CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND ASSOCIATES
Learning Objectives
- Introduction
- The Basic Principles for Consolidating the Statement of Profit or Loss
- Non-Controlling Interest
- Intra-Group Trading
- Mid-Year Acquisitions
- IAS 28 Investments in Associates and Joint Ventures
- Trading with the Associate
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I. Introduction
The consolidated statement of profit or loss presents the financial performance of all group entities (i.e. parent and subsidiaries under common control) in one statement.
II. The Basic Principles for Consolidating the Statement of Profit or Loss
The steps for consolidating the statements of profit or loss are as follows:
- Add together the revenues and expenses of the parent and the subsidiary.
If the subsidiary is acquired part-way through the year all the revenues and expenses of the subsidiary must be time apportioned during the consolidation process.
- Eliminate intra-group sales and purchases.
- Eliminate unrealized profit held in closing inventory relating to intra group trading
- Calculate the profits attributable to the non-controlling interests.)
III. Non-Controlling Interest
| This is calculated as: | |
| NCI % × subsidiary’s profit after tax | x |
| Less:
NCI % × PURP (when the sub is the seller only) |
(x) |
| x |
Depreciation on fair value adjustments and impairment of goodwill is not examinable for this syllabus.
VI. Intra-Group Trading
Sales and purchases
The effect of intra-group trading must be eliminated from the consolidated statement of profit or loss. Such trading will be included in the sales revenue of one group entity and the purchases of the other.
- Consolidated sales revenue = P’s revenue + S’s revenue – intra-group sales.
- Consolidated cost of sales = P’s COS + S’s COS – intra-group purchases.
Inventory
If any goods traded between the parent and the subsidiary are included in closing inventory, their value must be adjusted to the lower of cost and net realizable value (NRV)to the group (as in the CSFP).
The adjustment for unrealized profit should be shown as an increase to cost of sales (return inventory back to true cost to group and eliminate unrealized profit).
- Consolidated cost of sales = P’s COS + S’s COS – intra-group purchases + unrealized profits
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Download lesson: Chapter 9 Consolidated statement of profit or loss and associates