Consolidated Profit and Loss MBA GSB.pptx

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 The Consolidated Statement of Profit or Loss The Consolidated Statement of Profit or Loss and other comprehensive income Disposal 2

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 31 st 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. 3

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 4

5. The Consolidated Statement of P/L Lusaka Limited Consolidated Statement of Profit or Loss for the year ended 31 st 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 5

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 1 st January 2016 99,750 4,250 104,000 Total comprehensive income for the year 27,000 2,000 29,000 Balance at 31 st December 2016 126,750 6,250 133,000 6

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. 7

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 31 st December, 2016. Prepare the revised consolidated statement of profit or loss. 8

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 9

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. 10

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. 11

12. Example Ndola Limited acquired 60% of the K100,000 equity of Kitwe Limited on 1 st April, 2015. The statements of profits or loss of the two companies for the year ended 31 st 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. 12

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 31 st 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 13

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. 14

15. Pre-acquisition profits Ndola Limited Consolidate P/ for the year ended 31 st 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 15

16. Pre-acquisition profits Statement of changes in Equity Retained Earnings Non Controlling Interest Total Balance as at 1 st 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 16

17. Example,,,, The following information relates to Gold Limited and its subsidiary Diamond Limited for the year to 30 th April, 2017. 17 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 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 1 st November 2016. At that time, the retained earnings of Diamond stood at K52,000 18

19. Solution = Consolidated balance sheet Gold Group Limited Consolidated Statement of Profit or Loss for year to 30 th 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 19

20. Solution –changes in equity Gold Limited Statement of changes in equity Retained earnings (K) Non-Controlling interest (K) Balance brought forward 1 st May 2016 460 Total comprehensive income for the year 316 4 Added on acquisition of subsidiary 210 Dividend paid (200) (6) Balance carried forward 30 th April, 2017 576 208 20

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. 21

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. 22

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 31 st 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 23

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 31 st 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 24

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. 25

26. The End 26