Preparation of Consolidated Statement of Financial Position

Preparation of Consolidated Statement of Financial Position

1

The consolidation process
• Before consolidating, it may be necessary to adjust

subsidiary’s financial statements where:
1. The subsidiary’s end of reporting period is different to the parent’s. In such cases the subsidiary is required to prepare adjusted financial statements as at the parent’s reporting date.
2. The subsidiary’s accounting policies are different to the parent’s. In such cases the subsidiary is required to prepare adjusted accounts to ensure accounting policies
Eg- 30 June vs. 31 December consistent with the parent.
Eg- cost vs. revaluation methods of accounting for non-current assets

2

1

The consolidation process
Consolidation involves adding together the financial statements of the parent and subsidiaries and making a number of adjustments:
• Business combination valuation entries – required to

adjust the carrying amounts of the subsidiary’s assets and liabilities to fair value
• Pre‐acquisitions entries – required to eliminate the

carrying amount of the parents investment in each subsidiary against the pre‐acquisition equity of that subsidiary • Transactions between entities within the group

subsequent to acquisition date
3

Consolidation worksheets
Consolidation journals are posted into the consolidation worksheet in
“adjustment” columns as follows:
Parent
Parent
Extract only

Subsidiary
Subsidiary

P Ltd.
$’000

S Ltd.
$’000

Land
Invt in S Ltd
Receivables
Cash

400
120
200
40
760

150

Share capital
Share capital
Retained earnings
Creditors

500
500
160
100
760

100
20
50
170

Adjustments
DR

XX
XX

CR
XX

20
170
XX

XX
XX

Cons.
Balances
XX
XX
XX
XX
XXX
XX
XX
XX
XXX

DR balance
Add down for sub-totals CR balance
CR balance

-All consol. journals recorded in these DR/CR columns
- Where there are a large number of journals it is