Simple group statement of financial position
In FA, consolidations are kept basic. You learn how a parent and subsidiary are shown as one group on a simple statement of financial position. This is foundation work for later FR. Keep the method mechanical and clear.
What you must be able to do
- Know what a parent and subsidiary are (control idea, in simple terms)
- Calculate goodwill in a basic FA-style question
- Calculate non-controlling interest (NCI) when required
- Build a simple consolidated SoFP: add like items, eliminate investment, show goodwill and NCI
1. Group idea in plain words
If company P owns enough of company S to control it, P is the parent and S is the subsidiary. Users often want a picture of the whole group as if it were one entity. That picture is the consolidated statement of financial position.
You do not simply leave “Investment in S” on the group statement forever. You replace that investment with the subsidiary’s assets and liabilities (and goodwill / NCI as required).
2. Basic steps (FA style)
- Agree the group structure (% owned, date of acquisition if given).
- Calculate goodwill (see formula below).
- Calculate NCI (if the parent owns less than 100%).
- Add parent + subsidiary assets and liabilities line by line.
- Cancel the parent’s “investment in subsidiary” against the subsidiary’s equity at acquisition (via the goodwill/NCI workings).
- Show group retained earnings using only post-acquisition results for the subsidiary (as the question requires).
3. Goodwill (simple form)
A common FA-style working:
| Consideration paid by parent | X |
| Add: NCI at acquisition (if given / required) | X |
| Less: Fair value of net assets of subsidiary at acquisition | (X) |
| Goodwill | X |
Net assets at acquisition usually mean share capital + retained earnings (and other reserves) of the subsidiary at the acquisition date, adjusted if the question gives fair value adjustments.
Trap
Use equity at acquisition for goodwill — not the year-end balances of the subsidiary for that part of the working.
4. Non-controlling interest (NCI)
If the parent owns 80%, outsiders own 20%. That 20% is NCI. FA may give NCI at acquisition as a figure, or ask you to use a percentage of net assets (follow the question method).
On the consolidated SoFP, NCI appears in equity (not as a liability in the basic teaching presentation).
5. Mini numerical example
P acquired 80% of S for Rs. 100,000 when S’s net assets (share capital + RE) were Rs. 90,000. NCI at acquisition is measured as 20% × 90,000 = 18,000.
Goodwill = 100,000 + 18,000 − 90,000 = Rs. 28,000.
At year end, ignore further complications: add P and S’s assets and liabilities fully; remove P’s investment of 100,000; show goodwill 28,000; show NCI (updated if the question requires post-acquisition share of S’s profits).
Full exam questions add post-acquisition profits, fair value adjustments, and sometimes mid-year acquisition. Learn the skeleton above first, then layer those extras.
6. What you add 100% of
In a normal subsidiary consolidation, you include 100% of the subsidiary’s assets and liabilities on the group SoFP, even if the parent owns only 80%. The NCI share is represented in equity, not by showing only 80% of each asset.
Exam traps
- Forgetting to eliminate the investment in subsidiary
- Using year-end RE of S for the goodwill “net assets at acquisition” figure
- Showing only 80% of S’s assets on the group SoFP
- Putting NCI with liabilities instead of equity (in standard FA presentation)
- Mixing up consideration paid with share capital of the parent
7. Quick memory sheet
| Item | Group treatment (simple) |
|---|---|
| Investment in S (in P’s books) | Eliminate |
| Assets & liabilities of S | Add 100% |
| Goodwill | Non-current asset (if positive) |
| NCI | Equity |
| S’s post-acquisition profits | Share to group RE; share to NCI as required |
Practice quiz
Important references
Tutor habit: always write three workings — goodwill, NCI, group retained earnings — before you draw the SoFP. Marks live in those workings.