The Consolidated Statement of Financial Position: Basic Approach and Double Entry

A consolidated statement of financial position looks like an ordinary one, but it is built differently. The assets and liabilities of the parent and its subsidiaries are added together, the parent’s investment in each subsidiary disappears. The equity shown is the parent’s own plus the part of the group that belongs to outside shareholders. Three workings sit behind it: goodwill, consolidated retained earnings and non-controlling interest.

This topic covers the layout, the pre-acquisition and post-acquisition split of the subsidiary’s reserves, the three workings, the consolidation double entry in journal form, and a step-by-step approach for the exam. The next topic adds fair value adjustments, unrealised profit and intra-group balances.

The consolidated statement of financial position is a regular part of the group question. In May Diet, 2025, Question 3 (20 marks) asked for non-controlling interest, goodwill and the consolidated reserves for share premium, revaluation reserve and retained earnings (12 marks). Read goodwill and non-controlling interest first.

The basic approach

There are two stages in a consolidation question. Stage 1 adjusts the individual statements of the parent and subsidiary for any information the question provides, such as correcting an accounting treatment. Stage 2 consolidates the corrected figures. The features of the consolidated statement are:

• the asset “investment in subsidiary” in the parent’s statement disappears;
• every other asset and liability is the sum of the parent’s and the subsidiary’s balances, 100% of the subsidiary’s, whatever the percentage owned;
• share capital and share premium are the parent’s only; the subsidiary’s disappear in the consolidation;
• goodwill is added as a non-current asset, and non-controlling interest as a separate component of equity.

Where the parent buys a subsidiary at incorporation, when it has no reserves, and pays exactly the net assets, there is no goodwill and the statement is a straight cross-cast. Usually the subsidiary has reserves and the price differs from net assets, which is why the workings are needed.

Pre-acquisition and post-acquisition reserves

A subsidiary bought after it has traded has pre-acquisition retained earnings. These belong to the previous owners and were paid for in the price, so they are part of the net assets acquired and never appear in the group’s retained earnings. Only profits earned after the acquisition date, the post-acquisition profits, are included, and then only the parent’s share of them.

• Net assets of the subsidiary = share capital + share premium + all reserves, at the acquisition date and at the reporting date (net assets equal equity).
• Post-acquisition retained earnings = retained earnings at the reporting date − retained earnings at the acquisition date. The same applies to other reserves, such as a revaluation reserve arising after acquisition.

The three workings are:

1. Goodwill = consideration + NCI at acquisition − net assets at acquisition.
2. Consolidated retained earnings = parent’s retained earnings + parent’s % × post-acquisition retained earnings of the subsidiary (and the same for other reserves).
3. Non-controlling interest = NCI at acquisition + NCI’s % × post-acquisition reserves of the subsidiary. Under the proportionate method this equals the NCI’s % of the subsidiary’s net assets at the reporting date.

An example

P bought 75% of S on 1 January 20X1 for ₦300,000, when S had share capital ₦60,000, share premium ₦20,000 and retained earnings ₦90,000. At 31 December 20X1: P has investment in S ₦300,000, other assets ₦700,000, share capital ₦250,000, share premium ₦100,000, retained earnings ₦560,000 and liabilities ₦90,000. S has assets ₦320,000, share capital ₦60,000, share premium ₦20,000, retained earnings ₦160,000 and liabilities ₦80,000. NCI is measured as a proportionate share.

• Net assets of S at acquisition:
  ₦60,000 + ₦20,000 + ₦90,000 = ₦170,000.
  NCI at acquisition 25% × ₦170,000 = ₦42,500.
• Goodwill:
  ₦300,000 + ₦42,500 − ₦170,000 = ₦172,500.
• Post-acquisition profit of S:
  ₦160,000 − ₦90,000 = ₦70,000.
  Consolidated retained earnings = ₦560,000 + 75% × ₦70,000 = ₦612,500.
• NCI:
  ₦42,500 + 25% × ₦70,000 = ₦60,000 (= 25% × net assets of ₦240,000).

The consolidation double entry

The consolidation is a set of adjustments made on the working papers, not in either company’s books, but the entries show how the numbers flow. In the example:

1. Eliminate the investment and the subsidiary’s equity at acquisition. Dr S share capital ₦60,000; Dr S share premium ₦20,000; Dr S pre-acquisition retained earnings ₦90,000; Dr Goodwill ₦172,500; Cr Investment in S ₦300,000; Cr Non-controlling interest ₦42,500. (Debits and credits both ₦342,500.)
2. Share the post-acquisition profit. Dr S retained earnings (post-acquisition) ₦70,000; Cr Consolidated retained earnings ₦52,500; Cr Non-controlling interest ₦17,500.

After these entries the subsidiary’s share capital, premium and retained earnings have all been removed, replaced by goodwill, the group’s share of the post-acquisition profit, and the NCI. If the NCI is measured at fair value of ₦55,000, goodwill is ₦300,000 + ₦55,000 − ₦170,000 = ₦185,000 and the NCI is ₦55,000 + ₦17,500 = ₦72,500. The statement still balances: assets ₦700,000 + ₦320,000 + ₦185,000 = ₦1,205,000 and equity and liabilities ₦250,000 + ₦100,000 + ₦612,500 + ₦72,500 + ₦170,000 = ₦1,205,000.

A step-by-step approach for the exam

1. Establish the group structure: the percentage held, the cost of investment and the acquisition date.
2. Do the stage 1 adjustments to the individual statements.
3. Draw up the net assets table for the subsidiary: share capital, premium and reserves at the acquisition date and the reporting date, and the post-acquisition movement.
4. Prepare the goodwill working.
5. Prepare the consolidated reserves and NCI workings.
6. Prepare the statement by adding across and inserting the workings, then check that both sides agree.

The ideas in more depth

Why only the parent’s share capital appears

The subsidiary’s shares are owned inside the group, apart from the part held by outsiders, which is shown as non-controlling interest. Showing them as well as the parent’s would count the same equity twice.

Why 100% of the assets are consolidated

The parent controls all the subsidiary’s assets and liabilities, not just its percentage of them. The outsiders’ share of the net assets is then shown as part of equity, so the statement describes everything the group controls and who has a claim on it.

Sources and references

• International Financial Reporting Standard (IFRS) 10 Consolidated Financial Statements and IFRS 3 Business Combinations: the acquisition-date workings, consolidated reserves and non-controlling interest.

These points are stated as at 5 November 2026.

Worked examples

1. Net assets at acquisition. ₦300,000.
   NCI at acquisition. 40% × ₦300,000 = ₦120,000.
2. Goodwill.
   ₦450,000 + ₦120,000 − ₦300,000 = ₦270,000.
3. Post-acquisition profit. ₦60,000: P’s share ₦36,000 (added to P’s retained earnings), NCI’s share ₦24,000.
4. NCI at the year end.
   ₦120,000 + ₦24,000 = ₦144,000.

1. Debits. S share capital ₦100,000; S pre-acquisition retained earnings ₦200,000; Goodwill ₦270,000 (total ₦570,000).
2. Credits. Investment in S ₦450,000; NCI ₦120,000 (total ₦570,000).

1. Goodwill.
   ₦300,000 + ₦55,000 − ₦170,000 = ₦185,000.
2. NCI.
   ₦55,000 + 25% × ₦70,000 = ₦72,500.

How to answer in the exam

• Set out the net assets table first with acquisition date and reporting date columns; most figures come from it.
• Show every working with a reference on the face of the statement.
• Include only the parent’s share of post-acquisition reserves in group reserves.
• Check the statement balances, and that the investment and the subsidiary’s equity have gone.

Common mistakes in the exam

• Adding the subsidiary’s share capital or premium into group equity.
• Including pre-acquisition profits in group retained earnings.
• Consolidating only the parent’s percentage of the subsidiary’s assets.
• Leaving the investment in the subsidiary in the statement.
• Calculating the NCI on the acquisition-date net assets only, and forgetting the post-acquisition share.
• Using the wrong date for the subsidiary’s reserves.

Quick revision

• Add 100% of assets and liabilities; eliminate the investment; parent’s share capital and premium only.
• Goodwill = consideration + NCI − net assets at acquisition.
• Consolidated retained earnings = parent + parent’s % of post-acquisition profit.
• NCI = acquisition amount + NCI’s % of post-acquisition profit.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

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