Consolidated Statement of Financial
Position (SOFP) - Final Exam Notes
1. Concept of Consolidation
Consolidation involves combining the Parent (P) and Subsidiary (S) financial statements line
by line, with necessary adjustments to ensure accurate reporting.
Key Adjustments:
1. Goodwill / Negative Goodwill
2. Non-Controlling Interest (NCI)
3. Intercompany Transactions Eliminations
4. Unrealized Profit (URP) Adjustments
5. Fair Value Adjustments
6. Intangible Assets & Contingent Liabilities
7. Deferred Tax Adjustments
8. Dividends Adjustments
9. Group Accounting Policies
2. Goodwill / Bargain Purchase (IFRS 3)
Formula:
If Goodwill is positive → Shown as a Non-Current Asset.
If Goodwill is negative → Recognized as a Gain in Parent’s Retained Earnings
(RE).
Impairment of Goodwill tested annually under IAS 36 and deducted from SOFP.
3. Non-Controlling Interest (NCI) - IFRS 10
Two Methods of Valuation:
1. Fair Value Method:
2. Proportionate Share Method:
NCI is shown in the Equity Section of SOFP.
4. Post-Acquisition Profits & Reserves
Parent’s share of S’s post-acquisition profits → Added to Group RE.
Other reserves (e.g., Revaluation Reserve) → Added to Group Reserves.
5. Intercompany Transactions & Eliminations
Loans, Receivables, and Payables → Eliminated.
Cash in Transit / Goods in Transit → Adjusted before elimination.
Memorandum Entry for Elimination:
o Dr. Payable (Intercompany)
o Cr. Receivable (Intercompany)
6. Unrealized Profits (URP) - Inventory & Non-Current
Assets
Inventory URP:
Deduct URP from:
o Inventory in Group SOFP
o Retained Earnings (P’s RE if P→S, S’s RE & NCI if S→P)
Non-Current Asset URP:
Deduct URP from:
o Asset Value in SOFP
o Retained Earnings (P’s RE if P→S, S’s RE & NCI if S→P)
7. Fair Value Adjustments
IFRS 3 requires S’s assets & liabilities to be recorded at fair value at acquisition.
Additional depreciation charged if fair value relates to depreciable assets.
Adjustments:
o Increase in FV → Add to Asset & Goodwill Calculation
o Decrease in FV → Deduct from Asset & Goodwill Calculation
8. Intangible Assets & Contingent Liabilities
IFRS 3 allows recognition of Intangibles (e.g., Brands, Customer Relationships) in
Group SOFP.
Contingent Liabilities recognized if a present obligation exists.
9. Deferred Tax Adjustments
Deferred tax is calculated for fair value adjustments & consolidation entries.
Adjustments:
o DTA/DTL added to Group SOFP
o Deferred Tax impact charged in Group RE
10. Dividend Adjustments
Pre-Acquisition Dividend → Deduct from Goodwill.
Post-Acquisition Dividend:
o Parent’s share added to Parent’s RE
o Total Dividend Deducted from S’s Post-Acquisition RE
11. Group Accounting Policies
Adjustments made if S follows different accounting policies (e.g., Inventory, PPE
Valuation).
Convert S’s figures to align with Group policies.
12. Final SOFP Format (Key Adjustments)
Non-Current Assets:
1. PPE = (P’s + S’s + FV Adj. – Extra Depreciation – URP + Revaluation Adjustments)
2. Intangible Assets = (P’s + S’s + Recognized Intangibles at Acquisition)
3. Goodwill = (Consideration + NCI – S Net Assets at Acquisition)
4. Investments = (P’s + S’s – P’s Investment in S Eliminated)
Current Assets:
1. Inventory = (P’s + S’s – URP + Goods in Transit)
2. Receivables = (P’s + S’s – Intercompany Eliminations)
3. Cash/Bank = (P’s + S’s + Cash in Transit)
Equity:
1. Share Capital = P’s (including unrecorded share exchange)
2. Share Premium = P’s + Unrecorded Share Premium
3. Retained Earnings = (P’s + Adjusted S’s RE – Consolidation Adjustments)
4. NCI = (Fair Value/Proportionate Share + Post-Acquisition Share in Reserves)
Liabilities:
1. Loan Notes = (P’s + S’s – Intercompany)
2. Deferred Tax = (P’s + S’s + Consolidation Adjustments)
3. Payables = (P’s + S’s – Intercompany)
4. Dividends Payable = (P’s + S’s – Intercompany)
Final Exam Tips:
✅ Always start with goodwill calculation before adjusting NCI, profits, and reserves. ✅
Identify intercompany transactions early to avoid missing eliminations. ✅ Check for fair
value adjustments and depreciation impact on SOFP. ✅ Use proper formats & stepwise
calculations for full marks.
These notes are exam-ready! 📚✅ If you need any further details or explanations, let me
know!
