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Consolidation questions David Oakes considers how to approach “Financial Accounting & Reporting 2” consolidation questions. David Oakes AIA moderator
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our performance in this demanding examination paper will largely depend upon how you perform in Question 1, a compulsory Consolidated Financial Statement question, typically worth 35 marks and taking up a scheduled 63 minutes of your allocated three-hour exam period. The question will demand knowledge of consolidation techniques far beyond the basic level knowledge you obtained in studying for “Financial Accounting & Reporting 1”. Typically, consolidation examination questions will cover one or more of the following areas: ● complex groups; ● changes in group structure; ● foreign currency subsidiaries; and ● group statements of cash flow. We are going to focus in this article on how to approach such a question, using the May 2021 examination question as our base.
Consolidated Statement of Profit or Loss
From such a sketch, we can conclude that as far as the year to 31 December 2020 is concerned, we need to consolidate Amber (parent) and Coral (sub) for the entire year, Jade (sub) for six months (prior to disposal), and Onyx (associate using the equity method) for nine months. The time apportionment of Jade will apply to each of the (six) line items in the Profit or Loss and OCI. The one line consolidation of the associate is also time apportioned so it is important that these key details are picked up before you start tackling numbers in your statement. So the basic “recipe” for the six lines in the Profit or Loss will be:
The main part of this question was a requirement to produce a Consolidated Statement of Profit or Loss (25 marks) and the scenario was fairly detailed. There were four group companies: ● a parent (Amber); ● a subsidiary (Coral); ● a sub-subsidiary (Jade), which was disposed of Amber + Coral + 6/12 Jade. half way through the financial year; and ● an associate company (Onyx), which had been This basic recipe applied across the six lines acquired in two stages – a financial investment in would pick up good basic (easy) marks and an earlier year upgraded to associate classification represent a good way to start your answer. More part way through the current year. demanding calculations can be completed later and the results added to your statement. Show Identification of this group structure with the make-up of each line item as a calculation relevant dates is an important part of tackling the in brackets underneath the line item in question question and it is useful (if not vital) to produce a (see below). Also, don’t forget proper headings in sketch of the group structure (see Box 1). the statement itself.
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