). Please note: The questions included in the first part of the study system are generally not of exam standard. Testing knowledge is essential early in the study process to ensure that the basics are understood; the standard questions for the exam come in later chapters.

Non-current assets

Equity

Requirement

The takeover was sufficient to gain control over CY's operations and financial policies. The statements of financial position at 30 June 20X4 for A and its subsidiary B are summarized below.

ASSETS

Current assets

Current liabilities

It is the group’s policy to value non-controlling interests at its proportionate share of the fair value of the subsidiary’s identiﬁ able net assets
X acquired 6,000 ordinary shares in Y on 1 January 20X The price paid was $11,000
On 31 December 20X4 there was cash in transit from Y to X of $2,000
The intangible asset of Y does not satisfy the recognition criteria laid down in IAS 38
It is the group’s policy to value non-controlling interests at its proportionate share of the fair value of the subsidiary’s identiﬁ able net assets
Goodwill
Retained earnings

Goodwill from consolidation was written off after an impairment review before the start of the current financial year. The Group's policy is to value non-controlling interests at a proportionate share of the fair value of the identifiable net assets of the subsidiary. Goodwill on consolidation is carried at cost in the group's statement of financial position.

Two days before the end of the year, STV sent a payment of $3,100 to TUW, which was not recorded by the latter until two days after the end of the year. Briefly explain how the mail should be handled in transit, as follows in the consolidated balance sheet at February 28, 20X7. Calculate the value of goods in transit that would appear in the consolidated balance sheet of the LPD group at June 30, 20X7.

166,000 Equity

Workings

Non-controlling interests

Goodwill on consolidation

Retained earnings

260,000 Equity attributable to owners of the parent

Goodwill on consolidation

88,000 Net assets at acquisition

258,000 Equity attributable to owners of the parent

Group structure

Non-current liabilities

Pre-consolidation adjustment

Unrealised proﬁ t in inventory

Goodwill

Consolidated retained earnings

Intra-group balances

Interest payable