The basic consolidated statement of profit or loss adds the results line by line. Four things disturb that simple picture. The group companies may have traded with each other, so some of the revenue and cost of sales are internal and some of the profit is not yet earned. The subsidiary’s assets may have been valued above their book figures at acquisition, so the group charges extra depreciation.
There may be loans and charges between the companies. And the goodwill may have lost value. This topic covers each of these in the consolidated statement of profit or loss, how they are shared with the non-controlling interest, and how an impairment of goodwill is attributed under the two methods of measuring non-controlling interest. It continues from the previous topic and finishes the group statements. The next topic covers associates and joint ventures.
These adjustments are the heart of the group profit statement. In May Diet, 2023, Question 3(a) (12 marks) included goods sold within the group that were partly still in inventory, an impairment of goodwill, interest on a loan between the companies, a management fee, extra depreciation on a plant valued at fair value, and the sharing of profit with the non-controlling interest. Read the basic approach first.
In 30 seconds
Intra-group trading is removed from revenue and cost of sales by the amount of the sale. Unrealised profit on goods still in inventory increases cost of sales (and reduces closing inventory); profit in opening inventory is now realised and reduces cost of sales. The seller’s profit bears the adjustment, shared with the NCI if the subsidiary sold. Interest, fees and loans between the companies are cancelled.
Extra depreciation on fair value uplifts is charged in the group and reduces the subsidiary’s profit for the NCI. A goodwill impairment is an expense in the group and is attributed wholly to the parent under the proportionate method, or shared with the NCI under the fair value method.
Intra-group trading and unrealised profit
When one group company sells goods to another, the seller records revenue and the buyer records cost of sales (or inventory). From the group’s view nothing has been sold. The consolidation therefore:
- Removes the intra-group sale from revenue and the same amount from cost of sales (the buyer’s purchases).
- For goods still in the buyer’s closing inventory, removes the unrealised profit: it is added to cost of sales (which reduces the group’s profit) and deducted from closing inventory in the statement of financial position.
- For goods in opening inventory that the buyer has since sold outside the group, the profit is now realised: deduct the opening unrealised profit from cost of sales (which increases this year’s profit) and from last year’s retained earnings.
The unrealised profit is the seller’s. If the parent sold, the group profit falls by the whole amount and the NCI is unaffected. If the subsidiary sold, the subsidiary’s profit is reduced by the unrealised profit, so both the parent and the NCI bear their shares. For example, S (70% owned) sells goods to P for ₦80 at cost plus 25%, and P still holds 40% of them.
The unrealised profit is ₦80 × 40% × 25/125 = ₦6.4. Revenue and cost of sales each fall by ₦80, and cost of sales rises by ₦6.4. S’s profit for attribution is reduced by ₦6.4.
Interest, fees and loans within the group
Interest on a loan from one group company to another, and management fees, are income in one company and an expense in the other. The consolidation cancels both, so profit is unchanged by them but the individual lines (other income, finance costs, administrative expenses) are each reduced. For example, P lent S money and charged ₦6 of interest.
P’s other income of ₦20 contains the ₦6, and S’s finance costs of ₦20 contain it. Consolidated other income is ₦14 and finance costs are reduced by ₦6.
Extra depreciation on fair value adjustments
The uplift made to the subsidiary’s assets at acquisition is depreciated in the group statements. The extra depreciation is charged (normally in cost of sales or administrative expenses) and reduces the subsidiary’s profit, so the profit used for the NCI is reduced by it. For a plant with an uplift of ₦50 and five years of life, the charge is ₦10 a year.
Impairment of goodwill
Goodwill is tested for impairment at least annually (see the topic on cash-generating units). An impairment loss is an expense in the consolidated statement of profit or loss, normally in other expenses or administrative expenses. How it is attributed depends on how the NCI was measured at acquisition.
- Proportionate method. Goodwill is recognised only for the parent’s share, so the whole impairment is attributed to the parent. The NCI’s profit is not reduced by it.
- Fair value method. Goodwill includes the NCI’s share, so the impairment is shared between the parent and the NCI in proportion to their holdings. The NCI’s profit is reduced by its share.
An impairment of ₦15 on goodwill under the fair value method, with a 30% NCI, takes ₦4.5 from the NCI’s share and ₦10.5 from the parent’s. If goodwill came from a bargain purchase (a gain), it was recognised in profit or loss at acquisition and there is nothing to impair.
A complete example
P owns 70% of S (acquired years ago). Statements for the year (₦): P: revenue 1,000, cost of sales 600, administrative expenses 150, other income 20 (including ₦6 loan interest from S), finance costs 10, tax 70. S: revenue 500, cost of sales 300, administrative expenses 80, finance costs 20 (including ₦6 to P), tax 30.
Adjustments: S sold goods to P for ₦80 at cost plus 25%, 40% still held by P; a plant of S has a fair value uplift of ₦50 with five years’ life; goodwill is impaired by ₦15 (proportionate method).
| Consolidated statement of profit or loss, ₦ | |
|---|---|
| Revenue (1,000 + 500 − 80) | 1,420.0 |
| Cost of sales (600 + 300 − 80 + 6.4 unrealised profit) | (826.4) |
| Gross profit | 593.6 |
| Other income (20 − 6) | 14.0 |
| Administrative expenses (150 + 80 + 10 extra depreciation + 15 impairment) | (255.0) |
| Finance costs (10 + 20 − 6) | (24.0) |
| Profit before tax | 328.6 |
| Tax (70 + 30) | (100.0) |
| Profit for the year | 228.6 |
The NCI is 30% of S’s profit after adjustments: S’s profit ₦70 − ₦6.4 unrealised profit − ₦10 extra depreciation = ₦53.6, and 30% × ₦53.6 = ₦16.08. The owners of the parent receive ₦228.6 − ₦16.08 = ₦212.52. Check: P’s profit before tax ₦260 + S’s ₦100 − ₦6.4 − ₦10 − ₦15 = ₦328.6. Under the fair value method, the NCI would also bear 30% × ₦15 = ₦4.5 of the impairment, giving an NCI of ₦11.58 and owners’ profit of ₦217.02.
The ideas in more depth
Why the profit is adjusted as well as the revenue
Removing sales and purchases of equal amounts leaves profit unchanged. But the buyer’s closing inventory still carries the seller’s profit, which is not earned by the group. That is why cost of sales is increased by the unrealised profit.
Why the impairment is attributed by method
Goodwill under the proportionate method contains only the parent’s share, so only the parent can have lost it. Under the fair value method the NCI’s share of goodwill is recognised, and its holders share in the loss.
Sources and references
- International Financial Reporting Standard (IFRS) 10 Consolidated Financial Statements: elimination of intra-group transactions, income and expenses; IFRS 3 Business Combinations; International Accounting Standard (IAS) 36 Impairment of Assets for goodwill.
These points are stated as at 5 November 2026.
Worked examples
Example 1: unrealised profit. S (70% owned) sold goods to P for ₦80 at cost plus 25%. P holds 40% of them at the year end. Required: the adjustments.
- Remove the sale. Revenue and cost of sales each −₦80.
- Unrealised profit.
₦80 × 40% × 25/125 = ₦6.4 added to cost of sales. - NCI.
S’s profit falls by ₦6.4, so the NCI bears 30% × ₦6.4 = ₦1.92.
Example 2: impairment under both methods. Goodwill impaired by ₦15; NCI 30%. Required: the amounts attributed.
- Proportionate method. Parent bears ₦15; NCI ₦0.
- Fair value method. Parent ₦10.5; NCI ₦4.5.
Example 3: loan interest. P charged S interest of ₦6 on a loan. Required: the treatment.
- Cancel. Deduct ₦6 from P’s other income and from S’s finance costs. Group profit is unchanged.
How to answer in the exam
- List every adjustment with the line it affects before preparing the statement.
- Compute the unrealised profit with the right fraction and say who sold.
- Adjust the subsidiary’s profit for the NCI by the unrealised profit (if it sold) and the extra depreciation.
- Attribute the impairment according to the NCI method stated.
Common mistakes in the exam
- Reducing revenue by the intra-group sale but not cost of sales.
- Forgetting the unrealised profit in closing inventory.
- Charging the unrealised profit wholly to the parent when the subsidiary sold the goods.
- Leaving the loan interest or management fee in income and expenses.
- Sharing a goodwill impairment with the NCI under the proportionate method.
- Not reducing the NCI profit for the extra depreciation.
Quick revision
- Sale removed from revenue and cost of sales; closing unrealised profit added to cost of sales; opening unrealised profit released.
- Interest, fees and loans cancelled.
- Extra depreciation reduces the subsidiary’s profit.
- Impairment: parent only (proportionate) or shared (fair value).
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
Question 1. Intra-group sales are:
- Shown in full
- Shown at half
- Eliminated from revenue and cost of sales
- Added to profit
Show the answer
C. By the amount of the sale.
Question 2. Unrealised profit in closing inventory:
- Reduces cost of sales
- Increases the group’s cost of sales
- Increases revenue
- Is ignored
Show the answer
B. And reduces closing inventory.
Question 3. Unrealised profit in opening inventory, since sold outside the group:
- Reduces this year’s cost of sales
- Increases cost of sales
- Is ignored
- Reduces revenue
Show the answer
A. The profit is now realised.
Question 4. If a subsidiary sold the goods, the unrealised profit is borne by:
- The parent only
- The NCI only
- Nobody
- The parent and the NCI in proportion to ownership
Show the answer
D. Because it reduces the subsidiary’s profit.
Question 5. Interest on an intra-group loan is:
- Shown in finance costs only
- Cancelled against the income in the other company
- Shown in other income only
- Added to profit
Show the answer
B. Group profit is unchanged.
Question 6. Extra depreciation on a fair value uplift is:
- Charged in the consolidated statement
- Ignored
- Credited to the NCI
- Added to goodwill
Show the answer
A. It reduces the subsidiary’s profit.
Question 7. An impairment of goodwill is:
- A reserve movement
- A deduction from equity only
- An expense in the consolidated profit or loss
- Added to profit
Show the answer
C. Normally in other or administrative expenses.
Question 8. Under the proportionate method, an impairment of goodwill is attributed:
- Equally
- To the NCI
- By revenue
- Wholly to the parent
Show the answer
D. The NCI’s share of goodwill is not recognised.
Question 9. Under the fair value method, an impairment of goodwill is:
- Borne by the parent only
- Ignored
- Shared between the parent and the NCI
- Borne by the NCI only
Show the answer
C. In proportion to their holdings.
Question 10. A management fee charged by the parent to a subsidiary is:
- Cancelled on consolidation
- Added to revenue
- Shown as a profit
- Shown in equity
Show the answer
A. Income in one company against an expense in the other.
Section B style: written questions
Question 11 (10 marks). (a) Explain the adjustments for goods sold within the group and still held. (5 marks) (b) State how the NCI is affected when the subsidiary is the seller. (2 marks) (c) State how an impairment of goodwill is attributed under the proportionate method. (3 marks)
Question 12 (15 marks). S (80% owned) sold goods to P for ₦120 at cost plus 20%. P still holds 25% of them. (a) Calculate the unrealised profit. (5 marks) (b) State the adjustments to revenue and cost of sales. (5 marks) (c) State the effect on the NCI. (5 marks)
A further written question
Question 13 (20 marks). P owns 75% of S. P’s profit for the year is ₦100 (including an unrealised profit of ₦4 on goods it sold to S) and S’s profit is ₦60. A plant of S has a fair value uplift of ₦40 with five years of life remaining. Goodwill is impaired by ₦12 and the NCI is measured as a proportionate share.
(a) State all the adjustments to group profit. (8 marks) (b) Calculate consolidated profit. (4 marks) (c) Calculate the NCI’s share. (4 marks) (d) State the effect if the NCI had been measured at fair value. (4 marks)
Model answers
Show the model answer to Question 11
(a) Remove the sale from revenue and cost of sales (2). Calculate the unrealised profit on goods still held (1). Add it to cost of sales (1) and deduct it from closing inventory (1).
(b) The subsidiary’s profit falls by the unrealised profit (1), so the NCI bears its percentage of it (1).
(c) Goodwill includes only the parent’s share (1), so the whole impairment is attributed to the parent (1) and the NCI’s profit is not reduced (1).
Show the model answer to Question 12
(a) ₦120 × 25% × 20/120 = ₦5 (5).
(b) Reduce revenue by ₦120 (1.5) and cost of sales by ₦120 (1.5), then add the unrealised profit of ₦5 to cost of sales (2).
(c)
- S sold the goods, so its profit falls by ₦5 (2).
- The NCI bears 20% × ₦5 = ₦1 (3).
Show the model answer to Question 13
(a) Add S’s profit to P’s (2). Deduct the unrealised profit of ₦4 (2). Deduct extra depreciation ₦40 ÷ 5 = ₦8 (2). Deduct the impairment of ₦12 (2).
(b) ₦100 + ₦60 − ₦4 − ₦8 − ₦12 = ₦136 (4).
(c)
- S’s adjusted profit ₦60 − ₦8 = ₦52 (2).
- The unrealised profit was P’s, so the NCI is 25% × ₦52 = ₦13 (2).
- Owners receive ₦123.
(d) Under the fair value method the NCI bears 25% × ₦12 = ₦3 of the impairment (2), so the NCI is ₦10 and the owners’ share is ₦126 (2).
Pathfinder on The consolidated statement of profit or loss and OCI (ii): complications
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Part (a) asks for the consolidated statement of profit or loss and other comprehensive income (12 marks) with goods sold within the group and partly unsold, a goodwill impairment, loan interest and a management fee within the group, extra depreciation on a plant at fair value, and the split of profit with the non-controlling interest.
Revise first: A complete example
The group question includes goods transferred within the group, a leased property at fair value with its extra depreciation, and the split of profit with the non-controlling interest.
Revise first: Intra-group trading and unrealised profit
The consolidation question includes a goodwill impairment and intra-group inventory. The group statement of financial position workings belong to earlier topics.
Revise first: Impairment of goodwill
Source: ICAN Pathfinder, Financial Reporting. Diets covered: Every diet in the Pathfinder, from November Diet, 2021 to May Diet, 2026, was reviewed here. The diets listed above include these items in group questions..
Spotted a mistake? Tell us and we will check it.
