FRF7
Syllabus D. PREPARATION OF FINANCIAL STATEMENTS D2a. Preparing group SFP

D2a. Basic groups - Question (NCI @ Proportionate method) 6 / 8

Syllabus D2a)

Prepare a consolidated statement of financial position for a simple group (parent and one subsidiary and associate) dealing with pre and post acquisition profits, non-controlling interests and consolidated goodwill.

Basic groups - Question (NCI @ Proportionate method)

Have a look at this question and solution below and see if you can work out where all the figures in the solution have come from.

  P S
Non-Current Asset 500 600
Investment in S 200  
Current Assets 100 200
     
Share Capital 100 100
Reserves 300 400
     
Current Liabilities 100 50
Non-Current Liabilities 300 250

P acquired 80% S when S’s reserves were 80.

Prepare the Consolidated SFP, assuming P uses the proportionate method for measuring NCI at acquisition.

Step 1: Prepare S’s Equity Table

  Now At Acquisition Post-Acquisition
Share Capital 100 100 0
Retained Earnings 400 80 320
Total 500 180 320

Step 2: Goodwill

Consideration 200
NCI 20% x 180 = 36
FV of Net Assets Acquired (180)
Goodwill 56

Step 3: NCI

NCI @ Acquisition 36 (from goodwill working above)
NCI % of S’s post acquisition profits 64 (20% x (400-80))
Impairment (0) (DO NOT adjust for Impairment because its Proportionate method)
NCI on the SFP 100  

Step 4: Reserves

P 300  
S 256 (80% x (400-80)
Impairment (0) (100% because proportionate method x 0)
  556  

Step 5: Group SFP

  P S Group
Non-Current Asset 500 600 1,100
Investment in S 200 Goodwill 56
Current Assets 100 200 300
       
Share Capital 100 100 100
Reserves 300 400 556
NCI     100
       
Current Liabilities 100 50 150
Non-Current Liabilities 300 250 550

Notice

1) Share Capital (and share premium) is always just the holding company
2) All P + S assets are just added together
3) “Investment in S”..becomes “Goodwill” in the consolidated SFP
4) NCI is an extra line in the equity section of consolidated SFP
5) Reserves = P + 80% of S's post-acquisition reserve