Transcription
Good day. Welcome to another session of Fog Accountancy Tutorials. Today, we are going to begin our series on consolidated financial statements, and we are going to start with the consolidated statement of financial position. Now, this is actually what we call group accounts. Okay, so we are going to prepare consolidated financial statements for groups.
Now, what is a group? I'm going to explain later, but there are three standards that we need to understand for these group accounts or this consolidated financial statement. We need to understand IAS 27, which is called separate financial statements, and then IFRS 3, which is business combinations, and then IFRS 10, which is consolidated financial statements, which is actually what we are doing. All right, so what we are doing is IFRS 10, consolidated financial statements.
Now, before we begin this consolidated financial statement, we need to understand separate financial statements, business combinations, then we come on to the consolidated financial statement. I'm not going to go too much into these standards, but I'm going to explain them as part of what I'm going to do. So, the separate financial statement. Now, what we are trying to say is that we are dealing with group accounts, okay? And what is a group?
Now, let me explain something to you. A group has to do with two or more companies that are operating together, even though they're operating separately, but subsidiaries that belong to a parent company. Now, what we are dealing with as a group here is about a company acquiring shares in another company, and majority shares, for that matter. So, let us imagine now, we know that individuals buy shares in companies, and companies can also buy shares in other companies. Now, whatever we are dealing with as far as this topic is concerned, what we are doing in this lesson is strictly based on a company buying shares in another company, not individuals. So, we are focused on one company acquiring ownership rights or holding rights in another company, okay? And that is what we are going to look at.
Now, let's assume that company A buys shares in company B. Now, it depends on the percentage that they buy. If company A buys more than 50 shares in B, that is between 51 to 100, if company A buys more than 50 shares in company B, then company A becomes the majority shareholder of company B, and therefore, technically, we call company A the parent, and then company B will be called a subsidiary of A. Okay? So, because A holds more than 50 shares in B, company A becomes a parent company, and then company B becomes a subsidiary, and company A and B combined will be called a group. Okay? So, a group is two or more companies where one is their parent and the others are subsidiaries.
Now, company A could have majority shares in another company, let's say company C, and company B and C will both be subsidiaries to A. There are group structures where B is a subsidiary to A, B also holds majority shares in C, and C becomes a subsidiary to B. So, therefore, C becomes a sub-subsidiary to A. Now, there are complex group structures and simple group structures, but the main thing that I want you to understand is the fact that once a company buys more than half of the shares in another company, the buying company becomes a parent, and then the company into which they have invested becomes a subsidiary. That is when it is more than 50% shares, or more than when they own more than 50% of the net assets of B, and I'm going to explain what I mean by net assets in this case.
Now, let us also look at a case where A buys shares in B but did not buy more than 50 shares. Now, if the percentage holding is between 20 to 50 percent, then B will not be called a subsidiary because it is below majority. If they hold their ownership right, A holds between 20 and 50, then we say that B is only an associate to A. So, that is where the word associates comes in, which we are going to add later in our studies. And then also, if it is below 20 percent, then it's probably just a joint venture. So, that is what we are trying to explain.
And so, what we are trying to do is that if a company buys more shares in another company, more than half of the shares in another company, then the buying company becomes a parent company. Then, where the company that is being bought becomes a subsidiary, and both of them become a group. And so, when you hear a group of companies, group of companies, there is always one parent company overseeing over one or more subsidiaries, and then all of them becoming a group. And that is what we are trying to explain.
Now, we have separated these two companies. They are supposed to each of them are operating separately. Please don't mistake this for a merger. This is more like an acquisition. They are not the same. Now, a merger is a case where A and B now combine to operate together as one entity. That is not a group. That is a merger. Now, in this very case, we are going to see it operating as a separate entity. B is also going to operate as a separate entity. If there is a C, that company is also going to operate as a separate entity. Then each of them will prepare separate financial statements according to IAS 27. Each of them has prepared their own financial statement. IFRS 3 talks about business combinations. And even though all of them are operating separate financial statements, at the end of the year, each of them will have to bring their financial statements and combine the financial statements, and so that we see the group as a single entity. So, one, two, three, they are a group, okay? Or one belongs to a group. Now, one parent, two subsidiaries. This is what the standard is saying, that each of them has their separate financial statement. But because we see them as a group, they are combined as a group. That is where business combination comes in. And so, IFRS 10 requires that at the end of every accounting year, after they have prepared their separate financial statements, the three of them combine their financial statements into one entity's financial statement at the end of the period. IFRS 10 says that we should combine their financial statements into one, so that we view it as a financial statement of a single entity called a group. So, we call it a group account. Okay?
So, we are going to prepare consolidated financial statements for each of the three companies belonging to the group, where one is a parent and the other or the others are subsidiaries. So, that is the idea of consolidated financial statements. And we are going to prepare consolidated financial statements, and we are going to consolidate all their financial statements. Consolidation actually means adding up. And so, what we are going to do is that we are going to consolidate the statement of financial position, we are going to consolidate the statement of profit or loss and other comprehensive income, we are going to consolidate the statement of cash flows, and if there be any other statement, statement of changes in equity, name them. All the statements that are prepared in accordance with IAS 1, Presentation of Financial Statements, can be consolidated. And so, for us, these companies belong to the group, their standard requires that we have to add up their accounts into one account, and that is what we are going to learn.
And so, we are going to learn the rules and principles of consolidation, and we are going to first of all begin with consolidation. We have said that we are going to do consolidated statement of financial position, then consolidated statement of profit or loss, then we are also going to do consolidated statement of um changes in equity, and then consolidated statement of cash flows. Okay? So, what I'm going to do is that in this very lesson, we are going to begin with how to prepare the consolidated statement of financial position. Then later, we'll move on to consolidated statements of profit or loss and changes in equity, and then we'll finally handle the consolidated statement of cash flows. So, in fact, this is going to be a very long series, and that is what I'm focusing on for now. Okay? So, for now, I'm going to start with the statement of financial position. And even that, I want you to take your time with me as I take you through. I'm not going to rush this topic because a lot of people, or a lot of you, have contacted me privately requesting for me to treat consolidation, and that is why I'm doing it for you. And I have realized that the understanding is not there for most people. So, what I want to do is I want to take my time and take you through step by step, bit by bit, and build it up to a point where your understanding will be complete. And once you're able to become a master of this, you don't have any problem as far as financial reporting or corporate reporting is concerned. All right?
So, yes, I'll give an assignment for you to read on IAS 27 and IFRS 3. Even though later I may talk about them, but today I'm going to focus on IFRS 10, Consolidated Financial Statements, and I'm going to begin with the consolidated statement of financial position. Okay? So, we are going to talk about the consolidated statement of financial position. That is the first sub-topic under the group accounts or the IFRS 10. Now, please take note and follow carefully. I'm going to take you through some simple steps, and I want you to follow, and then you'll become a master of this. Before you prepare any consolidated statement of financial position, listen. I have already told you, there will be two or three separate financial statements for the parent and for the subsidiary or the subsidiaries. Sometimes there could be an associate, which I'm going to deal with in the later part of this. I want to focus on the parent-subsidiary relationship. Teach you, you understand, because we don't actually consolidate associates. We only have a way of dealing with that in the consolidation. So, we are dealing with parents and subsidiaries. That is what forms a group, not associates and joint ventures.
Now, what I want you to understand is that there are four main things that you have to do. I call them the big four. Anytime you are dealing with a consolidated statement of financial position, you always have to do these four, and they are like steps you have to follow. And once you are able to follow that, you don't have a problem. Now, the first thing you have to do anytime you are faced with a question, whether it is with or without adjustment, of consolidated statement of financial position, the first thing is that you have to expand your group structure. You have to do workings for the group structure. Now, what do I mean by the group structure? Now, we have said that if a parent or a company buys more than 50 shares in another company, that company becomes a parent company. Okay? And imagine that a company buys 80% of the net assets in another company or shares in another company. Then it means that the 20% that is left does not belong to you. Now, that 20% which does not belong to the company will be owned by other companies or other individuals, whatever. But we are just focusing that you are holding 80% of the net assets or the shares in the company. Then the other 20% that does not belong to you belongs to a particular group of people or different shareholders who do not have direct control. Now, remember that the 80% means that you have control. That is why you are the parent company. The parent company has control over the subsidiary. Now, the 20% owners do not have any control because they are not the majority shareholders. Okay? So, we actually used to call them minority interest, but now the IFRS revised IFRS standards and threat revised calls them non-controlling interest. Okay? So, instead of saying minority, you say non-controlling interest, NCI. And then this is that of the parent company. And so, you see that if you add the percentage holding of the parent company and that of the non-controlling interest, you are going to have 100%. And this is it. So, this is what we call the group structure. It is not a difficult thing to do, but it's important that you do it in every question on consolidation. You first have to show your group structure by telling us the percentage holding of the parent and how much is left for non-controlling interest, or what we used to call minority interest. So, that is the group structure. It could be 70-30, it could be 55-45. The most important thing is that the parent company has majority shareholding, and the other that is left out of the 100 becomes that of the non-controlling interest, and that must be shown as part of your workings. Now, if you are fortunate, it may be given to you in the question, but more often than not, you'll not be given. You'll be given the number of shares but as against the total number of shares that is capitalized by the subsidiary. So, you just have to use your percentages to find the holding of the parent company, and any balance out of 100 becomes that of the non-controlling interest. So, that is the first step to solving every question on consolidated statement of financial position. So, the group structure.
After you have been able to establish the group structure, the next thing you have to look for is goodwill on acquisition. And you should be mindful of what I said, acquisition date goodwill on acquisition date, not on reporting date. Now, listen. The goodwill that I'm talking about is the purchase goodwill. Now, let me just create a scenario for you. Imagine that you are a company going to buy shares or ownership right in another company. Now, when you are going to buy any company, what you actually buy is the net assets of the company. The net assets, that is the value of the company. The value of the company equals to the net assets of the company, and the net asset is the total asset taking out all liabilities, then you have your net asset in this case. Okay? So, imagine that you want to buy a company, and you realize that the net asset of the company is 250 million dollars. 250 million dollars, that is the net asset of the company you want to go and buy. And you are going to buy, assuming you are buying 100% shares in that company, or you could be less, but you are buying, let's say, 100 shares. You are going to buy 250 million. This company you are going to buy, as a company, you realize that that other company you are going to buy has already very loyal customers that are operating with them. And so, the moment you buy that company, you're also still going to operate with the same loyal customers that they have. They have a very good brand name that is acceptable. They have been in existence for over 10 years, have a very good reputation in terms of social responsibility. Now, imagine that all these intangible factors are available and causing the business to operate in a very nice and favorable environment and working very successfully. And you are going to buy only the net assets for 250. Logically, are you going to pay only 250 million for the company? Obviously not. Because when you take over these tangible or whatever assets that have been valued, you are also taking over the loyal customer base, you are taking over the good brand name, you are taking over the reputation of corporate social responsibility, and other intangible assets which have not been valued and added to their net assets. So, logically, you have to pay more than what they have identified as a tangible net asset. And so, assuming that you say, "Okay, I'm buying the company for 300 million," even though we know that the net asset of the company is 250 million, then the extra 50 million that you have bought it for is called goodwill. Then, what is this goodwill? The goodwill is an intangible asset which represents all the factors that enable a business to preach successfully. I repeat, goodwill is an intangible asset which represents all factors that enable a business to preach successfully outside the tangible non-current assets. And so, what we are trying to say is that this 300 million that you are buying the net asset for is called purchase consideration. So, you are buying, this is your consideration, and this is the net assets. Okay?
Now, goodwill has two ways of coming up. It's either the company will sit down and say, "Let's value our own goodwill internally," and then we generate a goodwill. No one is coming to buy, but we generate goodwill and add it to develop our net asset. That one is there. Then we have purchased goodwill. This goodwill that we are talking about in consolidation is about the purchased goodwill. And what is the purchase goodwill? The purchase goodwill is the excess of your purchase consideration over your identifiable net assets. And so, you see that the extra amount of money you pay over the net asset that you are going to acquire as a company is the goodwill. And that is this second step of every statement of financial position consolidation. Anytime you are doing any consolidation of statements of financial position, after establishing your group structure, the next most important thing you have to look for is the calculation of the goodwill. And I have said that it is goodwill on acquisition date, not at reporting date. There is a difference because you may have acquired a company in 2018, but this year you are doing your consolidation, it's in 2021 or 2022. Now, it means that you have to use the figures that were there on the acquisition date, not on the current date, for the purpose of calculating the goodwill. And I'm going to explain that to you as we move on. Okay? So, goodwill on acquisition date has to be determined, and that is your purchase consideration over your identifiable net asset that you are going to buy. That is the meaning of establishing your goodwill on acquisition date.
Now, as I began, I was talking about buying shares, buying shares, but now I'm talking about buying net assets. And let me try and explain the shares in this case. I'm not referring to only shares, ordinary shares, but I'm also referring to any other item of equity. Okay? So, let us try to understand something. Now, if you take your accounting equation, we all know that assets should be equal to equity plus liability. So, the shares I'm referring to is basically equity. And we have so many items of equity. We have the share capital, we have income surplus, retained earnings, we have, we can have revaluation or capital surplus, general reserves, any other reserve. They are all part of equity. So, in this case, when you hear me say shares, buying shares, I actually mean buying equity. Now, watch this. Now, we know that when you are going to buy a company, you don't want to pay for the liabilities. You want to actually pay for the net asset. So, you have to make sure that you do this change of subject: asset minus liabilities. And by liabilities, I mean total liabilities, both current liabilities and non-current liabilities. So, asset minus liabilities will be equal to your equity. Now, for the purpose of consolidation, this is what we mean by net assets. The net asset I mean here is your assets minus your total liabilities. Total asset minus total liabilities. I know that other people may have another opinion that we can talk about asset minus current liabilities to get a capital employed and all that, and then the long-term liability goes elsewhere. Please and please again, limit your mind and look at these truths. The net asset I'm referring to here is total asset minus total liabilities for the purpose of consolidation. So, we call this, in other words, instead of saying asset minus liabilities, I can see net asset. We are netting off our liabilities. So, net asset will always be equal to your equity. Now, take note, if net assets equals to equity, then I can use it interchangeably because there is separated by an equal sign. The value of net assets should be equal to the value of equity. So, we have said that equity has to do with your stated capital, your income surplus, your revaluation surplus, and all the other reserves. All these things combine this equity. So, in other words, if I get the total of all my equity, it should be the same as the total of my net assets. Now, for the purpose of this calculation of this goodwill that we are going to do in this video, we are going to use net assets, okay, to compare with the purchase consideration. But the net asset in this video will be mainly equity. But we understand that total net asset is the same as total equity for the purpose of business acquisitions. All right? So, that is the second step of consolidated statement of financial position. We have to establish the goodwill on acquisition. Okay?
Now, after establishing the goodwill on acquisition, the next thing we have to find is the group income surplus, sorry, group income surplus, or what we may call group retained earnings at reporting date. This time it is not at acquisition date, this is at a reporting date. And we should be able to differentiate acquisition date from reporting date, you understand as we solve examples. Okay? So, we find, make sure I call them the big four. I'm done with that. I'm coming to the fourth, the third one is your group income surplus, or group retained earnings. Another way of calling it, group income surplus, you can say consolidated income surplus, or consolidated retained earnings, whichever way you want to find it. Now, that is a combination of the parent's income surplus and their share of their subsidiary's income surplus account. So, we know that the parent's income surplus belongs to the parent. But in a case where it is a partly owned subsidiary, okay, the incomes of loss that will be gotten or will be earned by the subsidiary after acquisition, all of them will not belong to the parent. If their parent took 100% control, they bought 100%, then of course, post-acquisition, or after acquisition, any other profit that will be earned by the subsidiary will belong to the parent or the group. And so, the group income surplus would be parent's income surplus plus the income surplus of the subsidiary after acquisition. That is where it is a 100% acquisition. But the moment the group structure is not a 100% ownership of the parent, but in percentage like 80-20, then it means that for whatever profits or income surplus that will be earned by the subsidiary, the parent will have 80% share, and that will be added to that of the parent itself to accumulate to get the group income surplus. Okay? I don't know if you are getting the concept, but this is very abstract. I'll make it more practical. Okay? So, 80% of whatever profit the parent has will come, and then the non-controlling interest also takes the asset. This is fair because you don't own everything. And remember that whatever profits or income surplus that was there before acquisition of the company, the parent has no share, or the group has no share, because you cannot come and enjoy another person's profit. You only have a share in the profit you have contributed to. So, we will also look at that. So, the third point is a group income surplus. So, it means that you do first workings. These are all workings that we'll do. So, what can one look at your group structure? Then you look at the goodwill on acquisition date. Then you consider finding your group income surplus, or consolidated retained earnings. And then finally, you have to find the value for your non-controlling interest. They're non-controlling, that is the NCI. The non-controlling interest at a reporting date. At reporting date. It is also very important that I add that, reporting date. So, you can see that all of these two are at reporting date. The only one that will be at acquisition date is the goodwill. And you understand as we move on. And so, what I'm trying to say is that the fourth one is non-controlling interest as reporting date. Now, what is the meaning of non-controlling interest? It's simple. We are trying to find the equity holding of the non-controlling interest, so that we know when we get to the statement of financial position down there, where we are showing the equity, we show the equity of the group as one, and they will also show the equity of non-controlling interest. So, that is what we are trying to do. So, we find the value of their non-controlling interest, how much they hold as their value in the business, and that will be in the consolidated statement of financial position. But that will have to be estimated at the reporting date. And then group income surplus also will be at the reporting date. Goodwill will be on acquisition. So, this is what I call the big four. And as we move on, in fact, no matter what question you are solving, you always have to look for this. Then later on, we'll look at other adjustments. We may look at the net asset list as well. But for now, basically, this is the big four. And for every question you do, once you're able to establish that before, you are done with the consolidation, because that is the key. It's not just about adding across. It's about being able to find these four. And when you are done with this four, the rest, the doors open automatically for you to go through. So, that is it with the big four. Okay? All right.
So, having done or having understood that we are going to do these four, we are going to start some consolidations. Now, I believe that this very topic, we learn it by practicing. Okay? We don't just make things abstract. So, I'm going to start taking some practical examples with you. I'm going to start with very, very simple, simple, and easy questions. Don't worry, we are moving on. We are going to build on it. This same question, I'm going to give you, we'll build on it. But we are going to solve with assumptions. The first one that we are going to do, we are assuming a 100% takeover, where a company buys 100% shares in another company. Then the other assumption we are going to hold is that the consolidation is being done on the date of acquisition. If the consolidation is being done on the date of acquisition, then it means that the subsidiary has not operated under the parent, and therefore, there will be no post-acquisition profits by the subsidiary. So, we are dealing with a situation where there is a fully owned subsidiary, and then consolidation is done on the date of acquisition. Afterwards, we look at a case where there is a partly owned subsidiary, where consolidation is still done on the date of acquisition. And then finally, we look at a scenario where it is a partly owned subsidiary, and consolidation is done after acquisition date. Then, after we are done understanding this four, with those simple illustrations, then we can go into other adjustments that relate to the consolidated statement of financial position. Okay? So, let us look at this question without wasting my time.
P Limited bought 100% shares in S Limited on 31st December 2018. The individual statements of financial position on the same date are as follows. So, we have statement of financial position for P Limited and S Limited that are these are the separate financial statements. So, non-current assets, we have for P Limited 80,000. P and then for S Limited is 25,000. And then we have investments in S Limited 34,000. That is under the P Limited loan. We don't have any under S Limited. Then we have net current assets. What do I mean by net current assets? It is a working capital. We have already netted off our current assets and current liabilities into one. The net current asset is 6,000 for the parent, which is P Limited, and the subsidiary is 3,000, giving us a total of 120,000 for P Limited and 28,000 Ghana Cities for S Limited. And then under the equity portion, the stated capital is 90,000 for the parent, 20,000 for the subsidiary, and then the income surplus for the parent is 30,000 and for the subsidiary is 8,000, giving us the same totals.
Requirement: You are required to prepare a consolidated statement of financial position for P Limited Group as at 31st December 2018.
Now, what I'm going to do is that I'm going to solve this question with you. And because it is the first one we are solving, I want my analysis to be very visual. So, this simple statement of financial position, I'm going to reproduce that here first, and then I'll use that to teach you how to go about it. And subsequently, I'm not going to write a question on the board again. We'll solve it from the screen as it's being displayed. Okay? So, I'm going to solve this question with you, but I'm going to first display that on the screen. All right.
All right. So, yes, this is the question we have. With the question we just displayed, I've rewritten the statement of financial position again on the screen, on the board, so that you look at it well. Now, this is the statement of financial position. P has acquired S Limited. Now, what the first thing I want you to understand is that you see this 34,000 here called investment in S Limited. That is the purchase consideration I'm talking about. That is the amount of money that they are using to buy the net asset of S Limited. Now, the net asset of S Limited is 28,000, which is made up of the stated capital and the income surplus. Of course, it's the same as the 28,000 here. But I told you that when we are doing consolidation, let us focus more on the equity as our net assets, as I explained with our accounting equation. And so, we have 34,000 as the amount of money that P is being used to buy S Limited. And then they are buying 100%. Introduction says that buying 100% of the shares, and the consolidation is being done on the same date of acquisition. And so, this is what we are going to do. You see this 34,000 is buying this 28,000. Because if you add these two, 20,000 and 8,000, we have the total net asset of S Limited is 28,000. And P Limited is buying it for 34,000. So, if you compare 28,000 and 34,000, you can see that there is a difference of 6,000. That is the excess of the purchase consideration over the identifiable net assets, and that is what we call goodwill. The difference.
Now, let us also take note that when we are doing consolidation, now consolidation simply means adding across. We add because we are adding up the financial statements. We are consolidating. But the investment in a subsidiary and the net assets or the equity of the subsidiary will not appear in the consolidated statement of financial position. I repeat, the investment in the subsidiary and then the equity of the subsidiary will not both of them must not appear. In other words, we call it a cancellation. If we bought it for exactly 28,000, then we actually canceling it off, so that when we add them up, it will still balance. So, 28 going out here and 28 going out here. If you add them, because the top side is losing 28, and the downside is also losing 28, the statement of financial position will still agree. Another way we can look at it is that now, since what we are buying is more than 28,000, we cannot cancel 28 and 34 together. So, we actually going to do a part cancellation. If it was the same amount, we call it complete cancellation. But here, if you look at Fanu and others, they call it part cancellation. Part cancellation means that we are cancelling out 28,000 out of the 34. So, 28 goes out of 34 to 20. 28 goes out. 6,000 will be left standing, so that the statement of financial position can balance. And the 6,000 that will be left standing is what we call goodwill. So, goodwill is actually about cancellation of the investment and then the equity.
Now, we are going to solve this question and take note that I said it is 100% acquisition. That is the first note. And if there is 100% acquisition, it means there is no, there is nothing like non-controlling interest, because the company, the parent company, owns everything. So, we don't have any minority interest yet. Then also, we are consolidating on the same day of acquisition. So, you see this income surplus here of 8,000. The parent company has no share in that, because as at the day we are buying it, it was already there. So, there is no share that they have. They don't have any share in the 8,000. I told you that the parent company will only have share in profit that the subsidiary will earn after acquisition, and that is what we call post-acquisition profit. Here, it is pre-acquisition profit. This 8,000, it was there before they acquired the company. So, it's called pre-acquisition profit. And remember that the group has no share, or the parent has no share in pre-acquisition profits. So, that is it.
So, let us begin with our consolidation. Let us go by the big four. So, I told you the first one is the group structure. So, that is the first working we are going to do. So, workings, working one, we see a group structure. Now, in this group structure, we are told that the parent bought 100% of the shares. So, you still have to show it as parent owning 100%, and then NCI being zero. So, there is no NCI. So, that is the first working. I have done it so that you understand that in every question, you have to show the group structure. So, there is no minority or non-controlling interest. The only thing we have is that 100% of the subsidiary belongs to the parent. So, that is the group structure.
So, having done with the group structure, let us also look at the other workings as well. Then I said, I told you the big four. The first one has been dealt with, group structure. The second on the big four is goodwill on acquisition. So, let's look at the goodwill on acquisition date, or goodwill on acquisition. So, let me show my currency sign. Now, I have told you that it is your purchase consideration over the net assets or the equity. So, we start with our purchase consideration, and in this question, the purchase consideration is 34,000 Ghana Cities. Then, what is the net asset of the subsidiary? This is the net asset, 28,000. But we have to show it in equity form. Remember that I've told you that net asset must be shown in the equity. So, we see less fair value of your net assets of the subsidiary taking over. So, we are less fair value of net assets. So, we start with the stated capital. What is the stated capital of the subsidiary? 20,000. So, you show all this as they will be ticked in their market scheme. And then your income surplus, that is the pre-acquisition income surplus. Pre-acquisition income surplus. So, that is 28,000 in total. Now, we are subtracting all the 28,000 because it is 100% acquisition. So, once we take that out, the difference is 6,000. Then we call it goodwill. So, this is how to go by goodwill calculation. You see, I've already used my lips to explain the calculation of the goodwill. So, you knew definitely we should have 6,000 for goodwill. So, this is the second of the big four. So, for every consolidation question, as we build up, you first have to establish your group structure, then deal with the goodwill on acquisition.
And the third is a group income surplus on acquisition, acquisition date. So, group income surplus, or what we call the group retained earnings, or consolidated retained earnings. So, any way you want to call it, that is the third workings. And listen, the group income surplus, or the consolidated retained earnings, is your parent's company's income surplus plus their share of the post-acquisition income surplus of the subsidiary. I repeat, the parent company's income surplus plus, that is the basics before we later will look at other things. The parent company's income surplus plus their share in post-acquisition. So, we start with parent company's surplus, which is 30,000 as per the question. The parent company's income surplus 30,000. But do they have any share in their profit or their income surplus balance of the subsidiary? No, because the 8,000 here was there before the company was bought. Remember that we are doing consolidation on the date of acquisition. So, the day, same day they bought it, this was the financial statement of the company before they bought it. And this 8,000 was someone's hard-earned profit. You cannot, you cannot have a share of what you have not labeled for. So, what you have labeled for. So, it means that the other part, which should have been a share of the income surplus, or let's say, post-acquisition income surplus, post-acquisition income surplus balance, now, or whatever profit, now, the share of the post-acquisition profit in this case will be zero, because after acquisition, there has not been any further. Yes. Now, assuming that after acquisition, they had worked and let's see, now the income surplus of the subsidiary is 20,000. Okay? The question would have told you that on the date of acquisition, income surplus was 8,000, but now you see 20,000 on the financial statement, meaning that they have added 12,000 to 8,000 to make it, um, 20,000. So, now the company would have gotten a share of the extra 12,000. But they will still not get a share in the original 8,000, because that was there before they bought it. That is the logic. So, that extra profit that will come afterwards, then they have a share. And that is why I'm saying that if you are consolidating in a period after acquisition date, there will be a condition for post-acquisition profit to share. But because in this case, it's just an acquisition, there is nothing like post-acquisition. So, it will be zero. So, it means that the group income surplus will still remain 30,000, because the company, the parent company, is not yet eligible to benefit from profits of the subsidiary, because it is still the same day they have occurred. No operations has taken place to earn any profit.
And then finally, we talk about their non-controlling interests as reporting date. So, the group income surplus, so it's reporting date. So, non-controlling interest. Now, in this question, the group structure is going to inform you whether there is any non-controlling interest. No, controlling interest is zero. The company, the parent company, owns 100%. Therefore, there is nothing like non-controlling interest in this question. So, we are done. If there was a percentage for non-controlling interest, we would have found. And in the next question, I'm going to show you, there will be all that, and I'll show you how to find the non-controlling interest, and then we'll look at how to find the post-acquisition profit as well with the income surplus only, and then later I will look at the net asset list and see how that differs from looking at the straight away from income surplus. So, please, this is it.
So, we are now coming to prepare our consolidated statement of financial position as at 31st December 2018. This is the main requirement. We are required to prepare consolidated statement of financial position for P Limited Group. Okay? So, remember consolidation is added across. So, we start from here. The net non-current assets. So, we are going to actually add across. Now, you have to show workings for the adding across. So, 80,000 [Music] plus 25,000 has to be shown in brackets, and the total will be 105,000. 105,000. Now, I told you investments in S will not appear again. Anyway, and this also not appear, but it will be replaced by goodwill. So, goodwill on acquisition will come. So, goodwill, working two, was 6,000. Then we can add up the net current assets, which is the working capital. So, net current assets, we have netted off our current assets and current liabilities at once. So, 6,000 plus 3,000, and that gives us a total of 9,000. So, we are done with the asset side, and that is going to give us 120,000 for the, or for the net assets. So, the net asset is 120 and 120. And then we come to the finance by. Now, there is something you should always understand, which I'm about to mention. The stated capital of the consolidated statement of financial position will be that of the parent company alone. As for that one, it's not negotiable. We don't need the stated capital of the equity. Already, I've told you these two are not appearing. But I'm telling you that that of the subsidiary for stated capital doesn't matter. Even if there are five different subsidiaries for one parent company, when you are consolidating, when you get to the stated capital, bring only that of the parent, which in this case is 90,000. Because in other words, we feel that the parent company owns all the subsidiaries, and their capital is what they are using to run. So, please take note. But when it comes to the income surplus, even though I'm saying this will not come, but if there was any post-acquisition, it's a part of the group. So, when you, after the stated capital, you come for your group income surplus. So, group income surplus, working three, which was still 30,000, because that is what we had. And in this question, there was no non-controlling interest. If there was any non-controlling interest, after the equity, we bring our non-controlling interests and balances. So, now, because there is no non-controlling interest, the total becomes 120,000, and it is done. We have balanced it. So, this is how to go by a consolidated statement of financial position, no matter how small the question is, these four must be done. So, we are done with the first one. And this will bring us to the end of part one of our series. I call this a series because we will not be done now. Okay? So, a series on consolidated statement of financial position. In our next video, we are going to continue by looking at another question or two different questions. One on a partly owned subsidiary on the date of acquisition. Another one will be modified to be post-acquisition date, and still a partly owned subsidiary. Remember to subscribe to this channel, share this video, and let others also have the benefit. Until we meet again for the part two, it says bye for now.