1. Financial Statements 2 Consolidations 3 – Statement of Comprehensive Income 1

2. Basic principles Top part reflects control – add line-by-line parent plus 100% of subsidiary Cancel intra-group transactions – turnover, cost of sales, dividend income Remove unrealised profit by adding to cost of sales Bottom section reflects ownership – after profit after tax deduct non-controlling interest If subsidiary purchased during the year, consolidate post-acquisition profit only 2

3. Example 12 Statement of Comprehensive Income for the year ended 31 December 2009 H SGroup £000 £000 £000 Turnover2,0001,500 Cost of sales1,4001,200 Gross profit Dist’n and admin 300 200 Profit before taxation Tax 120 40 Profit after tax Non-controlling interest (6) Profit for the year 3

4. Example 13 W1 non-controlling interest PAT belonging to pref shareholders x NCI share (90%) = PAT belonging to ord shareholders x NCI share (10%) = Total 4

5. Example 13 Dividend income due from S must be eliminated from the consolidated figures Dividend due: – Preference – Ordinary dividend Goodwill impairment is added to admin expenses 5

6. Example 13 Statement of Comprehensive Income for the year ended 31 December 2009 H SAdjGroup £000£000 Turnover6,5272,983 Cost of sales5,0922,007 Gross Profit Distribution 602 309 Admin 103 102 Profit before tax Taxation 300 250 Profit after tax Non-controlling interest W1 Profit for the financial year 6

7. Trading between group members Remove inter-company sales and cost of sales Remove unrealised profit by adding it to cost of sales If S made the profit, deduct in MI calculation 7

8. Example 14 PUP on closing inventory Left in inventory Profit = Turnover 4,017 + 3,921 Cost of sales 3,204 + 2,970 8

9. Example 14 HSGroup £000£000 £000 Turnover W1 Cost of sales W1 Gross profit Dist’n and admin506691 Profit before taxation Taxation150120 Profit after tax Non-controlling interest Retained profit for the year 9

10. Example 15 S has been acquired six months through the year Only the post-acquisition profits may be included so the profits of S must be time apportioned In the consolidation workings include just 6/12 of each figure in S’s statement of comprehensive income 10

11. Example 15 HS Time Group app’d £000£000 £000 Turnover2,000 Cost of sales1,400 Gross profit 600 Dist’n and admin 300 Profit before taxation 300 Tax 120 Profit after tax 180 Non-controlling interest Retained profit for the year 11