How to approach it
- Time-apportion the subsidiary from the acquisition date and the associate from its acquisition date.
- Consideration workings: cash now, deferred cash at present value (unwind interest into finance cost), shares at acquisition-date price. Acquisition costs are expensed.
- Fair value adjustments: extra depreciation; on disposal, the group gain or loss uses the group carrying amount.
- Eliminate intra-group sales and cost of sales, unrealised profit in closing inventory, intra-group interest.
- Goodwill impairment to expenses; share of associate's profit after its own adjustments; split profit between owners and NCI.
Key rules to apply
- IFRS 3: consideration at acquisition-date fair value; acquisition-related costs expensed.
- Unrealised profit: if the subsidiary sold, the adjustment reduces NCI's share too.
- Under the proportionate NCI method, goodwill impairment is borne by the parent only.
- IAS 28: equity-account the associate from the date significant influence starts.
Answer layout
| Consolidated SOPL | Parent | Sub (× months) | Adjustments | Group |
|---|---|---|---|---|
| Revenue | ||||
| Cost of sales | ||||
| Operating expenses | ||||
| Finance cost | ||||
| Share of associate | ||||
| Attributable to owners / NCI |
Common mistakes
Drawn from the examiners' comments for this sitting (summarised in our words) and from typical errors on this topic.
- Not expensing the acquisition costs taken out of the investment (examiners' point).
- Keeping the subsidiary's own gain on selling revalued assets.
- Deducting unrealised profit from cost of sales instead of adding it; no unwinding of deferred consideration.
- Full-year associate profit; NCI on unadjusted profit.
Similar question with worked solution
Written by us with our own numbers; it tests the same skills as Q8 without copying it.
Original practice question
Mid-year acquisition SOPL
P buys 80% of S on 1 April 2025. Full-year figures (Rs m): P revenue 900, cost of sales 560, operating expenses 150, other income 30, finance cost 40; S revenue 480, cost of sales 300, operating expenses 80, finance cost 20. Consideration includes Rs 121m payable on 31 March 2027 (PV at 10%: Rs 100m); acquisition costs of Rs 6m were capitalised in P's investment. S's plant was Rs 36m above book value with 3 years left (depreciation in cost of sales). After acquisition S sold P goods for Rs 90m at a 25% mark-up; 40% are in P's closing inventory. Goodwill is impaired by Rs 10m. NCI is measured at its share of net assets.
Required: Prepare the consolidated statement of profit or loss.
Worked solution
| Rs m | Group |
|---|---|
| Revenue: 900 + 480 × 9/12 − 90 | 1,170.0 |
| Cost of sales: 560 + 225 − 90 + PURP 7.2 + extra dep. 9 | (711.2) |
| Gross profit | 458.8 |
| Operating expenses: 150 + 60 + 6 + 10 | (226.0) |
| Other income | 30.0 |
| Finance cost: 40 + 15 + unwinding 100 × 10% × 9/12 | (62.5) |
| Profit for the year | 200.3 |
| NCI: (60 − 9 − 7.2) × 20% | 8.76 |
| Owners of P | 191.54 |
PURP = 90 × 25/125 × 40% = 7.2.
Answer: Group profit Rs 200.3m: Rs 191.54m to owners, Rs 8.76m to NCI.