Consolidated financial statement

A consolidated financial statement 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", according to the definitions stated in International Accounting Standard 27, "Consolidated and separate financial statements", and International Financial Reporting Standard 10, "Consolidated financial statements".

Consolidated statement of financial position

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

a consolidated statement of financial position as at the end of the period,
a consolidated statement of profit or loss and other comprehensive income,
a consolidated statement of changes in equity,
a consolidated statement of cash flows,
notes, comprising significant accounting policies and other explanatory information, and
a operating segments report

Consolidated accounts are prepared after the accounts for the constituent companies have been prepared. 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.
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. Only the parent company's "share capital" account will be included in the consolidated statement.
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.

Legislation

In the United Kingdom, section 399 of the Companies Act 2006 requires parent company directors to prepare group accounts unless an exemption applies. 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. Two of these three conditions must be met. For entities not following IFRS, these requirements are further detailed in the Financial Reporting Standard applicable in the UK and Republic of Ireland.
For listed companies, section 403 of the Companies Act 2006 mandates the preparation of group accounts in accordance with UK-adopted international accounting standards. Following the UK's exit from the European Union, these accounts must comply with standards endorsed by the UK Endorsement Board for financial years beginning on or after 1 January 2021. The primary legislative driver for consolidation under this framework is IFRS 10, which replaces ownership-based definitions with a single "control" model. 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. Once a company elects to prepare IFRS group accounts, section 403 requires continued use of this framework unless a relevant change in circumstances occurs.

Specific approaches to consolidation

Goodwill arising on consolidation

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

Calculation of Goodwill

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.

Component	IFRS Reference	Value/Adjustment
Fair value of consideration transferred	IFRS 3.37-38	+
Fair value of non-controlling interest	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
Less: Fair value adjustments at acquisition	IFRS 3.18
NET GOODWILL	IFRS 3.32	= Total

Relevant Standard Paragraphs

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 or at the NCI's proportionate share of the acquiree’s identifiable net assets.
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.

Non-controlling interests

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.
The measurement of NCI at the date of acquisition is governed by IFRS 3.19, allowing either fair value or a proportionate share of the acquiree's identifiable net assets. 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.
The carrying amount of NCI at the reporting date is determined as :
Where:

= Initial value at acquisition date.
= The percentage of equity held by minority shareholders.
= The increase or decrease in the subsidiary's retained earnings since the acquisition date.

Note on Loss Allocation:
According to IFRS 10.B94, the is applied to profits and losses even if this results in the non-controlling interest having a deficit balance.

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

Intra-group trading and Unrealised Profit

A group may engage in internal trade relations. However, IFRS 10.B86 requires the full elimination of intragroup assets, liabilities, equity, income, expenses, and cash flows relating to transactions between entities of the group.
Where goods remain in the inventory of the buying company at the reporting date, the group must eliminate unrealised profit . This ensures the inventory is stated at the original cost to the group as per IAS 2.
The Provision for Unrealised Profit is calculated as:
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.

Comparison: Consolidated vs. Separate Financial Statements

The fundamental difference lies in the perspective: the separate financial statement follows the principle of legal separation, while the consolidated financial statement follows the principle of the economic entity.

Feature	Separate Financial Statement	Consolidated Financial Statement
Perspective	Legal	Economic
Investments	Presented only as line items .	"Broken open"; the actual assets of the subsidiary are shown.
Profits	Displays profits from sales to subsidiaries.	Eliminates internal profits. Only sales to external third-party customers are counted.
Liabilities	Shows only the liabilities of the parent company.	Shows the total indebtedness of all group companies toward banks and third parties.

Advantages of the Consolidated Approach

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.
Reveals hidden risks: It provides a transparent view of the group's total debt.
Reflects operational reality: It shows whether the group's wealth is actually growing through external trade rather than internal asset shifts.

Illustrative Examples for Consolidated Financial Statements

XYZ Group – Consolidated and separate statement of financial position

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.

XYZ Group – Consolidated Statement of comprehensive income for the year ended 31 December 20X7 (IFRS 9 applied)

'
'
Disclosure of tax effects relating to each component of OCI

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

XYZ Group – Consolidated Consolidated Statement of Cash Flows (IAS 7)

XYZ Group — Year ended 31 December 20X2

XYZ Group – Operating Segments (IFRS 8)

'''Diversified Company — Year ended 31 December 20X7'''

1. General Information

;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.

2. Information about reportable segment profit or loss, assets and liabilities

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

4. Geographical Information

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.