CONSOLIDATED FINANCIAL

STATEMENTS
(PART 5)
By
Dr Mazni Abdullah, CA (M), CFiA (M), MMIM, PhD (Stirling), MBA (Malaya), BAcc
(Malaya)

COMPLEX GROUP STRUCTURES

1) Multiple Direct Subsidiaries (Fellow
Subsidiaries)

Apply the same consolidation principle / adjustment

technique.
For each acquisition of subsidiary, the goodwill is
measured.
Goodwill, NCI and post acquisition reserves of each
subsidiary are combined in the consolidated accounts.

COMPLEX GROUP STRUCTURES

2) Indirect Subsidiaries
Parent company obtains control in a subsidiary via
indirect interest i.e. via shares held by its other
subsidiary/ies in the group.
Papa Bhd

75%
Direct SubsidiaryAchik Bhd

60%
Indirect SubsidiaryBusu Bhd

45% (indirect interest)

COMPLEX GROUP STRUCTURES

Indirect Subsidiaries

Achik Bhd

Busu Bhd

Parent interest:
Direct

75%

Indirect 75% x 60%

45%

Non-controlling interest (NCI):

Direct

25%

Indirect 25% x 60%

40%

15%
100%

100%

Consolidation Techniques for Indirect

Subsidiaries
Follow the same consolidation principles.
Two methods to consolidate the group accounts:
1) Stage by stage (multiple stage) consolidation
method/ consolidation of consolidation method/
two-stage consolidation
2) One stage (short cut technique) consolidation
method/ indirect interest method/ one-stage
consolidation

Consolidation Techniques for Indirect

Subsidiaries
1) Consolidation of consolidation method
Series of consolidation- starting with the most junior
subsidiary/ lowest tier of the vertical group structure
Refer to previous diagram
First- consolidate financial statements of Busu Bhd
with Achik Bhd to obtain the Consolidated Financial
Statements of Achik Bhd
Next-consolidate the consolidated Financial
Statements of Achik Bhd with the Financial Statements
of Papa Bhd

Consolidation Techniques for Indirect

Subsidiaries
2) Indirect interest method
Only one consolidation process involves covering all
entities in the group.
Use actual holding % and effective shareholding %.
Share capital & pre-acquisition retained profit of the
sub-subsidiary (grandson) are apportioned to the
Group and NCI based on actual shareholding %.
Post-acquisition retained profit of the sub-subsidiary
(grandson) is apportioned to the Group & NCI based
on effective shareholding %.

Consolidation Techniques for Indirect

Subsidiaries
2) Indirect interest method
Share Capital & Pre-acquisition Retained Profit of
Busu Bhd [ actual shareholding %]

60%
GROUP

40%
NCI

Consolidation Techniques for Indirect

Subsidiaries
2) Indirect interest method
Post-acquisition Retained Profit of Busu Bhd
[ effective shareholding %]

45%
GROUP

(75% x 60%)

55%
NCI

(40% +[25% x 60%])

Consolidation Techniques for Indirect

Subsidiaries
Example 5.1 NEJ

The 31 December 20x8 balance sheets of 3 companies in a

group are as follows:
A Bhd
RM000

B Bhd
RM000

C Bhd
RM000

Share Capital

100

60

50

Retained profit

45

51

25

145

111

75

45,000 shares in B Bhd

70

30,000 shares in C Bhd

36

75

75

75

145

111

75

Investment :

Other net assets

Consolidation Techniques for Indirect

Subsidiaries

The share capital of A Bhd, B Bhd, and C Bhd comprises

100,000 shares, 60,000 shares, and 50,000 shares
respectively.
The shareholdings were acquired on 1 January 20x1, when B
Bhd retained profit were RM20,000 and C Bhd retained profit
were RM10,000.

Required:

Prepare the consolidated balance sheet of A Bhd and its

subsidiaries as at 31 December 20x8.

75%

60%

Consolidation of Consolidation Method

1. Consolidate B Bhd & C Bhd (Immediate Group)
2. Determine the Goodwill amount
RM000
Total consideration

36

NCI (40% x 60)

24
60

FV of net assets acquired:

Share capital

50

Retained Profit

10

GOODWILL

60
-

Consolidation of Consolidation Method

(1) B Bhd + C Bhd (Immediate Group)
a)

CJE

000

Dr Share Capital (C) (60% x 50)

30

Dr Retained profit (C) (60% x 10)

Cr

Investment in C Bhd

000

36

( to eliminate investment account)

b)

Dr Retained profit (C) (60% x [25-10])

Cr Retained profit (B)

(to transfer post-acquisition retained profit)

c)

Dr Share Capital (C) (40% x 50)

20

Dr Retained profit (C) (40% x 25)

10

Cr NCI

(to record NCI)

30

Consolidation of Consolidation Method

(2) A Bhd + (B Bhd + C Bhd) / (Ultimate Group +Immediate
Group)
Goodwill computation

000

Total consideration

70

NCI (25% x 80)

20
90

FV of net assets acquired:

Share Capital

60

Retained profit

20

GOODWILL

80
10

Consolidation of Consolidation Method

d)

CJE

000

Dr Share Capital (B) (75% x 60)

45

Dr Retained profit (B) (75% x 20)

15

Dr Goodwill

10

Cr

Investment in B Bhd

000

70

( to eliminate investment account)

e)

Dr Retained profit (B) (75% x [51-20+9])

30

Cr Retained profit (A)

30

(to transfer post-acquisition retained profit)

f)

Dr Share Capital (B) (25% x 60)

15

Dr Retained profit (B) (25%x [51+9])

15

Cr NCI
(to record NCI)

30

Consolidation worksheet
A Bhd

B Bhd

C Bhd

dr

cr

GROUP

Goodwill

d) 10

Inv in B

70

d) 70

Inv in C

36

a) 36

Other assets

75

75

75

Share Capital

100

60

50

10

225
a) 30

100

c) 20

d) 45
f) 15

Retained profit

45

51

25

a) 6
b) 9

b) 9

d) 15
e) 30

e) 30

f) 15

NCI

c) 30

f) 30

60

Consolidation of Consolidation Method

A Bhd and its subsidiaries consolidated balance sheet as at
31 December 20x8
RM 000
Goodwill on consolidation

Other net assets

10

225
235

Share capital

100

Retained profit

75

Non-controlling interest

60
235

Indirect Interest Method

B Bhd
RM000

C Bhd
RM000

75%

45%

GROUP
Direct
Indirect

(75% x 60%)

Non-controlling interest (NCI)

Direct
Indirect

25%

40%

15%
(25% x 60%)

Indirect Interest Method

a)

CJE

000

Dr Share capital (B) (75% x 60)

45

Dr Share capital (C) (60% x 50)

30

Dr Retained profit (B) (75% x 20)

20

Dr Retained profit (C) (60% x 10)

Dr Goodwill on consolidation

10

000

Cr Investment in B Bhd

70

Cr Investment in C Bhd

36

( to eliminate investment accounts)

b)

Dr Retained profit (B) (75% x [51-20])

23.25

Dr Retained profit (C) (45% x [25-10])

6.75

Cr Retained profit (A)

(to transfer post-acquisition retained profit)

30

Indirect Interest Method

000
c)

Dr Share capital (B) (25% x 60)

15

Dr Share capital (C) (40% x 50)

20

Dr Retained profit (B) (25% x 51)

12.75

Dr Retained profit (C) (40% x 10)

Dr Retained profit (C) (55% x [25-10])

8.25

Cr NCI
( to record NCI)

000

60

Consolidation worksheet
A Bhd

B Bhd

C Bhd

dr

cr

GROUP

Goodwill

a) 10

Inv in B

70

a) 70

Inv in C

36

a) 36

Other assets

75

75

75

Share Capital

100

60

50

10

225
a) 45

100

a) 30

c) 15
c) 20

Retained profit

45

51

25

a) 15

b) 30

75

c) 60

60

a) 6

b) 23.25
b) 6.75
c) 12.75
c) 4 ; 8.25

NCI

Indirect Interest Method

A Bhd and its subsidiaries consolidated balance sheet as at
31 December 20x8
RM 000
Goodwill on consolidation

Other net assets

10

225
235

Share capital

100

Retained profit

75

Non-controlling interest

60
235

Other group structure connecting affiliation

structure
Diagram 1

Diagram 2

B
70%

80%

60%

20%
10%

80%

Effective Acquisition Date in Indirect

Subsidiaries
1) The effective acquisition date of the indirect subsidiary
is the date in which the Parent acquires the direct
subsidiary (this situation applies when the direct
subsidiary acquired the indirect subsidiary on an
earlier date).
2) The effective acquisition date of the indirect subsidiary
is the date in which the direct subsidiary acquires the
indirect subsidiary (this situation applies when the
indirect subsidiary was acquired on a date later than
the acquisition date of the direct subsidiary by the
ultimate Parent).

Effective Acquisition Date in Indirect

Subsidiaries
Ultimate Parent P
Bhd

Ultimate Parent P
Bhd

Acquisition date: 1 Jan 2010

Acquisition date: 1 Jan 2007
Direct Subsidiary- A Bhd
Direct Subsidiary- A Bhd

Acquisition date: 1 Jan 2005

Acquisition date: 1 Jan 2012
Indirect Subsidiary- B Bhd

Deemed acquisition date B

Bhd by the Ultimate
Parent- P Bhd
= 1 Jan 2010.

Indirect Subsidiary B Bhd

Deemed acquisition date B Bhd

by the Ultimate Parent P Bhd
= 1 Jan 2012

Acquisition of subsidiary during the

accounting period
Pre-acquisition profit/loss of subsidiary should not be
combined with the profit/loss of the parent
Two approaches to exclude the pre-acquisition profit/loss
of the subsidiary acquired during the year from the
consolidated statement of comprehensive income.
1. Whole year approach the profit/loss of the
subsidiary for the whole accounting period is included in
the consolidated statement of comprehensive income
and will deduct later the pre-acquisition profit/loss .
2. Part-of the year approach to include only the postacquisition profit/loss of the subsidiary in the
consolidated statement of comprehensive income.

Acquisition of subsidiary during the accounting period

Example 4.15 NEJ(2013)

A Bhd acquires 90% interest in B Bhd on 31 March 20x8. The

summarised statement of comprehensive income of B Bhd for the
year ended 31 Dec 20x8 as follows:
Assume that revenue & expenses of B Bhd accrue evenly throughout
the year.
RM000
Revenue

360

Expenses

240

Profit before tax

120

Tax

40

Profit after tax

80

Other comprehensive income

Total comprehensive income

80

Acquisition of subsidiary during the accounting period

B Bhds operation results may be included in the consolidated
statement of comprehensive income for the year ended 31 Dec 20x8
as follows:
(1) Whole-year approach

RM000

Revenue

360

Expenses

240

Profit before tax

120

Tax

40

Profit after tax

80

Pre-acquisition profit

20 (3/12 x 80)

Profit for the year

60

Other comprehensive income

Total comprehensive income

60

Acquisition of subsidiary during the accounting period

B Bhds operation results may be included in the consolidated
statement of comprehensive income for the year ended 31 Dec 20x8
as follows:
(1) Part of the year approach

RM000

Revenue

270 (9/12 x 360)

Expenses

180 (9/12 x 240)

Profit before tax

90

Tax

30 (9/12 x 40)

Profit after tax

60

Other comprehensive income

Total comprehensive income

60

Subsidiary Reporting Losses

The full loss of a subsidiary shall be included in
the consolidated income statement.
The NCI in that subsidiary is allocated with its
share of the loss
In the accounts of Parent (separate account), the
investment in the subsidiary shall be written
down to recognise impairment losses (MFRS
136).
Refer Example 4.17 & 4.18 in NEJ

Subsidiary with preference share capital

Preference shares no voting power; not determine the
control status
Issues: apportionment of Income & Net Assets
Participative/ non-participative preference shares
Cumulative/non-cumulative preference shares
Redeemable/ not redeemable preference shares

If the preference shares of subsidiary are partly held by the

parent and partly held by the outsiders:
Eliminate the portion of the subsidiarys preference shares held by the
parent
The difference between the cost of acquisition & the redemption value
of the shares will be recorded as a charge / a credit to the group
reserves.
The income & net assets attributable to the preference shares held by
the outsiders should be accounted as part of NCI in the consolidated
financial statements.
Refer Example 4.19 NEJ

Subsidiary with bonds

No consolidation issue arises if the bonds entirely held by a 3rd party.
The bond is presented as liability.
1. Parent held the bonds either partly/wholly the intercompany
indebtedness & the related income/expense should be eliminated.
2. Parent acquires the bonds directly from the subsidiary on the date
of issue the book value of the bonds investment in the parents
book will be proportionately equal to the book value of the bonds in
the subsidiarys book.
3. Parent acquires the bonds from the 3rd party:

The purchase cost may not be proportionately equal to the book value of
the bonds. The difference will be accounted as gain/loss on early
extinguishing of bonds in the consolidated financial statements.

Reverse Acquisition
The acquirer is the entity whose equity interests have
been acquired & the issuing entity is the acquiree.
Normally happens when a large non-listed company
(private company) arranges to have itself acquired by a
small public listed company as a means of obtaining
stock exchange listing (known as back-door listing).
In substance- the large non listed company is the
acquirer because ultimately its shareholders gain control
over the the combining entities.
MFRS 3- Business Combination :
small public listed company (legal acquirer/ parent)
Non-listed company (legal acquiree/ subsidiary)

Major consolidation problem determination of the cost

of acquisition.