CMA Final · Corporate Financial Reporting

Consolidated Financial Statements and Separate Financial Statements: formula sheet

Full chapter guide

Key formulas

Consolidated financial statements: Group = Parent + Subsidiaries, shown as a single economic entity; Combine like items of assets, liabilities, equity, income, expenses and cash flows (para B86(a)).
Control test (three elements): Control = Power over investee + Exposure to variable returns + Ability to use power to affect returns; All three must be present. Do not decide on shareholding alone.
Investment elimination: Parent's investment in subsidiary is offset against parent's portion of the subsidiary's equity; Any related goodwill is dealt with under Ind AS 103 (para B86(b)).
Intragroup items: Eliminate in full all intragroup assets, liabilities, equity, income, expenses and cash flows; Unrealised profit in inventory and fixed assets is eliminated in full. Ind AS 12 applies to the resulting temporary differences (para B86(c)).
Exemption from consolidating (para 4(a)): Exempt only if ALL four conditions are met; (i) wholly-owned, or other owners informed and do not object; (ii) no publicly traded debt or equity; (iii) not filing for public issue; (iv) an ultimate or intermediate parent publishes Ind AS-compliant public statements that consolidate or measure subsidiaries at FVTPL.
Reporting date gap: Difference between subsidiary's and consolidated reporting dates ≤ 3 months; Used only where aligning dates is impracticable. Adjust for significant transactions in the gap, and keep period lengths and the gap consistent year to year (para B93).
Loss of control (para 25): Derecognise subsidiary's assets and liabilities; recognise retained investment at fair value; recognise gain or loss attributable to the former controlling interest; The fair value becomes the Ind AS 109 initial value, or the cost of an associate or joint venture investment.
Parent's share of net assets at acquisition: Parent % × (Share capital + Pre-acquisition reserves, adjusted for fair value changes); Use the subsidiary's equity at the date control was gained, not the balance sheet date.
Goodwill / (Capital reserve) - partial goodwill method: Cost of investment − Parent's share of net assets at acquisition; This is the proportionate-share option, where goodwill is only the parent's. Positive is goodwill. Negative is capital reserve. Goodwill is not amortised; it is tested for impairment. If the question measures NCI at fair value, goodwill also includes the NCI's share: Cost of investment + Fair value of NCI − 100% of net assets at acquisition.
Consolidated reserves: Parent's reserves + Parent % × Subsidiary's post-acquisition reserves − Goodwill impairment borne by the parent; Pre-acquisition reserves are excluded.
Post-acquisition reserves: Subsidiary's reserves at balance sheet date − Reserves at acquisition date; Adjust for extra depreciation on fair value uplift and for unrealised profit, if given.
Non-controlling interest: Proportionate-share option: NCI % × (Share capital + All reserves at balance sheet date, adjusted for fair value uplift, extra depreciation and unrealised profit). Fair value option: the same figure + NCI's share of goodwill − NCI's share of goodwill impairment; Use the proportionate-share option unless the question says NCI is measured at fair value. Under the proportionate-share option no goodwill is attributed to NCI, so no impairment is charged to it. NCI is shown within equity, separately from the parent's owners' equity.
Rule for intragroup balances: Eliminate intragroup assets, liabilities, income and expenses in full; Unrealised profit in inventory or fixed assets is eliminated in full too.
Unrealised profit in closing stock: Unrealised profit = Closing stock from group entity × Profit % included in transfer price; Profit % must be on the same base as the stock value, which is the selling price paid by the buyer.
Markup on cost to profit on selling price: Profit on selling price = Markup ÷ (100 + Markup); A 25% markup on cost is 25 ÷ 125 = 20% of selling price. Use this before applying to stock at invoice value.
Downstream elimination: Reduce parent's profit by 100% of unrealised profit; reduce stock by the same amount; NCI is not affected.
Upstream elimination: Reduce subsidiary's profit by unrealised profit; NCI bears NCI % × amount, parent bears the balance; Stock is still reduced by the full amount.
Fixed asset transfer: Unrealised profit = Transfer price − Carrying amount in seller's books; Excess depreciation = Depreciation on transfer price − Depreciation on original carrying amount; Net reduction in asset at year end = Unrealised profit − cumulative excess depreciation.
Inter-company balances and dividends: Debtors in one entity = Creditors in the other, eliminate both; dividend income of parent from subsidiary eliminated against dividend paid by subsidiary; Eliminate in full under Ind AS 110 B86(c). Reconcile goods or cash in transit first. NCI's share of dividend remains in NCI.
Net identifiable assets at acquisition: Share capital + Pre-acquisition reserves ± Fair value adjustments (net of deferred tax, if asked); This is the base for goodwill and for NCI where NCI is measured at proportionate share of net assets.
Goodwill (capital reserve if negative): Consideration transferred + NCI at acquisition-date measure − Net identifiable assets at fair value; Contingent consideration is included in the consideration at acquisition-date fair value. A negative result is a bargain purchase, dealt with under Ind AS 103.
Extra depreciation on uplift: (Fair value − Book value) ÷ Remaining useful life; Use the remaining life from the acquisition date. Charge it in the consolidated profit and loss from the acquisition date.
Elimination of investment (Ind AS 110, B86(b)): Parent's investment is offset against parent's portion of the subsidiary's equity; Any difference goes to goodwill under Ind AS 103.
Income and expenses from acquisition date (B88): Subsidiary's income and expenses are based on acquisition-date fair values of assets and liabilities; This is the rule behind depreciation on fair value uplift.
Line-by-line aggregation: Consolidated item = Parent item + Σ Subsidiary items (from control date) ± consolidation adjustments; Ind AS 110 para B86(a). Combine like items such as revenue, cost of materials and depreciation.
Intragroup sales elimination: Deduct intragroup sales from Revenue and the same amount from Purchases / Cost of goods sold; Eliminate in full at the transfer price. This changes revenue and cost but not profit by itself.
Unrealised profit in closing inventory: Unrealised profit = Intragroup stock remaining × Profit % on transfer price (or ÷ markup on cost); Remove from profit and from closing inventory. If profit is on cost, use markup ÷ (100 + markup) of the transfer price.
Opening unrealised profit: Add back opening unrealised profit in the seller's profit for the year, to the extent the stock was sold outside the group during the year; Opening stock sold outside means the profit is now realised for the group. For an upstream sale, attribute the add-back to NCI in proportion to its holding.
Extra depreciation on fair value uplift: Extra depreciation = (Fair value − Book value) ÷ Remaining useful life; Para B88. Charge it in the consolidated statement and attribute to NCI according to its share.
Profit attributable to NCI: NCI share = (Subsidiary profit after tax ± adjustments − cumulative preference dividend on equity-classified preference shares held by NCI) × NCI ordinary % + NCI's preference dividend; Para B95 requires the profit to be adjusted for the cumulative preference dividend, whether or not declared, before the share is computed. So the ordinary NCI % applies only to profit after that dividend. NCI's total attribution (para B94) then includes its preference dividend as a consequence. Use adjusted profit, not reported profit.
Profit attributable to owners of the parent: Owners' share = Consolidated profit for the year − NCI share; Check: owners' share + NCI share must equal total consolidated profit.
Control kept: Change in holding with control retained = equity transaction; no gain or loss in P&L; Ind AS 110 para 23. Adjust NCI and parent's equity.
Adjustment to equity (control kept): Difference = Consideration − Carrying amount of NCI transferred; For part disposal, NCI increases by its share of net assets plus goodwill. Take the difference to equity (retained earnings or other reserve).
Gain or loss on loss of control: Gain or loss = (Fair value of consideration + Fair value of retained stake + Carrying amount of NCI) − Carrying amount of the subsidiary's net assets (including goodwill); Ind AS 110 B98. Add OCI reclassification per B99. Attribute to the parent.
Retained stake: Retained investment recognised at fair value on the date control is lost; Para 25(b). This is the initial cost for an associate or the initial fair value for a financial asset.
Step acquisition (control obtained): Goodwill = Consideration + Fair value of earlier stake + NCI − Net identifiable assets at acquisition date; Ind AS 103 treatment; the old stake is remeasured with gain or loss in P&L.
Bonus issue: Bonus shares = Existing shares × bonus ratio; the percentage holding is unchanged; Total equity unchanged. Only the split between share capital and reserves changes.
Effective interest in a sub-subsidiary: Effective interest of H in S2 = (H % in S1) × (S1 % in S2); Use it to share S2's post-acquisition profits. Control of S2 is decided by the control test, not by this figure.
NCI percentage in a sub-subsidiary: NCI % in S2 (for profit sharing) = 100% − effective interest of H; This is true only when S1 and H are the only group holders. It covers outsiders of S2 plus H's outsiders' share through S1.
Adjusted equity of the middle subsidiary: S1 adjusted post-acquisition profit = S1's own post-acquisition profit + (S1 % in S2 × S2's post-acquisition profit); Calculate NCI in S1 on this adjusted figure, not on S1's own books alone.
Total NCI in a chain: NCI = (outside % in S2 × S2 equity) + (outside % in S1 × adjusted S1 equity); Add S2's NCI and S1's NCI. Never take NCI of S1 on S1's own equity only.
Group share of reserves in a chain: Group reserves = H reserves + (H % in S1 × S1 adjusted post-acquisition profit); The same answer comes from H's share of S1's own profits plus the effective interest in S2's post-acquisition profits.
Goodwill (proportionate NCI method): Goodwill = cost of investment − parent's share of net assets at acquisition date; Work it out separately for each subsidiary on its own acquisition date. A negative result is a gain or capital reserve on a bargain purchase. Ind AS 103 governs goodwill, and Ind AS 110 B86(b) the offset.
Mutual holding between A and B: A' = a + (x% × B') and B' = b + (y% × A'); a and b are own profits before income from each other. x% is A's holding in B and y% is B's holding in A. Solve the two equations together.
NCI with a mutual holding: NCI in A = (100% − H % − B's % in A) × A', with the same logic for B; The shares held by another group company are not NCI.
Consolidation principle (Ind AS 110, B86): Combine like items line by line + eliminate investment against parent's share of subsidiary equity + eliminate intragroup balances and transactions in full; Unrealised profits in assets such as inventory and fixed assets are eliminated in full.
Equity method carrying amount: Closing carrying amount = Cost + Share of post-acquisition profit − Share of losses − Dividends received; Basic form only. Other adjustments (for example OCI share, or unrealised profits on transactions with the investee) are outside this basic summary.
Investment entity rule (Ind AS 110, para 31): Investment in subsidiary → fair value through profit or loss (Ind AS 109); no consolidation, no Ind AS 103; Applies only to an entity that meets the investment entity definition.
Ceasing to be an investment entity (Ind AS 110, B100): Date of change = deemed acquisition date; fair value of subsidiary = deemed consideration for goodwill or bargain purchase; Ind AS 103 then applies, and all subsidiaries are consolidated from that date.
Separate statements: ceasing to be investment entity (Ind AS 27, 11B(a)): Either (i) cost, with fair value at the change date as deemed cost, or (ii) continue Ind AS 109 accounting; The choice is made in accordance with paragraph 10.
Separate statements: becoming investment entity (Ind AS 27, 11B(b)): Fair value through profit or loss; gain or loss = Fair value − Previous carrying amount, taken to profit or loss; Cumulative fair value adjustments previously in OCI are treated as if the subsidiaries were disposed of at the change date.
Reporting date (Ind AS 110, B92-B93): Same reporting date; if impracticable, gap between subsidiary's and consolidated statements ≤ 3 months, adjusted for significant events; The length of reporting periods and the gap must stay the same from period to period.

Quick revision

Consolidated statements show parent and subsidiaries as a single economic entity.
Combine like items line by line, then eliminate the parent's investment against its share of subsidiary equity.
Intragroup assets, liabilities, income, expenses and cash flows are eliminated in full.
Profit in inventory or fixed assets from intragroup sales is eliminated in full, with deferred tax applied to the temporary differences.
Intragroup losses may signal impairment that must be recognised.
Present NCI within equity, separately from the owners of the parent's equity.
Use uniform accounting policies, and adjust the subsidiary's figures if they differ.
Changes in ownership that keep control are equity transactions, with no gain or loss in profit or loss.
On loss of control, derecognise assets and liabilities, recognise the retained investment at fair value and recognise the gain or loss.
Cumulative preference dividends held by NCI are deducted before computing NCI's share of profit, whether declared or not.
Under the equity method, the investment starts at cost and is adjusted for the investor's share of post-acquisition changes in the investee's net assets.
Fair value adjustments change net assets at acquisition, so they change goodwill and later depreciation.

Common mistakes

Deciding control only on shareholding above 50%. Fix: Test power, exposure to variable returns and the link between them. Use the percentage only as a first clue.
Saying a parent is exempt when only one or two exemption conditions are met. Fix: Paragraph 4(a) needs all four conditions: owners informed and not objecting, no public trading, no public filing, and a higher parent publishing Ind AS statements.
Taking the subsidiary's reserves at the balance sheet date to compute goodwill. Fix: Goodwill uses equity at the acquisition date. Closing reserves less reserves at acquisition gives only the post-acquisition part.
Leaving pre-acquisition reserves out of the NCI calculation. Fix: NCI gets its percentage of share capital plus all reserves at the balance sheet date, pre and post acquisition.
Eliminating only the profit portion of intra-group sales instead of the full sales value. Fix: Do two separate steps: cancel the full sales against purchases, then remove unrealised profit from closing stock.
Applying a markup on cost directly to stock valued at selling price. Fix: Convert the markup to profit on selling price using markup ÷ (100 + markup) before multiplying.
Ignoring the FVA when computing goodwill Fix: Always check for a fair value note first. Adjust net assets before computing goodwill.
Not charging extra depreciation after acquisition Fix: Divide the uplift by the remaining useful life and charge it every year, as Ind AS 110 para B88 requires.
Adding the parent's dividend income from the subsidiary to consolidated profit. Fix: Exclude it from consolidated income. Under B86(c), intragroup income is eliminated in full.
Eliminating only the unrealised profit and not the intragroup sales and purchases. Fix: Remove the full transfer value from both revenue and cost of purchases, then separately remove the unrealised profit from closing stock.

Exam tips

In theory questions, name the three elements of control and apply each to the facts. Marks usually come from applying them, not just listing them.
For the exemption, write all four conditions of paragraph 4(a) and tick each one against the case. Examiners look for the full test.
In MCQs, watch for words like 'any one' or 'all'. The exemption requires all conditions, and eliminations of intragroup profit are in full.
Keep a one-line distinction ready: subsidiary means control and consolidation, associate means significant influence and equity method, joint venture means joint control over net assets and equity method.
If a case mentions different year-ends, bring in the three-month limit and adjustment for significant events.
Draw the Total, Pre-acquisition and Post-acquisition table first. Examiners give marks for each working note, so show them separately.
Read the date of acquisition carefully. If reserves at acquisition are not given, you may need to back-calculate them using profit earned during the year.
Check for fair value adjustments, intragroup loans, unrealised profit and dividends in the notes. These are usually hidden at the bottom of the question.