Impairment of goodwill Other CIS adjustment Impairment of goodwill The current impairment is to be recognized as expenses in the CIS. NCI valued at fair value method, NCI should be adjusted: NCI%*S’s profit after tax X NCI% impairment (X)

Fair value (E.G: value of S’s non-current assets have been subjected to a fair value uplift) The extra depreciation is to be recognized as expenses in the CIS.

NCI will need to be adjusted for their shares: NCI%*S’s profit after tax X Additional depreciation following FV uplift (X)

Mid-year acquisition If the subsidiary is acquired during the accounting year, it is therefore necessary to apportion its profit for the year between pre-acquisition and post-acquisition elements. Only the post-acquisition figures are included in the CIS.

Dividends Only dividends paid by P to its own shareholders appear in the CFS. Any dividend income show in the CIS must arise from other than those subsidiaries or associates.

Example: Dividends P Co acquired 60% of the $100,000 equity of S Co on 1 April 20X5. The income statements of the two companies for the year ending 31 Dec 20X5 are set out below.

P Co S Co S (9/12) Sale revenue 170,000 80,000 60,000 Cost of sales 65,000 36,000 27,000 Gross profit 105,000 44,000 33,000 Other income (dividend received S) 3,600 Administrative expenses 43,000 12,000 9,000 Profit before tax 65,600 32,000 24,000 Income tax expense 23,000 8,000 6,000 Profit for the year 42,600 18,000

Note P Co S Co Profit for the year 42,600 24,000 Dividends (paid 31 Dec) 12,000 6,000 Profit retained 30,600 18,000 Retained earnings brought forward 81,000 40,000 Retained earnings carried forward 111,600 58,000 Required Prepare the consolidated income statement and calculate group retained earnings and NCI in equity.

Solution : CIS Sale revenue (170+60) 230,000 Cost of sales (65+27) 92,000 Gross profit 138,000 Administrative expenses (43+9) 52,000 Profit before tax 86,000 Income tax expense (23+6) 29,000 Profit for the year 57,000 Profit attributable to: Owners of the parent NCI 49,800 7,200

Solution: Group retained earnings P’s retained earnings brought forward 81,000 Group profit for the year 49,800 Dividends paid Group retained earnings (12,000) 118,800

Solution : CSFP P’s retained earnings 111,600 P’s% sub’s post-acquisition retained earnings (18,000-6,000)*60% 7,200 Group retained earnings 118,800

Solution : NCI in equity S’s share capital 100,000 Retained earnings brought forward 40,000 Profit Jan-March 20X5 6,000 Net asset @acquisition 146,000 NCI share 40% 58,400 Profit attributable NCI 7,200 Dividends paid (2,400) NCI (present in CSFP) 63,200

Solution : CSFP Net asset @acquisition 146,000 NCI share 40% 58,400 sub’s post-acquisition retained earnings (18,000-6,000)*40% 4,800 NCI (present in CSFP) 63,200

Summary: NCI (Present in CIS) NCI% * subsidiary’s profit after tax X NCI% fair value depreciation (X) NCI% PURP (Sub=seller only) (X) NCI% impairment (fair value method) (X) NCI (present in CIS) X

Consolidated statement of comprehensive income (CCI) The only items of other comprehensive income that are included in F7 syllabus are revaluation gains and losses, so a CCI will be easy to produce once you have done the CIS. The format of CCI.

A recommended format of CCI S made a X2 revaluation gain one of its properties during the year or P made a Y revaluation gain one of its properties during the year . ....................... Profit for the year X1 Other comprehensice income: Gain on property revaluation X2(Y) Total comprehensive income for the year X1+X2(Y)

Profit attributable to: Owner of the parent X1-X4=X5 NCI X4 Total comprehensive income attributable to: Owner of the parent X5+X2*P%+Y NCI X4+X2*S%

CCI (separate statement) S made a X2 revaluation gain one of its properties during the year or P made a Y revaluation gain one of its properties during the year . Profit for the year X1 Other comprehensice income: Gain on property revaluation X2(Y) Total comprehensive income for the year X1+X2(Y)

Total comprehensive income attributable to: Owner of the parent X5+X2*P%+Y NCI X4+X2*S% X5= Profit attributable to owner of the parent X4= Profit attributable to NCI