ACCA Applied Knowledge · Financial Accounting

Subsidiaries: formula sheet

Full chapter guide

Key formulas

Control (IFRS 10): Control = power + exposure to variable returns + ability to use power to affect returns; All three elements must be present. If one is missing, there is no control.
Parent and subsidiary: Parent controls → subsidiary → consolidate; Consolidation is line by line, combining 100% of assets, liabilities, income and expenses, with a non-controlling interest for any part not owned.
Ownership guide: > 50% voting rights → normally subsidiary; 20% to 50% → normally associate (significant influence); < 20% → normally investment; These are guides based on voting rights. Other facts about control can override them.
Exemption from preparing consolidated statements: Parent is itself a subsidiary + owners agree + no public market for its securities + ultimate or intermediate parent publishes IFRS consolidated statements; All conditions must be met. Learn this as a short checklist.
Accounting treatment by relationship: Subsidiary: consolidate (IFRS 10); Associate: equity method (IAS 28); Other investment: IFRS 9; The question to ask first is always: how much control or influence?
Control (exam rule of thumb): Parent holds more than 50% of voting shares → subsidiary; IFRS 10 defines control by power, exposure to variable returns and ability to use that power. Exam questions usually give a shareholding above 50%.
Net assets at acquisition: Share capital + reserves of subsidiary at acquisition date (± fair value adjustments); Use the acquisition date, not the reporting date, for goodwill.
Goodwill (NCI at proportionate share of net assets): Consideration paid + NCI at acquisition − subsidiary net assets at acquisition; NCI at acquisition = NCI % × net assets at acquisition. If NCI is measured at fair value, use that fair value instead.
Non-controlling interest at reporting date: NCI % × subsidiary net assets at reporting date; This is under the proportionate method. It is added to equity.
Consolidated retained earnings: Parent retained earnings + parent % × (subsidiary retained earnings now − at acquisition); Only post-acquisition profits are included.
Line-by-line consolidation: Parent + 100% of subsidiary (for each asset and liability) ± adjustments; Replace investment in subsidiary with goodwill. Add 100% even when the parent owns less.
Goodwill at acquisition: Goodwill = Consideration transferred + NCI at acquisition − Fair value of identifiable net assets at acquisition; Use values at the acquisition date, not the year-end date.
Fair value of net assets at acquisition: Share capital + Reserves at acquisition + Fair value adjustments; Fair value uplifts increase net assets. Fair value falls reduce them.
NCI at acquisition (proportionate method): NCI % × Fair value of net assets at acquisition; Use this only when the question says NCI is measured at its proportionate share.
NCI at acquisition (fair value method): NCI shares × Fair value per share at acquisition; The question gives the fair value. Use it as stated.
Goodwill carried in the group: Goodwill at acquisition − Accumulated impairment; Impairment is never reversed. It is charged to group profit or loss.
Share exchange consideration: Shares issued × Market price per share at acquisition date; Add any cash paid. Deferred consideration is included at its present value.
NCI %: NCI % = 100% − parent's % shareholding; Use the percentage of ordinary shares with voting rights. In FA questions this is usually the share ownership percentage.
NCI in the consolidated SOFP (proportionate method): NCI = NCI % × subsidiary's net assets at the reporting date; Net assets at the reporting date means share capital + reserves, after any fair value adjustments and unrealised profit adjustments on the subsidiary's side.
Subsidiary's net assets at reporting date: Net assets = share capital + reserves (adjusted for fair value changes and any unrealised profit in the subsidiary's inventory); Either add up equity or total assets less liabilities. Both give the same figure.
NCI share of profit: NCI in profit = NCI % × subsidiary's profit after tax for the year; If the subsidiary was acquired part-way through the year, use only the post-acquisition profit. Adjust profit first for fair value depreciation or unrealised profit if the subsidiary sold the goods.
Profit attributable to owners of the parent: Group profit after tax − NCI share of profit; Show both figures at the foot of the consolidated statement of profit or loss.
Post-acquisition profit: Subsidiary's retained earnings at reporting date − Subsidiary's retained earnings at acquisition; Use the same logic for any other reserve, such as a revaluation surplus, if the question gives one.
Consolidated retained earnings: Parent's retained earnings + (Parent's % × Subsidiary's post-acquisition profit) − parent's share of goodwill impairment − parent's share of any unrealised profit adjustment; Adjust for unrealised profit and impairment only where the question tells you about them. Where the NCI is measured at fair value, impairment is shared with the NCI. Where it is measured at its share of net assets, the group bears all of it.
Unrealised profit in closing inventory: Inventory still held × profit % on the sale; Use mark-up on cost or margin on sales, as the question states. If the parent sold the goods, the whole adjustment reduces the parent's profit. If the subsidiary sold them, share it with the NCI.
Pre-acquisition profits: Subsidiary's retained earnings at acquisition date; These feed into net assets at acquisition in the goodwill working. They are never added to group reserves.
Intragroup sales elimination: Dr Group revenue; Cr Group cost of sales (both by the intragroup sales value); Use the full value of intragroup sales for the year, whether or not goods are still in inventory. Profit is not changed by this entry.
Unrealised profit in closing inventory (mark-up): PUP = intragroup goods still held × mark-up ÷ (100 + mark-up); Use when profit is given as a percentage of cost. A 25% mark-up means profit is 25/125 of selling price.
Unrealised profit in closing inventory (margin): PUP = intragroup goods still held × margin %; Use when profit is given as a percentage of selling price. A 20% margin means profit is 20% of selling price.
PUP adjustment in the statements: Dr Cost of sales (or seller's retained earnings); Cr Group inventory; Applies in the statement of financial position as well as profit or loss. Inventory is shown at cost to the group.
PUP when the subsidiary sells: Subsidiary's profit at reporting date reduced by PUP, then split: NCI share = NCI % × adjusted profit; Also use the adjusted profit in the goodwill-after-acquisition and group reserves workings. A parent sale needs no NCI adjustment.
Cash in transit: Dr Cash; Cr Receivables (receiving company's books); Then cancel the intragroup receivable against the intragroup payable.
Goods in transit: Dr Inventory; Cr Payables (buyer's books), then cancel intragroup balances; The goods in transit are also included in the PUP calculation if they carry intragroup profit.
Line-by-line consolidation: Group item = Parent + Subsidiary (post-acquisition only) − intragroup items; Applies to revenue, cost of sales, expenses and tax. Include 100% of the subsidiary.
Time apportionment for mid-year acquisition: Subsidiary figure included = full-year figure × months owned ÷ 12; Use only when profits are assumed to accrue evenly, unless the question gives other information.
Intragroup trading: Deduct intragroup sales from revenue AND the same amount from cost of sales; Gross profit is not changed by this entry. Only the unrealised profit adjustment changes profit.
Unrealised profit in closing inventory: Unrealised profit = intragroup goods still held × profit as % of selling price (margin), or × mark-up ÷ (100 + mark-up); Add it to cost of sales. If the parent sold the goods, it reduces parent profit. If the subsidiary sold them, it reduces the subsidiary's profit and so the NCI share.
NCI share of profit: NCI = NCI % × subsidiary profit after tax (post-acquisition, adjusted for any unrealised profit made by the subsidiary); Based on the subsidiary's profit, not the group's.
Profit attributable to parent owners: Group profit for the year − NCI share; Total comprehensive income is split in the same way.
Intragroup dividends: Remove dividend income received from the subsidiary from the parent's income; Dividends paid to the NCI are not shown in the statement of profit or loss; they go through equity.

Quick revision

A parent controls a subsidiary. Control normally comes with more than 50% of voting rights, but the test is power over the investee, exposure to variable returns and the ability to use power to affect them.
Consolidate 100% of the subsidiary's assets, liabilities, income and expenses, even if the parent owns less than 100%.
Cancel the parent's investment in the subsidiary in the goodwill working, against the subsidiary's net assets at acquisition (share capital and pre-acquisition reserves). The NCI share and goodwill make up the difference.
Goodwill = consideration transferred + NCI at acquisition − fair value of the subsidiary's identifiable net assets at acquisition.
NCI at the reporting date = NCI at acquisition + NCI share of the subsidiary's post-acquisition profits.
Group reserves = parent's reserves + parent's share of the subsidiary's post-acquisition reserves, less group adjustments.
Post-acquisition profit = subsidiary's reserves now − reserves at acquisition.
Remove intragroup receivables and payables, which should offset each other. Adjust for cash or inventory in transit if needed.
Unrealised profit in closing inventory = profit element in the goods still held by the group. Reduce inventory by this amount. If the parent is the seller, deduct the whole amount from the parent's reserves. If the subsidiary is the seller, deduct it from the subsidiary's profit, so it is shared between the group and NCI.
In the consolidated profit or loss, remove intragroup sales from revenue and the same amount from cost of sales.
Profit for the year is split between owners of the parent and NCI. NCI takes its share of the subsidiary's profit after adjustments.

Common mistakes

Saying control only exists above 50% ownership. Fix: Remember that the definition is power, returns and the link between them. Percentages are a guide. Look for board rights or contracts.
Treating every holding over 50% as a subsidiary automatically. Fix: Check whether another party holds rights that stop the investor directing the investee's activities. If so, there is no power.
Leaving the investment in subsidiary in the group statement Fix: Cross out the investment as soon as you start. It is replaced by the subsidiary's net assets and goodwill.
Including the subsidiary's share capital in group equity Fix: Group share capital is the parent's only. The subsidiary's capital is cancelled in the goodwill working.
Using current reserves instead of reserves at the acquisition date. Fix: Read for the date of acquisition. Use only the reserves given for that date.
Forgetting to add NCI in the goodwill working. Fix: Always start with the three-part formula: consideration, plus NCI, less net assets.
Using the parent's percentage instead of the NCI percentage. Fix: Always write NCI % = 100% − parent % as your first line.
Using the subsidiary's net assets at the acquisition date to calculate NCI in the SOFP. Fix: For the SOFP the NCI uses net assets at the reporting date. Acquisition-date net assets belong in the goodwill calculation.
Adding the subsidiary's whole retained earnings to group reserves. Fix: Always subtract the acquisition-date reserves first. Only the movement since acquisition counts.
Using 100% of the post-acquisition profit instead of the parent's share. Fix: Reserves in the group working take only the parent's %. The NCI holds the rest. Only the consolidated net assets are shown at 100%.

Exam tips

In multiple choice questions, circle the percentage first, then look for facts that override it, such as board control or contractual rights.
For multiple response questions, select exactly the number stated, and make sure each choice satisfies the full definition, not just part of it.
Learn the exemption conditions as a checklist. A scenario often leaves one out to test you.
Be ready to name the correct standard and treatment: IFRS 10 consolidation, IAS 28 equity method, IFRS 9 investment.
Do not spend long on this topic in Section B. The consolidation calculations that follow carry more marks, so use this topic to decide quickly whether to consolidate.
In objective questions, read exactly which figure is asked for: goodwill, NCI, group reserves or total assets. Do only that working.
Number-entry questions need the exact figure. Check whether the question uses proportionate NCI or fair value NCI before calculating goodwill.
In the 15-mark consolidation question, show every working clearly. Marks are given for method even if a later figure is wrong.