Financial Reporting · Preparation of consolidated financial statements for a simple group

How to Prepare the Consolidated Statement of Profit or Loss and OCI

Updated 11 October 2026 · Fact-checked

The consolidated statement of profit or loss adds the parent's and subsidiary's income and expenses line by line, from the acquisition date only. You remove intragroup sales, purchases, interest, dividends and unrealised profit. Then you split profit and total comprehensive income between the owners of the parent and the non-controlling interest, using the subsidiary's adjusted results.

Understand Consolidated Statement of Profit or Loss and OCI

A group is a parent and its subsidiaries. The consolidated statement of profit or loss shows the group as if it were one business. So you add up the results of every group company, then remove anything that happened only between group companies.

You use the full line-by-line (100%) method. Even if the parent owns only 80% of the subsidiary, you include 100% of the subsidiary's revenue, cost of sales and expenses. This is because the parent controls all of them. The part of profit that belongs to outside shareholders is shown at the bottom, as the non-controlling interest (NCI).

Intragroup items must go. If P sells goods to S, P records revenue and S records a purchase. The group has not sold anything to an outsider. So you remove the sale from revenue and the same amount from cost of sales. If some of those goods are still in inventory at the year end, the profit on them is unrealised. You also remove that profit, by increasing cost of sales. Intragroup interest and management charges are cancelled the same way (income against expense). Intragroup dividends are left out of group profit.

A subsidiary is consolidated only from the date control is gained. If P buys S part-way through the year, you include S's income and expenses from that date only. Usually you time-apportion the year's results, for example 3/12 if the acquisition was three months before the year end. Then, only post-acquisition profit is split with the NCI.

The statement ends with profit for the year and other comprehensive income (OCI). Both are split between owners of the parent and NCI. Total comprehensive income is split too, using the same shares unless the question says otherwise. Group OCI is the parent's OCI plus the subsidiary's post-acquisition OCI.

Key rules to remember

Group revenue and costs: Parent + Subsidiary (from acquisition date) − intragroup items; Apply the same rule to each line. Always include 100% of the subsidiary, not just the parent's share.
Intragroup sales: Deduct intragroup sales from revenue AND the same amount from cost of sales; This has no effect on group profit. Only the unrealised profit adjustment changes profit.
Unrealised profit in closing inventory (mark-up): URP = inventory still held (at transfer price) × mark-up ÷ (100 + mark-up); For a 25% mark-up use 25/125 = 1/5. Add the URP to cost of sales.
Unrealised profit in closing inventory (margin): URP = inventory still held (at transfer price) × margin on selling price; If the margin is 20% of selling price, URP is 20% of the inventory still held.
Time apportionment for mid-year acquisition: Subsidiary's post-acquisition results = full-year results × months owned ÷ 12; Use only if income and costs accrue evenly. Follow any other information in the question.
NCI share of profit: NCI = NCI % × subsidiary's profit for the year (post-acquisition, adjusted); Adjust the subsidiary's profit first for fair value depreciation and unrealised profit on goods the subsidiary sold to the parent. Do not use the parent's profit.
NCI share of total comprehensive income: NCI share of TCI = NCI % × subsidiary's total comprehensive income (post-acquisition); Subsidiary's TCI = its profit + its OCI.
Owners of the parent: Owners' share = group profit (or TCI) − NCI share; The two shares must add back to the group total.

How to solve Consolidated Statement of Profit or Loss and OCI questions

Use this order for any consolidated statement of profit or loss question. It keeps adjustments in one place and makes errors easy to find.

1Work out the group structure: the percentage owned, the date of acquisition, and the year end. Decide the fraction of the year the subsidiary is consolidated.
2Time-apportion the subsidiary's income and expenses if it was acquired during the year. Use only the post-acquisition figures from here on.
3Write down the intragroup items: sales and purchases, interest, management charges, dividends. Note who sold to whom.
4Calculate the unrealised profit on goods still in inventory at the year end. Note which company made the sale.
5Add the parent and subsidiary line by line. Remove intragroup revenue from revenue and from cost of sales. Add the unrealised profit to cost of sales. Cancel other intragroup income and expenses against each other. Leave out intragroup dividends.
6Make other adjustments the question gives you, such as extra depreciation on fair value uplifts or goodwill impairment. Then work down to profit for the year and add the group's OCI.
7Calculate the NCI: NCI % × the subsidiary's adjusted post-acquisition profit (and TCI). Take it off the group total to get the owners' share.
8Check: owners' share + NCI = group profit, and the same for TCI. Then lay out the statement in the correct format.

Quickest way: Column method with a check total

When to use it: Use in the 20-mark constructed response question when you have around 15 to 20 minutes for the consolidated statement of profit or loss.

Draw three columns: Parent, Subsidiary (time-apportioned) and Group. Add a short list of adjustments in a box to the side.
Fill in the subsidiary column after applying the time fraction. Do this before anything else, so you never forget it.
Calculate the URP and the intragroup amounts once, in your working box. Then apply them in one go to revenue, cost of sales and any other lines.
Add across to the group column. Subtotal at gross profit and profit before tax so that you can see an error early.
Work out the NCI by starting from the subsidiary's profit and adjusting only for items that sit in the subsidiary's books. Then take it off to get the owners' share.
Do a quick check that Group profit = parent's profit + subsidiary's post-acquisition profit − URP − other adjustments. If it does not agree, find the error.

Common mistakes in Consolidated Statement of Profit or Loss and OCI

Including only the parent's percentage of the subsidiary's revenue and costs (for example 80%).
Students mix up the line-by-line method with the equity method used for associates.
Fix: Include 100% of a subsidiary's income and expenses. The NCI line at the bottom deals with the outside shareholders' share.
Consolidating the subsidiary's full-year results when it was acquired mid-year.
The acquisition date is easy to miss in a long scenario, and the full-year figures are on the page.
Fix: Underline the acquisition date first. Work out months owned ÷ 12 and apply it to every line of the subsidiary's results before adding.
Deducting intragroup sales from revenue but not from cost of sales, or the other way round.
Students think of the elimination as a single adjustment to profit.
Fix: Remove the same amount from both revenue and cost of sales. The only effect on profit comes from the unrealised profit on closing inventory.
Calculating the unrealised profit on the full intragroup sales instead of only what is still held in inventory.
Students forget that goods already sold on to outsiders have realised their profit for the group.
Fix: Take only the inventory still held at the year end, at transfer price, then apply the margin or the mark-up fraction.
Using the wrong fraction for a mark-up, such as 25% of the inventory instead of 25/125.
Mark-up and margin are confused. Mark-up is on cost, margin is on selling price.
Fix: For a mark-up of m%, URP = amount × m/(100 + m). For a margin, use the percentage on the selling price directly.
Calculating the NCI share from the parent's profit, or from the subsidiary's profit without adjustments, or for the full year when acquired mid-year.
Students rush and take the nearest number.
Fix: Use the subsidiary's adjusted post-acquisition profit. If the subsidiary sold the goods that contain unrealised profit, deduct that profit before taking the NCI share. If the parent sold them, the NCI is not affected.

Worked examples

Example 1

P owns 80% of S, acquired several years ago. Year ended 31 December 20X5 (all $). P: revenue 500,000; cost of sales 300,000; distribution costs 40,000; administrative expenses 50,000; income tax 20,000. S: revenue 200,000; cost of sales 120,000; distribution costs 15,000; administrative expenses 25,000; income tax 10,000. During the year P sold goods to S for 40,000 at cost plus 25%. Half of these goods are still in S's inventory at the year end. Prepare the consolidated statement of profit or loss to profit for the year, and show how it is split between owners of the parent and NCI.

Show the solution

Intragroup sales are 40,000. Remove from revenue and from cost of sales.
Unrealised profit: inventory still held = 40,000 × 1/2 = 20,000 at transfer price. URP = 20,000 × 25/125 = 4,000. Add to cost of sales.
Revenue = 500,000 + 200,000 − 40,000 = 660,000.
Cost of sales = 300,000 + 120,000 − 40,000 + 4,000 = 384,000.
Gross profit = 660,000 − 384,000 = 276,000.
Distribution costs = 40,000 + 15,000 = 55,000. Administrative expenses = 50,000 + 25,000 = 75,000.
Profit before tax = 276,000 − 55,000 − 75,000 = 146,000. Tax = 20,000 + 10,000 = 30,000. Profit for the year = 116,000.
S's profit for the year = 200,000 − 120,000 − 15,000 − 25,000 − 10,000 = 30,000. P made the sale, so the URP adjustment is in P's results and does not change the NCI.
NCI = 20% × 30,000 = 6,000. Owners of the parent = 116,000 − 6,000 = 110,000.

Answer: Revenue 660,000; cost of sales 384,000; gross profit 276,000; profit before tax 146,000; profit for the year 116,000. Attributable to owners of the parent 110,000 and to NCI 6,000.

Example 2

P bought 75% of S on 1 October 20X5. P's year end is 31 December 20X5. For the full year, P had revenue 900,000, cost of sales 540,000 and operating expenses 150,000 (all $). S had revenue 240,000, cost of sales 150,000 and operating expenses 30,000 for the full year. S's income and expenses arose evenly over the year. Since acquisition, S sold goods to P for 10,000. P had sold all of these goods to outsiders by the year end. Ignore tax. Prepare the consolidated statement of profit or loss down to profit for the year and show the NCI.

Show the solution

S has been owned for 3 months (1 October to 31 December), so the fraction is 3/12 = 1/4.
S's post-acquisition revenue = 240,000 × 3/12 = 60,000. Cost of sales = 150,000 × 3/12 = 37,500. Operating expenses = 30,000 × 3/12 = 7,500. Post-acquisition profit = 60,000 − 37,500 − 7,500 = 15,000.
Intragroup sales of 10,000 are removed from revenue and from cost of sales. There is no unrealised profit because all goods were sold on.
Revenue = 900,000 + 60,000 − 10,000 = 950,000.
Cost of sales = 540,000 + 37,500 − 10,000 = 567,500.
Gross profit = 950,000 − 567,500 = 382,500.
Operating expenses = 150,000 + 7,500 = 157,500. Profit for the year = 382,500 − 157,500 = 225,000.
Check: P's own profit = 900,000 − 540,000 − 150,000 = 210,000. Add S's post-acquisition profit 15,000 = 225,000. This agrees.
NCI = 25% × 15,000 = 3,750. Owners of the parent = 225,000 − 3,750 = 221,250.

Answer: Revenue 950,000; cost of sales 567,500; gross profit 382,500; operating expenses 157,500; profit for the year 225,000. Attributable to owners of the parent 221,250 and to NCI 3,750.

Exam tips

Circle the acquisition date and year end before you write any figures. A mid-year acquisition in a 20-mark question usually means time apportionment is worth marks.
Show your workings for URP, intragroup items and the NCI. In constructed response questions, marks are given for method as well as for the final figures.
Check whether the parent or the subsidiary made the intragroup sale. It decides whether the NCI is affected by the unrealised profit.
In Section A and OT case questions, look for a single step: the URP, the apportioned subsidiary profit, or the NCI share. Objective questions are all or nothing, so check the arithmetic and the answer you give.
Use the standard format: revenue down to profit for the year, then OCI and total comprehensive income, and show the split between owners of the parent and NCI for both profit and total comprehensive income.

Practice questions from Preparation of consolidated financial statements for a simple group

Consolidated Statement of Profit or Loss and OCI 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 and OCI: frequently asked questions

Do I include 100% of a subsidiary's results if I own less than 100%?

Yes. A parent that controls a subsidiary consolidates all of its income and expenses line by line. The share that belongs to outside shareholders is shown as the NCI share of profit and of total comprehensive income.

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

Include the subsidiary's income and expenses only from the acquisition date. Usually you multiply the full-year figures by months owned ÷ 12, unless the question gives you separate figures. Only the post-acquisition profit is shared with the NCI.

How do I calculate the NCI share of profit?

Take the subsidiary's profit for the year, from the acquisition date, adjusted for items such as extra depreciation on fair value uplifts. Add unrealised profit only if the subsidiary sold the goods to the parent, by deducting it. Multiply by the NCI percentage. Follow the same method for total comprehensive income.

Do intragroup dividends appear in the consolidated statement of profit or loss?

No. A dividend paid by a subsidiary to the parent is a transfer within the group. It is cancelled on consolidation, so group profit does not include it. The only dividend that matters is the share that goes to the NCI, and that is handled in equity rather than in profit or loss.