Financial Statements 2

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

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

3. Example 12 • Statement of Comprehensive Income for the year ended 31 December 2009 H S Group £000 £000 £000 Turnover 2,000 1,500 Cost of sales 1,400 1,200 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

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

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

6. Example 13 Statement of Comprehensive Income for the year ended 31 December 2009 H S Adj Group £000 £000 £000 £000 Turnover 6,527 2,983 Cost of sales 5,092 2,007 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

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

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

9. Example 14 H S Group £000 £000 £000 Turnover W1 Cost of sales W1 Gross profit Dist’n and admin 506 691 Profit before taxation Taxation 150 120 Profit after tax Non-controlling interest Retained profit for the year

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

11. Example 15 H S Time Group app’d £000 £000 £000 Turnover 2,000 Cost of sales 1,400 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