ACCA FR Consolidated Statement of Financial Position: A Worked Example (Goodwill, NCI and Unrealised Profit)

Group accounts appear all over ACCA Financial Reporting (FR). The syllabus asks you to prepare a consolidated statement of financial position for a simple group (a parent with up to two subsidiaries and an associate) with non-controlling interest (NCI) measured at fair value or at the proportionate share of net assets. In the exam, that knowledge is tested two ways: as 2-mark objective test (OT) questions in Sections A and B, and inside the 20-mark constructed response questions in Section C, which ACCA says examine the preparation and interpretation of financial statements for a single entity or a group. FR is a 3-hour exam with a 50% pass mark.

This article works one example in full, using the standard five workings, and then shows how the same numbers come back as exam questions.

The Example

On 1 January 20X5, P acquired 80% of the equity shares of S for $1,200,000 in cash. At that date S's retained earnings were $500,000 and the fair value of the NCI was $260,000. Group policy is to measure NCI at fair value.

At 31 December 20X6 (all figures $000):

P: equity shares 1,000; retained earnings 2,400; investment in S 1,200; other net assets 2,200.
S: equity shares 400; retained earnings 900; net assets 1,300.

Further information:

(1) At acquisition, S's plant had a fair value $100,000 above its carrying amount, with a remaining life of 5 years.
(2) During 20X6, S sold goods to P for $150,000 at cost plus 25%. P still holds one third of them.
(3) Goodwill has been impaired by $60,000 since acquisition.

Working 1: Group Structure

P owns 80%, NCI 20%. S has been a subsidiary for two years at the reporting date.

Working 2: Net Assets of S

Equity shares: 400 at acquisition, 400 at reporting date.
Retained earnings: 500 at acquisition, 900 at reporting date.
Fair value adjustment on plant: 100 at acquisition, 100 at reporting date.
Extra depreciation on the fair value adjustment: nil at acquisition; 100 ÷ 5 × 2 years = (40) at reporting date.
Unrealised profit (PURP): nil at acquisition; (10) at reporting date (see below).
Total: 1,000 at acquisition; 1,350 at reporting date. Post-acquisition movement: 350.

PURP: goods held by P cost $50,000 (one third of $150,000). The mark-up is 25% on cost, so the profit included is 50 × 25/125 = 10. S is the seller, so the adjustment reduces S's profits and therefore affects the NCI. In the statement of financial position, it reduces inventories by 10.

Working 3: Goodwill

Consideration: 1,200
Plus fair value of NCI at acquisition: 260
Less fair value of net assets at acquisition (W2): (1,000)
Goodwill at acquisition: 460
Less impairment: (60)
Goodwill at 31 December 20X6: 400

Working 4: Non-Controlling Interest

Fair value at acquisition: 260
Plus NCI share of post-acquisition movement: 20% × 350 = 70
Less NCI share of goodwill impairment: 20% × 60 = (12)
NCI: 318

Working 5: Group Retained Earnings

P's retained earnings: 2,400
Plus P's share of S's post-acquisition movement: 80% × 350 = 280
Less P's share of goodwill impairment: 80% × 60 = (48)
Group retained earnings: 2,632

The Consolidated Statement of Financial Position

Goodwill: 400
Other net assets: P 2,200 + S 1,300 + fair value adjustment 100 − extra depreciation 40 − PURP 10 = 3,550
Total net assets: 3,950
Equity shares (P only): 1,000
Retained earnings: 2,632
NCI: 318
Total equity: 3,950

It balances. In a real question the net assets are split into lines (property, plant and equipment, inventories, receivables, payables), and you would also cancel any intra-group receivable and payable balances. The principle does not change: add 100% of parent and subsidiary line by line, then make the adjustments.

What Changes Under the Proportionate Method

If NCI is measured at its share of net assets, NCI at acquisition is 20% × 1,000 = 200, and goodwill at acquisition is 1,200 + 200 − 1,000 = 400. The goodwill recognised is the parent's goodwill only, so the whole impairment is charged against group retained earnings and none against NCI. Students often forget this, and it is a favourite distractor.

What If the Parent Had Been the Seller?

The PURP of 10 would come entirely off P's retained earnings, not from S's post-acquisition profits, and NCI would be unaffected. Inventories would still fall by 10. Checking who sold the goods to whom is the first thing to do when you see an intra-group trading note.

How ACCA Tests This in OT Questions

Section A and B questions take one working and test it. Using the numbers above:

Question 1. What is the goodwill at acquisition? Options: A $400,000; B $460,000; C $200,000; D $560,000.
Answer: B. A uses the proportionate method or deducts the impairment; C omits NCI; D uses S's net assets without the fair value adjustment.

Question 2. What is the unrealised profit adjustment? Options: A $12,500; B $10,000; C $30,000; D $37,500.
Answer: B. A applies 25% as a margin; C uses the whole $150,000 at the cost-plus fraction; D applies 25% to the whole transfer.

Question 3. What is the NCI at 31 December 20X6? Options: A $318,000; B $330,000; C $270,000; D $320,000.
Answer: A. B omits the NCI's share of the impairment; C is the proportionate-method figure (200 + 70), which the question's policy does not allow; D ignores the PURP.

Notice that every wrong option is a specific mistake. If your answer is on the list, check it against the common errors before moving on.

How It Appears in Section C

A 20-mark preparation question gives you two statements of financial position and four to six notes like the ones above, plus items from elsewhere in the syllabus (a revaluation, a lease, a loan at amortised cost). Marks are given for each working and each line, so a correct method with an arithmetical slip still scores well. Practical points:

Set out W1 to W5 before you start the statement. They are where most of the marks are.
Deal with each note once, in the working where it belongs, and note which line of the statement it also affects.
If you are stuck on one adjustment, make a sensible assumption and carry on. Leaving the statement unfinished costs more marks than one wrong number.

Practice

Our free ACCA FR question bank includes group accounting questions written in the OT style above. For the wider exam, read our FR exam tips and the common FR OT traps. If consolidation is new, the basics start in ACCA FA. For ten mixed questions a day, try the ACCA daily challenge.

FAQs

How many subsidiaries can an FR consolidation include?
The FR study guide refers to a simple group with up to two subsidiaries and one associate.

Which NCI method should I use?
The one the question states. FR can test either fair value or proportionate share of net assets.

Does unrealised profit always affect NCI?
Only when the subsidiary is the seller.

Is goodwill impairment shared with NCI?
Under the fair value method, yes, in proportion to ownership. Under the proportionate method, no.

What is the FR pass mark?
50%.

Sources

ACCA, Financial Reporting (FR) Syllabus and Study Guide, September 2026 to June 2027 (exam structure, pass mark, group accounting learning outcomes)
ACCA, FR syllabus page
ACCA, FR and SBR Examinable Documents, September 2026 to June 2027