Below is an example of a consolidated balance sheet (statement of financial position)

In general the purpose of the consolidated balance sheet (statement of financial position) is to show the net assets which the parent company controls and the ownership of those assets as a single reporting entity.

The following rules needs to be observed

Share capital

Always the parent share capital only.

Net assets

Always 100% of the parent and 100% of the subsidiary. It is worth mentioning at this point that in order to qualify as a subsidiary; the parent must hold the majority of the subsidiary's voting rights. This is normally achieved by owning 51% or more of the voting rights. However, if the parent influences the subsidiary's financial reporting and operating policies then control can be obtained as a result even though the shareholding may be less than 51%.

Reserves

100% of the parent, plus the group's share of post-acquisition retained earnings of the subsidiary.

Non-controlling interests (Minority interests)

This is the share of net assets of the subsidiary which are owned by other investors.

Illustration

H Ltd acquired 100% of the share capital of S Ltd when the retained earnings of S Ltd stood at £10,000. The draft balance sheets for each company are as follows:

Notes:

During the year S Ltd sold goods to H Ltd for £50,000 resulting in a profit to S Ltd amounting to 20% of the selling price. At the balance sheet (statement of financial position) date £15,000 of these goods remained in stock held by H Ltd. At the reporting date, H Ltd owed S Ltd £12,000 for goods bought and this amount is also shown in the trade payables of H Ltd and trade receivables of S Ltd.

Group policy in respect of goodwill is deemed to have an indefinite useful life.

Required:

Prepare the consolidated balance sheet (statement of financial position) for the H Group.

The above illustration is a relatively simple consolidated balance sheet (statement of financial position) task. Prior to preparing group accounts, there are a number of consolidation adjustments that we are required to do as the task is to prepare a consolidated balance sheet (statement of financial position);

Step 1

Compute goodwill and (where appropriate) non-controlling interests (minority interests).

Step 2

where the shareholding in a subsidiary, associate or joint venture, is unknown, the group structure in order to apply the relevant IAS (IAS 27, 28, 31 or 39) in our example is:

Step 3

Step 4

WORKINGS