Financial Accounting · Subsidiaries

How to Prepare a Consolidated Statement of Profit or Loss

Updated 11 October 2026 · Fact-checked

A consolidated statement of profit or loss shows the group as one entity. Add the parent's results to the subsidiary's results from the acquisition date, line by line. Remove intragroup sales, purchases, unrealised profit and dividends. Then split profit for the year between the parent's owners and the non-controlling interest (NCI).

Understand Consolidated Statement of Profit or Loss

When a parent controls a subsidiary, the group reports as if it were a single business. The consolidated statement of profit or loss shows the income and expenses of the whole group for the year.

You use a line-by-line approach. Add revenue, cost of sales and expenses of the parent and the subsidiary. You always include 100% of the subsidiary's figures, even if the parent owns less than 100%. This is because the parent controls all of them.

The subsidiary only counts from the acquisition date. If control starts part-way through the year, include only the post-acquisition share of the subsidiary's income and expenses. In FA questions, this is usually done by time-apportioning the full-year figures (for example, 6/12), assuming profits accrue evenly.

Transactions inside the group are not real to outsiders. If the parent sells goods to the subsidiary, the group has not sold anything. So you remove intragroup sales from revenue and the same amount from cost of sales. You also adjust for any unrealised profit on goods still held in inventory at the year end. Dividends paid by the subsidiary to the parent are also removed: they are just a transfer within the group.

Finally, the statement shows who owns the profit. The NCI share of the subsidiary's profit after tax (post-acquisition only) is shown as a split at the bottom. The rest belongs to the owners of the parent.

Key formulas to remember

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.

How to solve Consolidated Statement of Profit or Loss questions

Use this order for any consolidated statement of profit or loss question. It keeps the working tidy and stops you missing an adjustment.

1Work out the group structure: the parent's percentage, the NCI percentage and the date control started.
2Decide how much of the subsidiary's year to include. If acquired mid-year, time-apportion each line (for example × 6/12).
3Add parent and subsidiary figures line by line, from revenue down to profit after tax. Include 100% of the subsidiary's post-acquisition figures.
4Deduct intragroup sales from revenue and from cost of sales. Only include trading from the acquisition date.
5Calculate unrealised profit on goods still in inventory at the year end and add it to cost of sales. Note whether the seller was the parent or the subsidiary.
6Remove any dividend income from the subsidiary included in the parent's figures, and any intragroup interest or management charges.
7Calculate profit for the year, then the NCI share (NCI % × subsidiary's adjusted post-acquisition profit after tax).
8Show profit attributable to owners of the parent as the balancing figure. Check that the two parts add up to the group total.

Quickest way: Three-column working with a single adjustment list

When to use it: Use in the exam for a number-entry question that asks for one figure, such as group revenue or NCI share. Do not build the full statement if only one line is needed.

Identify the single line asked for and ignore the others.
Write: parent + subsidiary × time fraction.
Subtract intragroup sales (or add unrealised profit to cost of sales) as the question requires.
For NCI: take the subsidiary's profit after tax, time-apportion it, adjust for unrealised profit if the subsidiary sold the goods, then multiply by NCI %.
Sense-check: group revenue must be lower than parent plus subsidiary if there was intragroup trading.

Common mistakes in Consolidated Statement of Profit or Loss

Including the whole year of a subsidiary acquired mid-year.
Students copy the subsidiary's full-year figures because that is what the question lists.
Fix: Underline the acquisition date first. Apply the time fraction to every subsidiary line before adding.
Deducting intragroup sales from revenue but not from cost of sales.
Students think only one side of the transaction needs removing.
Fix: Remove the same amount from both revenue and cost of sales. Gross profit stays the same before unrealised profit.
Leaving the subsidiary's dividend in the group's income.
Dividend income appears in the parent's figures and looks like normal income.
Fix: Dividends from a subsidiary are eliminated on consolidation. Check the parent's investment income for them.
Calculating the NCI share on group profit or on the parent's profit.
Students mix up whose profit the NCI owns a share of.
Fix: NCI is a share of the subsidiary's profit after tax only (post-acquisition and after any unrealised profit adjustment where the subsidiary was the seller).
Using the mark-up as if it were the margin for unrealised profit.
Wording such as 'sold at cost plus 25%' is misread as 25% of selling price.
Fix: A 25% mark-up means profit is 25 ÷ 125 = 20% of selling price. Convert before multiplying.
Reducing the wrong entity's profit for unrealised profit, which changes the NCI.
Students always adjust the parent.
Fix: The seller bears the adjustment. If the subsidiary sold the goods, deduct the unrealised profit in its profit before working out the NCI.

Worked examples

Example 1

P owns 80% of S for the whole year. Year-end revenue: P $600,000; S $300,000. Cost of sales: P $350,000; S $180,000. During the year P sold goods to S for $50,000. At the year end S still held half of these goods. P sells at a 25% mark-up on cost. Calculate group revenue, group cost of sales and group gross profit.

Show the solution

Revenue: 600,000 + 300,000 − 50,000 intragroup sales = $850,000.
Cost of sales before adjustment: 350,000 + 180,000 − 50,000 = $480,000.
Unrealised profit: goods still held = 50,000 × 1/2 = $25,000. Profit = 25,000 × 25 ÷ 125 = $5,000.
Add unrealised profit to cost of sales: 480,000 + 5,000 = $485,000.
Gross profit = 850,000 − 485,000 = $365,000.

Answer: Group revenue $850,000; group cost of sales $485,000; group gross profit $365,000.

Example 2

P bought 75% of S on 1 April. Both have a 31 December year end. For the year, S's profit after tax was $120,000. P's profit after tax (before any dividend income) was $400,000. S paid a dividend of $40,000 during the year after acquisition, of which P received 75%, included in P's profit of $400,000 as dividend income? No: P's $400,000 excludes it. Assume profits accrue evenly and no intragroup trading. Calculate group profit for the year and the split between NCI and owners of P.

Show the solution

Post-acquisition period is 1 April to 31 December = 9 months.
S's post-acquisition profit = 120,000 × 9/12 = $90,000.
The dividend is not in P's $400,000, so it is not part of group profit anyway. Nothing to eliminate.
Group profit for the year = 400,000 + 90,000 = $490,000.
NCI share = 25% × 90,000 = $22,500.
Owners of P = 490,000 − 22,500 = $467,500.

Answer: Group profit $490,000; NCI $22,500; owners of the parent $467,500.

Exam tips

Read the acquisition date before any number. It decides how much of the subsidiary you include.
In number-entry questions, answer only the line asked for. Skip the rest of the statement to save time.
Check whether the question gives a mark-up or a margin. Convert mark-up using mark-up ÷ (100 + mark-up).
In multiple response questions, remember: dividends from a subsidiary are eliminated, intragroup sales and purchases are eliminated, and NCI is based on the subsidiary's profit.
Section B questions are worth 15 marks. Show the working for each adjustment so you gain method marks even if one figure is wrong.

Practice questions from Subsidiaries

Consolidated Statement of Profit or Loss in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Consolidated Statement of Profit or Loss: frequently asked questions

Do I include 100% of the subsidiary's revenue if I own only 60%?

Yes. The parent controls the subsidiary, so you include all of its income and expenses line by line. The NCI share is then shown at the bottom as an attribution of profit.

How do I deal with a subsidiary acquired part-way through the year?

Include only the results from the acquisition date. Unless told otherwise, time-apportion the subsidiary's full-year figures. For example, for 1 April acquisition with a 31 December year end, use 9/12.

What happens to intragroup dividends in the consolidated statement of profit or loss?

Dividends received by the parent from the subsidiary are removed from the group's income because they are only a transfer within the group. Dividends paid to the NCI are not an expense and are shown in the statement of changes in equity.

Who is affected by unrealised profit on intragroup sales?

The seller. If the parent sold the goods, the adjustment reduces the parent's profit, and the NCI is unaffected. If the subsidiary sold them, the adjustment reduces the subsidiary's profit, so the NCI share also falls.