Strategic Business Reporting (International) · Group accounting including statements of cash flows

Complex Group Structures: Sub-subsidiaries and Mixed Groups

Updated 11 October 2026 · Fact-checked

A complex group has indirect holdings: a parent owns a subsidiary, which owns a sub-subsidiary. You control the sub-subsidiary through the chain, so you consolidate it fully. Effective interest is found by multiplying percentages down the chain. NCI is 100% minus effective interest. Goodwill uses the parent's direct and indirect position at the right dates.

Understand Complex Group Structures

A simple group is a parent with direct subsidiaries. A complex group adds layers. P owns S, and S owns T. T is a sub-subsidiary. P controls S, and S controls T, so P controls T under IFRS 10. You consolidate T line by line, even if P's effective share of T is small.

Control and ownership are two different ideas. Control decides whether you consolidate. IFRS 10 asks whether the investor has power, exposure to variable returns and the ability to use power to affect those returns. Voting rights are the usual starting point. Ownership decides how profit and net assets are split between the parent's shareholders and the non-controlling interest (NCI). In a chain, the effective interest of P in T is P's % in S multiplied by S's % in T. For example, 80% × 75% = 60%. The NCI in T is the other 40%. That 40% is made up of 25% held directly by outside shareholders of T plus 15% (20% × 75%) held through S's NCI.

A D-shaped group is a different pattern. P owns part of S directly, and also owns part of T directly. S also owns part of T. When you test control, voting rights held by a subsidiary that P controls are added to P's direct holding. P's effective interest in T is its direct holding plus the indirect holding through S. For example, P holds 30% of T directly, and S holds 40% of T, with P holding 80% of S. Effective interest = 30% + (80% × 40%) = 62%. P controls T because P's direct 30% plus S's 40% gives 70% of the votes, which exceeds 50%.

A mixed group is one where a subsidiary holds an associate or joint venture. You consolidate the subsidiary in full and equity-account the associate. The subsidiary's share of the associate's profit is included in the subsidiary's results, which are consolidated at 100%. The NCI in the subsidiary is then allocated its share of that profit. The parent's owners keep their effective interest in the associate's profit.

The acquisition date matters. Goodwill on T is measured when P gains control of T. If S bought T before P bought S, T's pre-acquisition reserves from P's view are those at the date P acquired S. If S bought T after P bought S, the date is when S bought T. Always lay out the timeline first.

Key rules to remember

Effective interest (chain): Effective interest in T = P% in S × S% in T; Multiply down the chain. Use this for the parent's share of T's profit and net assets.
Effective interest (D-shaped): Effective interest in T = P direct % in T + (P% in S × S% in T); Add the direct holding to the indirect holding.
NCI percentage: NCI % in T = 100% − effective interest of P in T; This is the share of T's profit and net assets not attributable to the parent's owners.
Control test: Control through S if P controls S and S controls T. In a D-shape, votes = P direct % + S % in T; Test control on voting rights and the other IFRS 10 power factors, not on effective interest. Votes held by a controlled subsidiary are added to P's direct votes. A low effective interest does not stop full consolidation.
NCI at proportionate share: NCI in net assets = NCI % × T net assets at reporting date (proportionate method); Under the fair value method, add the NCI share of post-acquisition change to NCI's fair value at acquisition.
Goodwill (full structure): Goodwill = consideration + NCI at acquisition − fair value of net assets at acquisition; Do it for S and T separately. In a chain, the cost of T in S's books is part of S's investment, not an extra cost to P. If S held T before P bought S, measure goodwill on T and T's pre-acquisition reserves at the date P acquired S. NCI in T at that date is based on P's effective interest, so NCI is 100% minus effective interest.
Associate in a mixed group: Subsidiary's share of associate profit = S% in associate × associate profit. Parent's share = effective interest × associate profit; Used when a subsidiary holds an associate. The subsidiary's share is included in S's results and consolidated at 100%. The NCI in S takes its share of it, and the balance belongs to the parent's owners.

How to solve Complex Group Structures questions

Use this method on any complex structure question. Draw first. Calculate next. Consolidate last.

1Draw the group diagram with all direct holdings, and mark the date each holding was acquired.
2Decide control at each level. If P controls S and S controls T, treat both S and T as subsidiaries. Consolidate fully. In a D-shape, add S's votes in T to P's direct votes.
3Calculate effective interest for each entity. Chain: multiply. D-shape: direct plus indirect. NCI is the balance of 100%.
4Write the net assets of each subsidiary at the acquisition date and at the reporting date. Find post-acquisition reserves. If the sub-subsidiary was bought before the parent bought the subsidiary, use the date P gained control of S for T's pre-acquisition reserves and for the goodwill on T.
5Calculate goodwill for S and T, including NCI at acquisition. For a pre-acquired T, measure goodwill at the date P acquired S, with NCI in T based on P's effective interest. Measure NCI at fair value or at proportionate share, as the question says.
6Calculate group retained earnings: parent's own, plus P% of S post-acquisition, plus effective interest of T post-acquisition (measured from the date chosen in step 4), less impairments and unrealised profit adjustments.
7Calculate NCI at the reporting date as NCI at acquisition plus NCI's share of post-acquisition reserves, less NCI's share of impairment where the fair value method applies. Under the proportionate method, NCI is not charged with goodwill impairment. Use the same post-acquisition date for T as in step 4.
8If a mixed group item exists, equity-account the associate. Include the subsidiary's share of its profit in the subsidiary's results, then allocate the NCI in the subsidiary its share. Finish with a short written note on the judgement used.

Quickest way: Effective-interest table method

When to use it: Use this when time is short and the diagram has two or three layers.

Draw the diagram in two lines. Put percentages above each arrow and dates beside each arrow.
Make a table with columns: Entity, Control, Effective %, NCI %, Acquisition date.
Fill the table before you touch the numbers. Write the effective % once and reuse it.
For each subsidiary, run the standard net-asset table (share capital, reserves at acquisition, reserves at reporting date) and apply the effective % to the post-acquisition column.
Compute goodwill for each subsidiary on a separate line. Add them for the group.
Finish with a one-line check: parent % plus NCI % equals 100% for each entity.

Common mistakes in Complex Group Structures

Consolidating only the effective percentage of the sub-subsidiary, such as 60%, instead of 100%.
Students confuse ownership with control and apply proportionate consolidation.
Fix: Consolidate 100% of assets, liabilities, income and expenses of any entity the group controls. Show the NCI as a separate line.
Treating 51% × 51% = 26% as proof that P does not control T.
Students apply the effective interest test to the control question.
Fix: Test control level by level. If P controls S and S controls T, P controls T. The effective interest is used only to split profit and net assets.
Using the wrong acquisition date for the sub-subsidiary's pre-acquisition reserves.
Students use the date S bought T, even when S bought T before P bought S.
Fix: From P's view, T was acquired when P gained control of S if S already held T. Use that date for T's pre-acquisition reserves in that case.
Giving the NCI of T only the percentage not held by S, such as 25%.
Students forget that S's own NCI shares in S's holding of T.
Fix: Work out NCI in T as 100% minus P's effective interest. Part of it sits in S's NCI, part in outside holders of T.
Adding the parent's investment in S and S's investment in T both against equity as separate cancellations without care.
Students forget the cost of T sits in S's books and is cancelled in the goodwill workings for T.
Fix: Use the investment in T from S's books in the goodwill working for T. Use P's investment in S in the goodwill working for S. Each cost is cancelled once.
Putting only the effective interest share of an associate's profit into the consolidated results when a subsidiary holds the associate.
Students copy the effective percentage from the diagram and forget that the subsidiary is consolidated at 100%.
Fix: Include the subsidiary's share of the associate's profit in the subsidiary's results. Then allocate the NCI in the subsidiary its share. The parent's owners are left with the effective interest.

Worked examples

Example 1

P acquired 80% of S on 1 January 20X1 when S's retained earnings were $100,000. S acquired 75% of T on 1 January 20X2 when T's retained earnings were $40,000. At 31 December 20X4, retained earnings were: P $500,000; S $220,000; T $120,000. Ignore goodwill impairment. Calculate group retained earnings and the effective interest and NCI in T.

Show the solution

Control: P controls S, and S controls T. Consolidate both. Both are fully consolidated.
Effective interest of P in T = 80% × 75% = 60%. NCI in T = 40%.
S post-acquisition reserves = 220,000 − 100,000 = 120,000. P share at 80% = 96,000.
T was acquired by S after P bought S. So the T acquisition date is 1 January 20X2. T post-acquisition reserves = 120,000 − 40,000 = 80,000.
P effective share of T post-acquisition = 60% × 80,000 = 48,000.
Group retained earnings = 500,000 + 96,000 + 48,000 = 644,000.

Answer: Effective interest in T is 60% and NCI in T is 40%. Group retained earnings are $644,000.

Example 2

P owns 70% of S and 25% of T directly. S owns 30% of T. P acquired all holdings at the same date. T's net assets at the reporting date are $400,000. Assess control, calculate P's effective interest in T, the NCI in T, and the NCI share of T's net assets (proportionate method).

Show the solution

P's direct holding in T is 25%. S holds 30% of T. P controls S (70%), so P also controls S's voting rights in T.
Control test: 25% + 30% = 55% of the votes controlled. This is above 50%. Assuming the facts show no other rights that stop P having power, T is a subsidiary. Consolidate T at 100%.
Effective interest of P in T = 25% + (70% × 30%) = 25% + 21% = 46%.
NCI in T = 100% − 46% = 54%.
Check the split of the 54%: 45% is held directly by outside shareholders of T (100% − 25% − 30%), and 9% is held through S's NCI (30% × 30%). 45% + 9% = 54%.
NCI share of T's net assets = 54% × 400,000 = 216,000. P's share = 46% × 400,000 = 184,000. Together they make 400,000.

Answer: T is a subsidiary because P controls 55% of the votes. P's effective interest is 46% and NCI in T is 54%. The NCI share of T's net assets is $216,000.

Exam tips

Draw the diagram first, even if the question gives it. It takes thirty seconds and stops date and percentage errors.
Write the control conclusion in a sentence. SBR marks judgement, so state why the sub-subsidiary is consolidated, or why an entity is an associate.
Show effective interest and NCI percentage in a small table. Examiners can then award method marks even if one number is wrong.
Check the acquisition date of the sub-subsidiary against the date of the parent's purchase of the subsidiary. This is the most common trap.
Use the professional skills marks: briefly explain to a non-specialist why consolidating at 100% differs from the parent's economic share.

Practice questions from Group accounting including statements of cash flows

Complex Group Structures in other exams

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

CA FinalConsolidated Statement of Profit and Loss and Complex Structures

Complex Group Structures: frequently asked questions

What is a sub-subsidiary in ACCA SBR?

It is a company controlled by a subsidiary rather than directly by the parent. The parent controls it through the chain. You consolidate it fully, and show the outside share as non-controlling interest.

How do I calculate effective interest in a sub-subsidiary?

Multiply the percentages down the chain. If P owns 80% of S and S owns 75% of T, P's effective interest in T is 60%. NCI in T is 40%.

What is a D-shaped group?

It is a group where the parent holds shares in a subsidiary and also holds shares in the same investee directly. The subsidiary holds shares in that investee too. Effective interest is the direct holding plus the indirect holding through the subsidiary.

Which date do I use for the sub-subsidiary's pre-acquisition reserves?

Use the date the parent gained control of the sub-subsidiary. If the subsidiary bought it after the parent bought the subsidiary, use the subsidiary's purchase date. If it already held it, use the date the parent bought the subsidiary.

Do I need the effective interest to decide whether to consolidate?

No. Consolidation depends on control, tested level by level. Effective interest is used to split profits and net assets between the parent's owners and the NCI.