BASIS CONSOLIDATED
ACCOUNTS
1 WHAT ARE CONSOLIDATED
ACCOUNT?
IAS 27 Consolidated Financial Statements and
Accounting for Investments is Subsidiaries requires a
parent company to prepare consolidated accounts
incorporating the results of the whole group.
Consolidated accounts :the name given to the
accounting techniques which seek to reflect the true
position, as regards both profits and assets, when one
company controls another. They consist of:
---A consolidated balance sheet, in which all assets
and liabilities of group undertakings are aggregated,
and
---A consolidated income statement aggregating the
profits and losses of all group undertakings.
For Paper 1.1 we are concerned only with the
consolidated balance sheet.
Parent company A company which is controlled by a
parent company.
Group of companies. Apparent company plus its
subsidiaries.
Group of companies. A company plus its
subsidiaries.
Minority interest. If the subsidiary is not wholly
owned by the parent, the ‘outside’ interest is referred
to as the ‘minority interest’
2 THE BASIC BALANCE SHEET
CONSOLIDATION PROCEDURE
Preparing a consolidated balance sheet really
means' adding together’ the two balance
sheets. The investment in the subsidiary is
replaced by the underlying net assets of the
subsidiary.
Example
P was incorporated on 1January 20X1.On
1January 20X3 it acquired 100% of the
ordinary shares in S which was incorporated
on the day. Five years later, on 31 December
20X7,the balance sheets of the two companies
were as follows:
P S
$ $
Non-current assets 10000 5000
Investment in S:5000$1 shares 5000
Net current assets 5000 3000
20000 8000
Share capital :ordinary shares of
$1 each 10000 5000
Accumulated profits 10000 3000
20000 8000
P S
$ $
Non-current assets 10000 5000
Investment in S:4000$ shares 4800
Net current assets 5200 3000
20000 8000
Share capital:ordinary shares of $1 each 10000 5000
Accumulated profits 10000 3000
20000 8000
Cost of investment is S $ $
5000
8000
Q T
$ $
Non-current assets 8000 11000
Investment in T at cost 10000
Net current assets 4000 3000
22000 14000
Ordinary share capital (shares of $1 each) 10000 5000
Accumulated profits 12000 9000
22000 14000
$
Non- current assets(8000+11000) 19000
Goodwill (Working 1) 1120
Net current assets 7000
27120
Share capital 10000
Accumulated profits (Working 3) 14320
24320
Minority interest (Working 2) 2800
27120
Companies are required to prepare consolidated
financial statements if they own more than 50% of
another company or control it in some other way.
Subsidiaries may be excluded from consolidation in
some circumstance:
---Severe long –term restrictions on control
---Investment held for resale
A group may be exempted from the requirement to
prepare consolidated financial statements if:
---Parent is w wholly-owned subsidiary of another
company
---Parent is a virtually wholly-owned subsidiary of
another company and minority have agreed that
consolidated financial statements are not required by
them.