Finance:Consolidated financial statement
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A consolidated financial statement (CFS) is the "financial statement of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent company and its subsidiaries are presented as those of a single economic entity", according to International Accounting Standard 27 "Consolidated and separate financial statements", and International Financial Reporting Standard 10 "Consolidated financial statements".[1][2]
Consolidated statement of financial position
While preparing a consolidated financial statement, there are two basic procedures that need to be followed: first, cancelling out all the items that are accounted as an asset in one company and a liability in another, and then adding together all uncancelled items.
There are two main type of items that cancel each other out from the consolidated statement of financial position.
- "Investment in subsidiary companies" which is treated as an asset in the parent company will be cancelled out by "share capital" account in subsidiary's statement. Only the parent company's "share capital" account will be included in the consolidated statement.
- If trading between different companies in one group happen, then the payables of one company will be cancelled by the receivables of another company.
Goodwill arising on consolidation
Goodwill is treated as an intangible asset in the consolidated statement of financial position. It arises in cases, where the cost of purchase of shares is not equal to their par value. For example, if a company buys shares of another company worth $40,000 for $60,000, we conclude that there is a goodwill worth or $20,000.
Proforma for calculating goodwill is as follows:[3]
Goodwill
Fair value of consideration transferred
Plus fair value of non-controlled interest at acquisition
Less ordinary share capital of subsidiary company
Less share premium of subsidiary company
Less retained earnings of subsidiary company at acquisition date
Less fair value adjustments at acquisition date
Non-controlled interest
If the parent company does not buy 100% of shares of the subsidiary company, there is a proportion of the net assets owned by the external company. This proportion that is related to outside investors is called the non-controlling interest (NCI).
The proforma for calculating the NCI is as follows:
Non-controlling interest
Fair value of NCI at acquisition date
Plus NCI's share of post-acquisition retained earnings or other reserves
NCI at the reporting date
Intra-group trading
In a group of companies, they can have trade relations with each other. For example, company A buys goods for one price and sells them to another company inside the group for another price. Thus, company A has earned some revenue from selling, but the group as a whole did not make any profit out of that transaction. Until those goods are sold to an outsider company, the group has unrealised profit.
See also
References
- ↑ "IAS 27 — Separate Financial Statements (2011)". IAS Plus (This material is provided by Deloitte Touche Tohmatsu Limited (“DTTL”), or a member firm of DTTL, or one of their related entities. This material is provided “AS IS” and without warranty of any kind, express or implied. Without limiting the foregoing, neither Deloitte Touche Tohmatsu Limited (“DTTL”), nor any member firm of DTTL (a “DTTL Member Firm”), nor any of their related entities (collectively, the “Deloitte Network”) warrants that this material will be error-free or will meet any particular criteria of performance or quality, and each entity of the Deloitte Network expressly disclaims all implied warranties, including without limitation warranties of merchantability, title, fitness for a particular purpose, non-infringement, compatibility and accuracy.). http://www.iasplus.com/en/standards/ias/ias27-2011.
- ↑ "IFRS 10 — Consolidated Financial Statements". IAS Plus (This material is provided by Deloitte Touche Tohmatsu Limited (“DTTL”), or a member firm of DTTL, or one of their related entities. This material is provided “AS IS” and without warranty of any kind, express or implied. Without limiting the foregoing, neither Deloitte Touche Tohmatsu Limited (“DTTL”), nor any member firm of DTTL (a “DTTL Member Firm”), nor any of their related entities (collectively, the “Deloitte Network”) warrants that this material will be error-free or will meet any particular criteria of performance or quality, and each entity of the Deloitte Network expressly disclaims all implied warranties, including without limitation warranties of merchantability, title, fitness for a particular purpose, non-infringement, compatibility and accuracy.). http://www.iasplus.com/en/standards/ifrs/ifrs10.
- ↑ Media., Bpp Learning (2016). Fia foundations of financial accounting ffa (acca f3).. [Place of publication not identified]: Bpp Learning Media. ISBN 9781472745903. OCLC 951710877.
Further reading
- Alexander, D., Britton, A., Jorissen, A., "International Financial Reporting and Analysis", Second Edition, 2005, ISBN:978-1-84480-201-2,
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