Consolidated Statement of Profit and Loss

Consolidated Statement of Profit and Loss Share

There is no methodical approach when producing a Consolidated Statement of Profit and Loss therefore students often find it difficult. I use a columnar approach which makes it methodical and therefore should enable all students to get a pass if this statement is requested.

A key point to remember is that this statement reflects substance and hence initially shows ‘Control’ therefore Revenue down to Profit for the year is consolidated 100% (i.e. Parent (P) + 100% of Subsidiaries (S))

…..below this point you show ‘Ownership’ by calculating how much of the profit for the year is attributable to the owners of P and how much to Non-Controlling Interest (NCI). The latter is calculated on the Subsidiary Profit only (S’s) for the year that has been consolidated.

Additionally, since substance is being reflected by the consolidated statements the group is treated as a single entity, hence the need to eliminate intergroup transactions using an adjustments column. This column should always add down to zero.

You may also need to adjust for unrealised profits (URTT). The rule here is to always adjust the seller’s Cost of Sales hence in the sellers column.

On acquisition of  ‘S’ you have to calculate Goodwill using the fair values (FV) of the net assets of the S at acquisition. If there is an increase to FV over carrying value (CV) this then leads to extra depreciation/amortisation. The extra amount for the year needs to go in S’s column.

Remember, positive goodwill needs to be reviewed annually for impairment hence the need to adjust for any impairments for the year. How? This depends on which method is used to calculate goodwill. If using FV of the NCI at acquisition then put the impairments for the year into S’s column, if using the proportionate method then it goes into P’s column.

The advantage of adjusting the appropriate column is that the calculation for NCI becomes very easy. Simply add down S’s column to profit for the year and then NCI is NCI % of this figure.

So the procedure for the Consolidated Statement of Profit and Loss is:

Do the group structure

  1. Do a proforma answer using columns and obeying the rules above.

Read through this article using the table that I have produced which can be found above (adjustments are shown in red on the table)

Reed Business School

09/09/15

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