Consolidated Profit and Loss.pptx

1. 1
UNIVERSITY OF ZAMBIA
GRADUATE SCHOOL OF BUSINESS
FINANCIAL REPORTING AND ANALYSIS
CONSOLIDATED STATEMENT OF PROFIT OR
LOSS AND OTHER COMPREHENSIVE INCOME

2. Table of Contents
1. The Consolidated Statement of Profit or Loss
2. The Consolidated Statement of Profit or Loss and other comprehensive
income
3. Disposal
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3. 1.The Consolidated Statement of Profit or Loss
 Lusaka Limited acquired 75% of the ordinary shares of Kafue Limited on
that company’s incorporation in 2013. The summarized statement of Profit
or Loss and movement on retained earnings for the two companies for the
year ending 31st December 2016 are set out below.
 You are required to consolidated statement of profit or loss and extract
from the statement of changes in equity showing retained earnings and
non-controlling interest.
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4. The Consolidated Statement of P/L
Details Lusaka Limited
(K)
Kafue (K)
Revenue 75,000 38,000
Cost of Sales (30,000) (20,000)
Gross Profit 45,000 18,000
Administration expenses (14,000) (8,000)
Profit before tax 31,000 10,000
Income tax expense (10,000) (2,000)
Profit for the year 21,000 8,000
Retained earnings B/F 87,000 17,000
Profit for the year 21,000 8,000
Retained earnings C/F 108,000 25,000
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5. The Consolidated Statement of P/L
Lusaka Limited
Consolidated Statement of Profit or Loss for the year ended 31st December 2016
(K)
Revenue (75+38) 113,000
Cost of sales (30+20) (50,000)
Gross Profit 63,000
Administrative expenses (14+8) (22,000)
Profit before tax 41,000
Income tax expense (10+2) (12,000)
Profit for the year 29,000
Profit to the owners of the company;
= Owners of the parent company (21,000+ 75%X8,000) 27,000
= Non controlling interest (8,000X25%) 2,000
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6. The Consolidated Statement of P/L
Statement of Changes in Equity (Extract) Retained
earning (K)
Non-
controlling
interest (K)
Total
Equity (K)
Balance at 1st January 2016 99,750 4,250 104,000
Total comprehensive income for the year 27,000 2,000 29,000
Balance at 31st December 2016 126,750 6,250 133,000
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7. Consolidation Adjustments to the P/L
 We will now look at the complications introduced by intra-group
trading, intra-group dividends and pre-acquisition profits in the
subsidiary.
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8. Intra-group trading
 Suppose in the example above Kafue Limited had sold K5,000 to Lusaka
Limited during the year 2016. Kafue Limited had purchased these goods
from outside supplier at a cost of K3,000. One half of the goods remained
in Lusaka Limited inventory as at 31st December, 2016. Prepare the
revised consolidated statement of profit or loss.
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9. Intra-group trading
K
Revenue (75+38-5) 108,000
Cost of sales (30+20-5+1) (46,000)
Gross Profit (45+18-1) 62,000
Administrative expenses (14+8) (22,000)
Profit before tax 40,000
Income tax expense (10+2) (12,000)
Profit for the year 28,000
Profit attributed to;
Owners of the parent (21,000+5,250 26,250
Non Controlling interest (8,000-1,000)x25% 1,750
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10. Intra-group dividends
Group retained earnings are only adjusted for dividends paid to the parent
company shareholders. Dividends paid by the subsidiary to the parent are
cancelled on consolidation and dividends paid to the non-controlling interest
are replaced by the allocation to the NCI of their share of the profit for the
year of the subsidiary.
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11. Pre-acquisition profits
Only the post acquisition profits of the subsidiary are brought into the
consolidated profit or loss.
Retained earnings in the consolidated statement of financial position
comprise the following;
 The whole of the parents company retained earnings
 A proportion of the subsidiary company earnings. From the total retained
earnings of the subsidiary we must therefore exclude both the non-
controlling share of total retained earnings and the group share of pre-
acquisition retained earnings.
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12. Example
Ndola Limited acquired 60% of the K100,000 equity of Kitwe Limited on 1st
April, 2015. The statements of profits or loss of the two companies for the
year ended 31st December 2015 are se out below and therefore you are
required to prepare the consolidated statement of profit or loss, the
retained earnings and non controlling interest extracts from the statement
of changes in equity.
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13. Pre-acquisition profits
Ndola Limited Kitwe Limited (3/12) (K) Kitwe Limited (9/12) (K)
Revenue 170,000 80,000 60,000
Cost of sales (65,000) (36,000) (27,000)
Gross profit 105,000 44,000 33,000
Other income-Dividend Received 3,600 - -
Administrative expenses (43,000) (12,000) (9,000)
Profit before tax 65,600 32,000 24,000
Income tax expense (23,000) (8,000) (6,000)
Profit for the year 42,600 24,000 18,000
Dividends (paid on 31st December) (12,000) (6,000)
Profit retained 30,600 18,000
Retained earning brought forward 81,000 40,000
Retained earning carried forward 111,600 58,000
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14. Pre-acquisition profits
The shares in Kitwe were acquired three months into the year. Only the post acquisition
proportion (9/12) of Kitwe Limited statement of profit and loss is included in the
consolidated statement of profit or loss.
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15. Pre-acquisition profits
Ndola Limited Consolidate P/ for the year ended 31st December 2015 K
Revenue (170+60) 230,000
Cost of sales (65+27) (92,000)
Gross profit 138,000
Administrative expenses (43+9) (52,000)
Profit before tax 86,000
Income tax expense (23+6) (29,000)
Profit for the year 57,000
Profit attributed to the
= Owners of the parent company(42,600 + 7,200) 49,800
Non Controlling Interest (40% 18,000) 7,200
57,000
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16. Pre-acquisition profits
Statement of changes in Equity Retained
Earnings
Non Controlling
Interest
Total
Balance as at 1st January 2015 81,000 -0 81,000
Add Profit for the year (42,600+7,200) 49,800 7,200
Less dividend paid (12,000) (2,400) (14,400)
Added on acquisition of subsidiary 58,400
Retained earnings carried forward 118,800 63,200
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17. Example,,,,
 The following information relates to Gold Limited and its subsidiary Diamond Limited for
the year to 30th April, 2017.
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Gold Limited (K) Diamond Ltd (K)
Revenue 1,100 500
Cost of sales (630) (300)
Gross profit 470 200
Administrative expenses (105) (150)
Dividend from Diamond 24 0
Profit before tax 389 50
Income tax expense (65) (10)
Profit for the year 324 40

18. Example,,,,Note
Gold Limited (K) Diamond Ltd (K)
Dividends paid 200 30
Profit retained 124 10
Retained earnings b/f 460 48
Retained earnings c/f 584 58
Additional information
(a) The issued share capital of the group was as follows;
-Gold Limited: 5,000 ordinary shares K1 each
- Diamond Ltd: 1,000 ordinary shares K1 each
(b) Gold limited bought 80% of the issued share capital of
diamond Limited on 1st November 2016. At that time, the
retained earnings of Diamond stood at K52,000
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19. Solution = Consolidated balance sheet
Gold Group Limited
Consolidated Statement of Profit or Loss for year to 30th April, 2017
K
Revenue (1,100+ (500x6/12)) 1,350
Cost of sales (630 + (300x6/12) (780)
Gross profit 570
Administrative expenses (105+(150X6/12) (180)
Profit before tax 390
Income tax expense (65+ (10X6/12) (70)
Profit for the year 320
Profit attributable to;
=Owners of the parent 316
=Non controlling interest 4
320
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20. Solution –changes in equity
Gold Limited
Statement of changes in equity
Retained
earnings (K)
Non-Controlling
interest (K)
Balance brought forward 1st May 2016 460 0
Total comprehensive income for the year 316 4
Added on acquisition of subsidiary 0 210
Dividend paid (200) (6)
Balance carried forward 30th April, 2017 576 208
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21. Consolidated statement of profit or loss and other
comprehensive income
 The consolidated statement of profit or loss and other comprehensive
income is produced using the consolidated statement of profit or loss as a
basis.
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22. Consolidated statement of profit or loss and other comprehensive
income
 The consolidated statement of profit or loss of Broadway Group is as
presented above. In addition to that, its subsidiary has made K200,000
revaluation gain on one of its properties during the financial year. You are
required to prepare the CSPL&CI.
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23. Consolidated statement of profit or loss and other comprehensive income
Broad way Limited
Consolidated Statement of Profit or Loss and other comprehensive income for the year to
31st December 2019
K
Revenue 1,350
Cost of sales (780)
Gross Profit 570
Administrative expenses (180)
Profit before tax 390
Income tax expense (70)
Profit for the year 320
Other comprehensive income
-Gain on property revaluations 200
Total comprehensive income for the year 520
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24. Consolidated statement of profit or loss and other comprehensive income
Broad way Limited
Consolidated Statement of Profit or Loss and other comprehensive income
for the year to 31st December 2019
Profit attributable to: K
Owners of the parent 316
Non –Controlling interest 4
Total comprehensive income attributable to;
Owners of the parent (316+ (200x80%)) 476
Non –Controlling interest (4+(200x20%)) 44
520
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25. Disposals
 The consolidated Statement of profit and loss will include the results of
subsidiaries up to the date of disposal.
 The group profit or loss on disposal is the difference between the sale
proceeds and the group investment in the subsidiary.
 Group financial statement will have the Statement of profit or loss and
other comprehensive income but there will be no Group Consolidated
statement of financial position.
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26. The End
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