ExpertSubsidiaries
Learning outcomes
- Define and describe parent, subsidiary, control, consolidated financial statements, non-controlling interests, and trade investments
- Identify subsidiaries within a group structure
- Describe the components of and prepare a consolidated SFP or extracts
- Calculate goodwill where NCI is valued at fair value at acquisition date
- Describe the components of and prepare a consolidated SPL or extracts
Objective A & B: Key Definitions
| Term | Definition |
|---|---|
| Parent | An entity that controls one or more other entities |
| Subsidiary | An entity controlled by another entity (the parent) |
| Control | Power over the investee, exposure to variable returns, and ability to use power to affect returns. Generally exists when the parent owns >50% of voting rights |
| Consolidated financial statements | Financial statements of a group presented as those of a single economic entity |
| Non-controlling interest (NCI) | The equity in a subsidiary not attributable to the parent |
| Trade (simple) investment | An investment where the investor has no significant influence or control (typically <20% ownership) |
A group exists when a parent controls one or more subsidiaries. The group prepares consolidated financial statements that combine the financial statements of all group entities.
Objective C & D: Consolidated SFP and Goodwill
The consolidated SFP is prepared by:
- Adding the parent's and subsidiary's assets and liabilities line by line (100% of the subsidiary, regardless of the parent's ownership percentage)
- Eliminating the parent's investment in the subsidiary and replacing it with the subsidiary's individual assets and liabilities
- Calculating goodwill: Goodwill = Consideration paid + NCI at fair value − Fair value of subsidiary's net assets at acquisition
- Recognising NCI in equity
- Eliminating intra-group balances (e.g., amounts owed between parent and subsidiary)
Goodwill Calculation
Goodwill = Consideration paid by parent + Fair value of NCI at acquisition − Fair value of subsidiary's net assets at acquisition
Example: Parent pays £800,000 for 80% of Subsidiary. NCI (20%) fair value at acquisition = £180,000. Fair value of Subsidiary's net assets = £900,000.
Goodwill = £800,000 + £180,000 − £900,000 = £80,000
Goodwill Formula
Goodwill = Consideration + NCI (at fair value) − Fair value of net assets acquired
Goodwill is recognised as an intangible asset in the consolidated SFP. At FA level, you do not need to consider impairment of goodwill.
Parent Co pays £500,000 for 80% of Sub Co. NCI fair value at acquisition is £110,000. Fair value of Sub Co's net assets at acquisition is £550,000. What is goodwill?
Objective E: Consolidated SPL
The consolidated statement of profit or loss is prepared by:
- Adding the parent's and subsidiary's income and expenses line by line (100% of the subsidiary for the period of ownership)
- Eliminating intra-group transactions (e.g., intra-group sales and purchases)
- Calculating NCI share of profit: NCI % × Subsidiary's profit for the period
- Showing profit attributable to owners of the parent and NCI separately
In a consolidated SPL, intra-group sales of £50,000 should be:
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ACCA FA — Financial Accounting Practice Exam 1
A complete mock exam replication for ACCA Financial Accounting (FA). This exam mirrors live computer-based testing parameters, featuring 35 Objective Test Questions (Section A) and 2 Multi-Task Questions broken down into 30 independent sub-questions (Section B). Covers double-entry accounting, ledger adjustments, group consolidations, and financial statement production.