ECEL PROFESSIONAL INSTITUTE CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ELIKEM
Basic principle The consolidated statement of profit or loss shows the profit generated by all resources disclosed in the related consolidated statement of financial position, i.e. the net assets of the parent company (P) and its subsidiary (S). The consolidated statement of profit or loss follows these basic principles: From revenue to profit for the year include all of P s income and expenses plus all of S s income and expenses (reflecting control of S). After profit for the year show split of profit between amounts attributable to the parent's shareholders and the non-controlling interest (to reflect ownership).
The mechanics of consolidation As with the statement of financial position, it is common to use standard workings when producing a consolidated statement of profit or loss: group structure diagram net assets of subsidiary at acquisition (required for goodwill calculation if asked to calculate) goodwill calculation (if asked to calculate goodwill or if you are required to calculate an impairment that is to be charged to profits ) non-controlling interest (NCI) share of profit (see below)
Revenue (P + S) Cost of sales (P + S) () Gross profit Operating costs (P + S) () Profit from operations Investment income (P + S) Finance costs (P + S) () Profit before tax Income tax (P + S) () Profit for the period Other comprehensive income (P + S) Total comprehensive income
Profit attributable to: Equity holders of the parent (bal. fig) Non-controlling interest (below) Profit for the period Total comprehensive income attributable to: Equity holders of the parent (bal. fig) Non-controlling interest (below) Total comprehensive income for the period
Non-controlling interest This is calculated as: NCI % subsidiary s profit after tax Less: NCI % fair value depreciation () NCI % PURP (sub = seller only) () Excess depreciation on sale of PPE NCI % impairment (fair value method) ()
Sales and purchases The effect of intra-group trading must be eliminated from the consolidated statement of profit or loss. Such trading will be included in the sales revenue of one group company and the purchases of another. Consolidated sales revenue = P s revenue + S s revenue intra-group sales. Consolidated cost of sales = P s COS + S s COS intra-group sales.
If there is a loan outstanding between group companies the effect of any loan interest received and paid must be eliminated from the consolidated statement of profit or loss. The relevant amount of interest should be deducted from group investment income and group finance costs. If there is a midyear acquisition, you must be careful with the finance costs, as it may be that the finance costs include interest on a loan from the parent which has only occurred in the second half of the year.
A payment of a dividend by S to P will need to be cancelled. The effect of this on the consolidated statement of profit or loss is: only dividends paid by P to its own shareholders appear in the consolidated financial statements. These are shown within the consolidated statement of changes in equity. any dividend income shown in the consolidated statement of profit or loss must arise from investments other than those in subsidiaries or associates
Inventory If any goods sold intra-group are included in closing inventory, their value must be adjusted to the lower of cost and net realizable value (NRV) to the group (as in the CSFP). The adjustment for unrealized profit should be shown as an increase to cost of sales (return inventory back to true cost to group and eliminate unrealized profit). Transfers of non-current assets If one group company sells a non-current asset to another group company the following adjustments are needed in the statement of profit or loss to account for the unrealized profit and the additional depreciation. Any profit or loss arising on the transfer must be removed from the consolidated statement of profit or loss. The depreciation charge must be adjusted so that it is based on the cost of the asset to the group.
Once any impairment has been identified during the year, the charge for the year will be passed through the consolidated statement of profit or loss. This will usually be through operating expenses, however always follow instructions from the examiner. If non-controlling interests have been valued at fair value, a portion of the impairment expense must be removed from the non-controlling interest's share of profit.
If a depreciating non-current asset of the subsidiary has been revalued as part of a fair value exercise when calculating goodwill, this will result in an adjustment to the consolidated statement of profit or loss. The subsidiary's own statement of profit or loss will include depreciation based on the value the asset is held at in the subsidiary's own SFP. The consolidated statement of profit or loss must include a depreciation charge based on the fair value of the asset, included in the consolidated SFP. Extra depreciation must therefore be calculated and charged to an appropriate cost category (usually in line with examiner requirements).
Mid-year acquisition procedure If a subsidiary is acquired part way through the year, then the subsidiary s results should only be consolidated from the date of acquisition, i.e. the date on which control is obtained. In practice this will require: Identification of the net assets of S at the date of acquisition in order to calculate goodwill. Time apportionment of the results of S in the year of acquisition. For this purpose, unless indicated otherwise, assume that revenue and expenses accrue evenly. After time apportioning S s results, deduct post-acquisition intra-group items as normal.
The consolidated statement of profit or loss and other comprehensive income may be asked for in the exam instead of simply a consolidated statement of profit or loss. The consolidated statement of profit or loss is the starting point and the other comprehensive income items are then recorded. The items that you may need to consider in the 2.1 syllabus for items of other comprehensive income include revaluations gains or losses and fair value through other comprehensive income gains or losses