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ACCA Applied Skills · Financial Reporting · Calculation and interpretation of accounting ratios and trends to address users' and stakeholders' needs

Parent P acquired 75% of S during the year, with control from 1 October. P's year end is 31 December. Consolidated revenue is $9,000,000, including three months of S's revenue of $1,200,000. Last year, P's revenue (no subsidiaries) was $6,000,000. A user computes revenue growth as (9,000,000 - 6,000,000) / 6,000,000 = 50%. Which statement best describes the main limitation of this comparison?

Reported growth of 50% is overstated for like-for-like purposes because it includes three months of an acquired subsidiary's revenue, while last year had none. Excluding S's $1,200,000 gives organic growth of 30%. Revenue is consolidated at 100% regardless of the 75% holding.

  1. AGrowth is overstated for like-for-like purposes because the current figure includes an acquired subsidiary for only part of the year, so organic growth is lowerCorrect
  2. BGrowth is understated because only 75% of S's revenue should be included
  3. CGrowth is correct because consolidated revenue must always be compared with the prior year
  4. DGrowth should exclude all of S's revenue and be computed on P's revenue only, including non-controlling interests

Explanation

Revenue includes 100% of S's post-acquisition revenue ($1,200,000) regardless of the 75% holding, so option B is wrong. Excluding it gives organic revenue of 7,800,000, growth of 30%, versus the reported 50%. The comparison is not like-for-like.

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