Drafting Financial Statements (Accounting Practice,

Industry and Commerce)

 A group consists of a PARENT (holding)

company and all the subsidiaries
 A Parent CONTROLS the subsidiary

 Under CA (85) individual companies are

separate legal entities – each company
produces its own accounts

 PARENT accounts
 Investment in subsidiary at cost (or
fair value)
 Dividends (share of profits)
receivable from subsidiaries
Unit 11, Week 11 Iwi Ugiagbe-Green
Drafting Financial Statements (Accounting Practice,
Industry and Commerce)

Consolidated Accounts – An introduction

 Single entity accounts based on principle of CONTROL

 Step 1
 Establish the group structure based on %
CONTROL and determine whether there are any
Minority Interests (MI)

 MI will arise where shareholding/CONTROL of S

by P is less than 100%

Unit 11, Week 11 Iwi Ugiagbe-Green

Drafting Financial Statements (Accounting Practice,
Industry and Commerce)

Step 2

 Set out the net assets of S

 Net assets at
 A) Date of acquisition (needed for
calculation of Goodwill)

 B) Statement of financial position

date (Calculate P’s share of any
post acquisition profits)

Unit 11, Week 11 Iwi Ugiagbe-Green

Drafting Financial Statements (Accounting
Practice, Industry and Commerce)

Step 3
 Calculation of Goodwill (intangible asset)

 Cost of Investment (consideration) x

 Less
 net assets x (% control) at
the date of acquisition (x)
 Goodwill x

Goodwill is an ASSET – amount of consideration paid

over and above FAIR value of the net assets that
the P CONTROLS

Unit 11, Week 11 Iwi Ugiagbe-Green

 Drafting Financial Statements (Accounting Practice,
Industry and Commerce)

 MI arises where P CONTROLS less than 100% of

the company
 MI represent shareholders that are not in the
group e.g. P owns 90% of S – S is 10% owned
by other shareholders

 Step 4
 MI is calculated at the date of statement of financial
position and is reported under EQUITY

Unit 11, Week 11 Iwi Ugiagbe-Green

Drafting Financial Statements (Accounting Practice,
Industry and Commerce)

Step 5
Group share of POST acquisition date profits (dividend)

Profits generated after ACQUISITION date are called Post-

acquisition profits and P will be entitled to a share of these
profits depending on its CONTROL or shareholding of S

£
e.g. Retained earnings date of acquisition 300,000
Retained earnings date of SOFP 375,000
Post acquisition profits 75,000
x% holding (50%) 37,500

 This is added to P’s retained earnings and shown in the

group SOFP
Unit 11, Week 11 Iwi Ugiagbe-Green
Drafting Financial Statements (Accounting Practice,
Industry and Commerce)

Activities

Puffin - p.g 157 and p.g 159

Unit 11, Week 11 Iwi Ugiagbe-Green