Consolidated financial statement

A consolidated financial statement (CFS) is the "financial statement of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent company and its subsidiaries are presented as those of a single economic entity" (IFRS 10 Appendix A), according to the definitions stated in International Accounting Standard 27, "Consolidated and separate financial statements" (IAS 27.4), and International Financial Reporting Standard 10, "Consolidated financial statements" (IFRS 10.2).[1][2][3]

According to IAS 1.10, a complete set of consolidated financial statements comprises  

1. a consolidated statement of financial position as at the end of the period (IAS 1.10(a)), 
2. a consolidated statement of profit or loss and other comprehensive income (IAS 1.10(b)), 
3. a consolidated statement of changes in equity (IAS 1.10(c)), 
4. a consolidated statement of cash flows (IAS 1.10(d)),
5. notes, comprising significant accounting policies and other explanatory information (IAS 1.10(e)),[4] and 
6. a operating segments report[5][6]

Consolidated accounts are prepared after the accounts for the constituent companies have been prepared.[7] While preparing a consolidated financial statement, there are two basic procedures that need to be followed: first, cancelling out all the items that are accounted as an asset in one company and a liability in another, and then adding together all uncancelled items (IFRS 10.B86).[8]

There are two main type of items that cancel each other out from the consolidated statement of financial position.

• "Investment in subsidiary companies" which is treated as an asset in the parent company will be cancelled out by "share capital" account in subsidiary's statement (IFRS 3.10). Only the parent company's "share capital" account will be included in the consolidated statement (IFRS 10.B92).[9]
• If trading between different companies in one group takes place, then the payables of one company will be cancelled out by the receivables of another company (IFRS 10.B86(c)).[10]

In the United Kingdom, section 399 of the Companies Act 2006 requires parent company directors to prepare group accounts unless an exemption applies (UK Companies Act 2006 s.399).[11] Small groups are exempt, where total net assets are below £5.1m, annual turnover is less than £10.2m, or the average number of employees is below 50 (UK Companies Act 2006 s.398).[12] Two of these three conditions must be met.[13] For entities not following IFRS, these requirements are further detailed in the Financial Reporting Standard applicable in the UK and Republic of Ireland (UK GAAP FRS 102 Section 9).

For listed companies, section 403 of the Companies Act 2006 mandates the preparation of group accounts in accordance with UK-adopted international accounting standards (UK Companies Act 2006 s.403).[14] Following the UK's exit from the European Union, these accounts must comply with standards endorsed by the UK Endorsement Board (UKEB) for financial years beginning on or after 1 January 2021 (SI 2019/685).[15] The primary legislative driver for consolidation under this framework is IFRS 10, which replaces ownership-based definitions with a single "control" model (IFRS 10 Appendix A).[16] Control is established when a parent possesses power over an investee, exposure to variable returns, and the ability to influence those returns through its power (IFRS 10.7).[17] Once a company elects to prepare IFRS group accounts, section 403(4) requires continued use of this framework unless a relevant change in circumstances occurs (UK Companies Act 2006 s.403(4)).[18]

Goodwill is treated as an intangible asset (IAS 38.8) in the consolidated statement of financial position.[19] It arises in cases where the cost of purchase of shares is not equal to their par value (IFRS 3.32).[20] For example, if a company buys shares of another company worth $40,000 for $60,000, there is a goodwill worth $20,000.

According to IFRS 3.32, goodwill is determined by measuring the difference between the aggregate of the consideration transferred and the net of the acquisition-date amounts of the identifiable assets acquired.[21]

Goodwill Computation (IFRS 3 Paragraphs 37-40)

Component	IFRS Reference	Value/Adjustment
Fair value of consideration transferred	IFRS 3.37-38	+
Fair value of non-controlling interest (NCI)	IFRS 3.19	+
Less: Ordinary share capital of subsidiary	IFRS 3.10	(–)
Less: Share premium of subsidiary	IFRS 3.10	(–)
Less: Retained earnings at acquisition date	IFRS 3.B64(i)	(–)
Less: Fair value adjustments at acquisition	IFRS 3.18	(–)
NET GOODWILL	IFRS 3.32	= Total

• IFRS 3.37: States that the consideration transferred in a business combination shall be measured at fair value.
• IFRS 3.19: Provides the choice to measure NCI either at fair value ("Full Goodwill method") or at the NCI's proportionate share of the acquiree’s identifiable net assets.[22]
• IFRS 3.34: Notes that if the calculation results in a negative amount, it is recognized as a "gain on a bargain purchase" in profit or loss.[23]

If the parent company does not own 100% of the shares of a subsidiary, a proportion of the net assets is attributable to external shareholders. This is defined by IFRS 10 Appendix A as equity in a subsidiary not attributable, directly or indirectly, to a parent.[24]

The measurement of NCI at the date of acquisition is governed by IFRS 3.19, allowing either fair value (Full Goodwill) or a proportionate share of the acquiree's identifiable net assets.[25] Post-acquisition, the value of the non-controlling interest must be updated to reflect its share of the subsidiary's comprehensive income, as required by IFRS 10.B94.[26]

The carrying amount of NCI at the reporting date is determined as (IFRS 10.B94):

N C I Balance = N C I Acq + ( % N C I × Δ R E post ) {\displaystyle NCI_{\text{Balance}}=NCI_{\text{Acq}}+(\%NCI\times \Delta RE_{\text{post}})}

Where:

• N C I Acq {\displaystyle NCI_{\text{Acq}}} = Initial value at acquisition date (per IFRS 3.19).
• NCI % {\displaystyle {\text{NCI}}\%} = The percentage of equity held by minority shareholders.
• Δ R E post {\displaystyle \Delta RE_{\text{post}}} = The increase or decrease in the subsidiary's retained earnings since the acquisition date.

Note on Loss Allocation: According to IFRS 10.B94, the NCI % {\displaystyle {\text{NCI}}\%} is applied to profits and losses even if this results in the non-controlling interest having a deficit balance.[27]

NCI Calculation (IFRS 3.19 & IFRS 10.B94)

Component	IFRS Reference	Value
Fair value of NCI at acquisition date	IFRS 3.19	+
Plus: NCI's share of post-acquisition retained earnings	IFRS 10.B94	+
Plus: NCI's share of other post-acquisition reserves	IFRS 10.B94	+
Total NCI in Consolidated Statement	IFRS 10.B94	= Total

A group may engage in internal trade relations.[28] However, IFRS 10.B86(c) requires the full elimination of intragroup assets, liabilities, equity, income, expenses, and cash flows relating to transactions between entities of the group.[29]

Where goods remain in the inventory of the buying company at the reporting date, the group must eliminate unrealised profit (PURP) (IFRS 10.B86(c)). This ensures the inventory is stated at the original cost to the group as per IAS 2 (IAS 2.9).[30]

The Provision for Unrealised Profit (PURP) is calculated as:

PURP = Intercompany Profit × Unsold Inventory Total Intercompany Sales {\displaystyle {\text{PURP}}={\text{Intercompany Profit}}\times {\frac {\text{Unsold Inventory}}{\text{Total Intercompany Sales}}}}

Key Compliance Note: According to KPMG's Insights into IFRS, the elimination of these profits is necessary even if the transaction was conducted at arm's length, because the group cannot "earn" profit by trading with itself (IFRS 10.B86).[31]

The fundamental difference lies in the perspective: the separate financial statement (Einzelabschluss) follows the principle of legal separation (IAS 27.6), while the consolidated financial statement (Konzernabschluss) follows the principle of the economic entity (IFRS 10.B86).[32]

Key Differences between Separate and Consolidated Statements

Feature	Separate Financial Statement (Parent)	Consolidated Financial Statement (Group)
Perspective	Legal (What belongs to Company X?) (IAS 27.4)[33]	Economic (What belongs to the Group?) (IFRS 10.B86)[34]
Investments	Presented only as line items (at historical acquisition cost) (IAS 27.10).[35]	"Broken open"; the actual assets (machinery, inventory) of the subsidiary are shown (IFRS 10.B87).[36]
Profits	Displays profits from sales to subsidiaries (Internal profits).[37]	Eliminates internal profits. Only sales to external third-party customers are counted (IFRS 10.B86).[38]
Liabilities	Shows only the liabilities of the parent company.[39]	Shows the total indebtedness of all group companies toward banks and third parties (IFRS 10.B86).[40]

While the separate financial statement is primarily used for taxation and determining dividend distributions, the consolidated financial statement serves as a superior information tool because it:

• Eliminates "paper profits": It prevents the group from appearing more profitable by simply "selling" items between subsidiaries (IFRS 10.B86).[41]
• Reveals hidden risks: It provides a transparent view of the group's total debt (IFRS 10.B86).[42]
• Reflects operational reality: It shows whether the group's wealth is actually growing through external trade rather than internal asset shifts (IFRS 10.2).[43]

This synthetic example, based on the IFRS Accounting Taxonomy 2024, demonstrates the presentation of consolidated and separate numbers in a single statement using detailed XBRL tagging.[44]

XYZ Group – Statement of financial position as at 31 December 20X7 (in thousands of currency units)

Assets	31 Dec 20X7		31 Dec 20X6
	Group	Parent	Group	Parent
Non-current assets
Property, plant and equipment	350,700	120,000	360,020	135,000
Goodwill	80,800	—	91,200	—
Other intangible assets	227,470	50,000	227,470	50,000
Investments in subsidiaries	—	250,000	—	250,000
Investments in associates	100,150	80,000	110,770	80,000
Investments in equity instruments	142,500	110,000	156,000	110,000
Total non-current assets	901,620	610,000	945,460	625,000
Current assets
Inventories	135,230	40,000	132,500	38,000
Trade receivables	91,600	65,000	110,800	70,000
Other current assets	25,650	15,000	12,540	10,000
Cash and cash equivalents	312,400	150,000	322,900	160,000
Total current assets	564,880	270,000	578,740	278,000
Total assets	1,466,500	880,000	1,524,200	903,000
Equity and liabilities	Group	Parent	Group	Parent
Equity
Share capital	650,000	650,000	600,000	600,000
Retained earnings	243,500	161,400	161,700	150,300
Other components of equity	10,200	5,000	21,200	10,000
Equity attributable to owners of the parent	903,700	816,400	782,900	760,300
Non-controlling interests	70,050	—	48,600	—
Total equity	973,750	816,400	831,500	760,300
Non-current liabilities
Long-term borrowings	120,000	120,000	160,000	140,000
Deferred tax	28,800	18,600	26,040	15,000
Long-term provisions	28,850	—	52,240	15,000
Total non-current liabilities	177,650	138,600	238,280	170,000
Current liabilities
Trade and other payables	115,100	50,000	187,620	60,000
Short-term borrowings	150,000	50,000	200,000	60,000
Current portion of long-term borrowings	10,000	10,000	20,000	15,000
Current tax payable	35,000	10,000	42,000	10,000
Short-term provisions	5,000	5,000	4,800	5,000
Total current liabilities	315,100	125,000	454,420	150,000
Total equity and liabilities	1,466,500	1,080,000	1,524,200	1,080,300

(illustrating the presentation of consolidated profit or loss and other comprehensive income in one statement and the classification of expenses within profit or loss by function) (in thousands of currency units)[45]

Description	20X7	20X6
Revenue	390,000	355,000
Cost of sales	(238,000)	(219,500)
Gross profit	152,000	135,500
Other income	20,667	11,300
Distribution costs	(9,000)	(8,700)
Administrative expenses	(20,000)	(21,000)
Other expenses	(2,100)	(1,200)
Finance costs	(15,000)	(18,000)
Share of profit of associates(a)	35,100	30,100
Profit before tax	161,667	128,000
Income tax expense	(40,417)	(32,000)
Profit for the year from continuing operations	121,250	96,000
Loss for the year from discontinued operations	–	(30,500)
PROFIT FOR THE YEAR	121,250	65,500
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Gains on property revaluation	933	3,367
Investments in equity instruments	(24,000)	26,667
Remeasurements of defined benefit pension plans	(667)	1,333
Share of other comprehensive income of associates(c)	400	(700)
Income tax relating to items that will not be reclassified(d)	5,834	(7,667)
Subtotal: Items not reclassified	(17,500)	23,000
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations(b)	5,334	10,667
Cash flow hedges(b)	(667)	(4,000)
Income tax relating to items that may be reclassified(d)	(1,167)	(1,667)
Subtotal: Items that may be reclassified	3,500	5,000
Other comprehensive income for the year, net of tax	(14,000)	28,000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	107,250	93,500
Profit attributable to:
Owners of the parent	97,000	52,400
Non-controlling interests	24,250	13,100
Total	121,250	65,500
Total comprehensive income attributable to:
Owners of the parent	85,800	74,800
Non-controlling interests	21,450	18,700
Total	107,250	93,500
Earnings per share (in currency units):
Basic and diluted	0.46	0.30

Disclosure of tax effects relating to each component of OCI

(in thousands of currency units)

Component	20X7 Before-tax	20X7 Tax	20X7 Net	20X6 Before-tax	20X6 Tax	20X6 Net
Exchange differences (Foreign Ops)	5,334	(1,334)	4,000	10,667	(2,667)	8,000
Investments in equity instruments	(24,000)	6,000	(18,000)	26,667	(6,667)	20,000
Cash flow hedges	(667)	167	(500)	(4,000)	1,000	(3,000)
Gains on property revaluation	933	(333)	600	3,367	(667)	2,700
Remeasurements (Pension)	(667)	167	(500)	1,333	(333)	1,000
Share of OCI of associates	400	–	400	(700)	–	(700)
Other comprehensive income	(18,667)	4,667	(14,000)	37,334	(9,334)	28,000

Description	Share capital	Retained earnings	Translation reserve	Equity inst. reserve	Cash flow hedge	Revaluation surplus	NCI	Total equity
Balance at 1 Jan 20X6	600,000	118,500	(4,000)	1,600	2,000	–	29,900	748,000
Dividends	–	(10,000)	–	–	–	–	–	(10,000)
Total Comp. Income	–	53,200	6,400	16,000	(2,400)	1,600	18,700	93,500
Balance at 31 Dec 20X6	600,000	161,700	2,400	17,600	(400)	1,600	48,600	831,500
Issue of share capital	50,000	–	–	–	–	–	–	50,000
Dividends	–	(15,000)	–	–	–	–	–	(15,000)
Total Comp. Income	–	96,600	3,200	(14,400)	(400)	800	21,450	107,250
Transfer to ret. earnings	–	200	–	–	–	(200)	–	–
Balance at 31 Dec 20X7	650,000	243,500	5,600	3,200	(800)	2,200	70,050	973,750

XYZ Group — Year ended 31 December 20X2 (in thousands of currency units)

Cash flows from operating activities	20X2
Cash receipts from customers	30,150
Cash paid to suppliers and employees	(27,600)
Cash generated from operations	2,550
Interest paid	(270)
Income taxes paid	(900)
Net cash from operating activities	1,380
Cash flows from investing activities
Acquisition of subsidiary X, net of cash acquired	(550)
Purchase of property, plant and equipment	(350)
Proceeds from sale of equipment	20
Interest received	200
Dividends received	200
Net cash used in investing activities	(480)
Cash flows from financing activities
Proceeds from issue of share capital	250
Proceeds from long-term borrowings	250
Payment of lease liabilities	(90)
Dividends paid	(1,200)
Net cash used in financing activities	(790)
Effect of exchange rate changes	(40)
Net increase in cash and cash equivalents	70
Cash and cash equivalents at beginning of period	160
Cash and cash equivalents at end of period	230

Cash flows from operating activities	20X2
Profit before taxation	3,350
Adjustments for:
Depreciation	450
Foreign exchange loss	40
Investment income	(500)
Interest expense	400
Operating profit before working capital changes	3,740
Increase in trade and other receivables	(500)
Decrease in inventories	1,050
Decrease in trade payables	(1,740)
Cash generated from operations	2,550
Interest paid	(270)
Income taxes paid	(900)
Net cash from operating activities	1,380

Segment	Operating	Investing	Financing	Total
Segment A	1,520	(640)	(570)	310
Segment B	(140)	160	(220)	(200)
Total Group	1,380	(480)	(790)	110

Diversified Company — Year ended 31 December 20X7 (in thousands of currency units - CU)

Description of products and services

Diversified Company has five reportable segments: car parts, motor vessels, software, electronics and finance.

• Car parts: Produces replacement parts for sale to car parts retailers.
• Motor vessels: Produces small motor vessels to serve the offshore oil industry.
• Software: Produces application software for computer manufacturers and retailers.
• Electronics: Produces integrated circuits and related products.
• Finance: Responsible for financial operations including customer financing and property lending.

Factors used to identify reportable segments

Segments are strategic business units offering different products and services. They are managed separately because each business requires different technology and marketing strategies.

Description	Car parts	Motor vessels	Software	Electronics	Finance	All other	Totals
Revenues from external customers	3,000	5,000	9,500	12,000	5,000	1,000	35,500
Intersegment revenues	–	–	3,000	1,500	–	–	4,500
Interest revenue	450	800	1,000	1,500	–	–	3,750
Interest expense	350	600	700	1,100	–	–	2,750
Net interest revenue(b)	–	–	–	–	1,000	–	1,000
Depreciation and amortisation	200	100	50	1,500	1,100	–	2,950
Reportable segment profit	200	70	900	2,300	500	100	4,070
Impairment of assets	–	200	–	–	–	–	200
Reportable segment assets	2,000	5,000	3,000	12,000	57,000	2,000	81,000
Expenditures for non-current assets	300	700	500	800	600	–	2,900
Reportable segment liabilities	1,050	3,000	1,800	8,000	30,000	–	43,850

(a) Revenues from "All other" are attributable to four small segments including property business and consulting. (b) Management relies on net interest revenue for the Finance segment; only net is disclosed.

Revenues CU Total reportable segments 39,000 Other revenues 1,000 Intersegment elimination (4,500) Entity's revenues 35,500

Profit or Loss CU Total reportable segments 3,970 Other profit/loss 100 Intersegment elimination (500) Litigation settlement 500 Corporate expenses (750) Pension adjustment (250) Income before tax 3,070

Country	Revenues	Non-current assets
United States	19,000	11,000
Canada	4,200	–
China	3,400	6,500
Japan	2,900	3,500
Other countries	6,000	3,000
Total	35,500	24,000

5. Information about major customers

Revenues from one customer of Diversified Company’s software and electronics segments represent approximately CU 5,000 of the Company’s total revenues.

• Associate company
• Business valuation
• Consolidation (business)
• Enterprise value
• Minority interest

• Alexander, D., Britton, A., Jorissen, A., "International Financial Reporting and Analysis", Second Edition, 2005, ISBN 978-1-84480-201-2,
• Roy Dodge, Group Financial Statements, London: Chapman & Hall, 1996