Walkthrough question three (Mid-year acquisition)
This chapter shows you how to prepare a consolidated statement of financial position when a subsidiary is acquired partway through the year.
Learning objectives
By the end of this chapter, you should be able to prepare a full consolidated statement of financial position, considering:
- Acquisition of subsidiaries part-way through the financial year, and apportioning profit between pre- and post-acquisition periods
- Computing goodwill using the fair value of the non-controlling interest
- Calculating the non-controlling interest and group retained earnings at the reporting date
- Removal of unrealised profit arising on intra-group trading
- Elimination of intra-group trading balances
Mid-year acquisition
A mid-year acquisition happens when a parent acquires control of a subsidiary during the financial year.
In earlier illustrations, the subsidiary was owned for the whole year, so all of the year’s profit was post-acquisition. With a mid-year acquisition, only the profit earned after the acquisition date is post-acquisition.
To deal with this, we split the subsidiary’s profit for the year into:
- Pre-acquisition profit: profit earned before the acquisition date
- Post-acquisition profit: profit earned from the acquisition date to the reporting date
Unless you’re told otherwise, we assume profit accrues evenly over time. That lets you prorate profit based on the number of months before and after acquisition.
The same split applies in the consolidated statement of profit or loss: only the subsidiary’s income and expenses after the acquisition date are added to the parent’s full-year figures. You’ll work through this in the consolidated statement of profit or loss walkthroughs.
Illustration 3: Mid-year acquisition
On March 1, 2025, Akwaaba Limited acquired 80% of the ordinary shares of Wezor Limited for $7.5 million. The fair value of the non-controlling interest (NCI) at the date of acquisition was determined to be $5 million. Wezor Limited’s share capital has remained unchanged since the acquisition, and the company reported $2.4 million as profit for the year ended December 31, 2025. The profit accrued evenly throughout the period. The statements of financial position for both companies as at December 31, 2025, are as follows:
Statement of financial position as at 31 December, 2025
| Akwaaba Limited | Wezor Limited | |
|---|---|---|
| $'000 | $'000 | |
| Non-current assets: | ||
| Property, plant and equipment | 24,700 | 3,250 |
| Investment in Wezor Limited | 7,500 | - |
| Current assets: | ||
| Inventories | 35,000 | 3,200 |
| Trade receivables | 3,400 | 4,800 |
| Cash and bank | 1,150 | 2,750 |
| Total assets | 71,750 | 14,000 |
| Equity: | ||
| Share capital | 35,000 | 5,000 |
| Share premium | 15,000 | 2,500 |
| Retained earnings | 11,500 | 4,500 |
| Liabilities: | ||
| Trade payables | 10,250 | 2,000 |
| Total equity and liabilities | 71,750 | 14,000 |
Additional information: After the acquisition date, Akwaaba Limited sold goods worth $300,000 to Wezor Limited on credit at a profit margin of 25% on the selling price. At year-end, Wezor Limited still holds all inventory in stock. No payment has been made by Wezor Limited in relation to the credit balance.
Required: Prepare the consolidated statement of financial position for Akwaaba Limited and its subsidiary as at December 31, 2025
Suggested solution:
Before you look at the suggested solution, try to complete the question yourself. Then use the suggested solution as a marking guide.
W1: Group structure
Work it out and compare with the suggested solution.
| Parent company | Akwaaba Limited |
| Subsidiary | Wezor Limited |
| Ownership | 80% |
| NCI holding | 20% |
| Acquisition date | 1 March 2025 |
| Reporting date | 31 December 2025 |
| Post-acquisition period | 10 months |
W2: Net assets of the subsidiary
Work it out and compare with the suggested solution.
Hint: This is a mid-year acquisition. The profit for the year (12 months) is $2.4 million, but the acquisition occurred on 1 March 2025. Profit before acquisition is pre-acquisition profit, and profit after acquisition is post-acquisition profit.
The retained earnings at the acquisition date aren’t given directly. You can find them by taking retained earnings at the reporting date and subtracting the post-acquisition profit.
Post-acquisition profit = 10/12 months x $2.4 million = $2 million
Pre-acquisition profit = 2/12 months x $2.4 million = $0.4 million
RE at acquisition date = RE @ reporting date - post-acquisition profit = $4.5m - $2m = $2.5m
| Amount @ acquisition date | Amount @ reporting date | Post-acquisition profit | |
|---|---|---|---|
| $'000 | $'000 | $'000 | |
| Share capital | 5,000 | 5,000 | 0 |
| Share premium | 2,500 | 2,500 | 0 |
| Retained earnings | 2,500 | 4,500 | 2,000 |
| Totals | 10,000 | 12,000 | 2,000 |
W3: Goodwill computations
Work it out and compare with the suggested solution.
| $'000 | |
|---|---|
| Consideration | 7,500 |
| NCI @ acquisition date | 5,000 |
| Net asset @ acquisition date | (10,000) |
| Goodwill at acquisition date | 2,500 |
W4: NCI at reporting date
Work it out and compare with the suggested solution.
Hint: decide whether the PURP affects NCI; it depends on who sold the goods.
The parent company is the seller, so the PURP adjustment affects the group retained earnings (see W5), not the NCI. If the subsidiary were the seller instead, the PURP would reduce the subsidiary’s post-acquisition profit and be shared 80% to group retained earnings and 20% to NCI.
| $'000 | |
|---|---|
| NCI @ acquisition date | 5,000 |
| NCI share of post-acquisition profit (20%*$2 million) | 400 |
| NCI at reporting date | 5,400 |
W5: Group retained earnings (GRE)
Work it out and compare with the suggested solution.
Hint: calculate the PURP and show the adjustments (effect).
| $'000 | |
|---|---|
| Parent’s retained earnings at reporting date | 11,500 |
| Parent’s share of post-acquisition profit (80% * $2 million) | 1,600 |
| PURP adjustment | (75) |
| GRE at reporting date | 13,025 |
W6: Other adjustments
Work it out and compare with the suggested solution.
Hint: there are two major adjustments - PURP and intra-group balance.
- Provision for unrealised profit - PURP
PURP = $300,000 * 25% = $75,000
DR. Group retained earnings $75,000
CR. Inventory $75,000
- Intra-group balances
DR. Trade payables $300,000
CR. Trade receivables $300,000
Preparation of the consolidated statements of financial position
After you post all adjustments (goodwill, NCI, PURP, and intra-group balances), the consolidated statement of financial position is:
Akwaaba Group Limited Consolidated statement of financial position as at 31 December, 2025
| Item | $'000 |
|---|---|
| Non-current assets: | |
| Property, plant and equipment (24,700 + 3,250) | 27,950 |
| Goodwill (W3) | 2,500 |
| Investment in Wezor (7,500 - 7,500) | 0 |
| Current assets: | |
| Inventories (35,000 + 3,200 - 75 (W6)) | 38,125 |
| Trade receivables (3,400 + 4,800 - 300 (W6)) | 7,900 |
| Cash and bank (1,150 + 2,750) | 3,900 |
| Total assets | 80,375 |
| Equity: | |
| Share capital (35,000 + 5,000 - 5,000) | 35,000 |
| Share premium (15,000 + 2,500 - 2,500) | 15,000 |
| Group retained earnings (11,500 + 4,500 - 4,500 + 1,600 - 75 (W5)) | 13,025 |
| Non-controlling interest (5,000 + 400 (W4)) | 5,400 |
| Liabilities: | |
| Trade payables (10,250 + 2,000 - 300 (W6)) | 11,950 |
| Total equity and liabilities | 80,375 |
Note: The subsidiary’s share capital and share premium are pre-acquisition equity. They are already included in net assets at acquisition in the goodwill calculation (W3), so they are eliminated and do not appear in group equity.