This chapter walks you through how to prepare a consolidated statement of profit or loss for a full-year acquisition. It also shows how to apportion (allocate) the group’s profit between:

the owners of the parent company, and
the non-controlling interest (NCI).

Learning objectives

By the end of this chapter, you should be able to prepare a full consolidated statement of profit or loss, considering:

Elimination of intra-group trading balances
Removal of unrealised profit arising on intra-group trading
Acquisition of subsidiaries part way through the financial year

Consolidated statement of profit or loss

The procedure for consolidating statements of profit or loss is similar to the procedure used for the consolidated statement of financial position. The key difference is this:

In the statement of profit or loss, we consolidate income and expenses.
We don’t offset (eliminate) the carrying amount of the parent’s investment against the parent’s share of the subsidiary’s equity, because those items relate to the statement of financial position, not profit or loss.

In a mid-year acquisition, income and expense items are consolidated on a pro-rata basis (only the post-acquisition period is included). As with the consolidated statement of financial position, you also need to adjust for intra-group trading when preparing the consolidated statement of profit or loss.

Profit attributable to parent and subsidiary

After you consolidate the statement of profit or loss line by line, you’ll have a single profit for the year for the group. That profit must then be split to show how much is attributable to:

the owners of the parent (the group), and
the NCI.

Use the steps below consistently to allocate profit between the group and the NCI.

Write down the profit for the year (i.e., profit after tax) for the subsidiary company.
Adjust the subsidiary’s profit for the year for any intra-group transactions that affect that profit.

Hint: If the subsidiary is the seller in an intra-group sale that creates PURP, the subsidiary’s profit is overstated by the PURP. You reduce the subsidiary’s profit by that amount. At this level, this is likely to be the only adjustment you may be tested on.
Compute the NCI share of profit as: Adjusted profit of subsidiary (from step 2) x NCI % holding
Compute the group share of profit as: Consolidated profit for the year - NCI share of profit (from step 3)

Illustration 1: Full year acquisition

Moonlight Ltd. acquired 80% of the equity shares of Sunshine Ltd. on 1st January 2024. The following are the individual Statements of Profit and Loss for both companies for the year ended 31st December 2024.

	Moonlight Ltd.	Sunshine Ltd.
	$	$
Revenue	5,000,000	2,000,000
Cost of sales	(2,000,000)	(800,000)
Gross profit	3,000,000	1,200,000
Other income	70,000	50,000
Distribution costs	(400,000)	(180,000)
Administrative expenses	(700,000)	(370,000)
Finance costs	(200,000)	(100,000)
Profit before tax	1,770,000	600,000
Income tax expense	(530,000)	(180,000)
Profit for the year	1,240,000	420,000

Additional Information: During the year, Moonlight Ltd. sold goods worth $500,000 to Sunshine Ltd. at a profit margin of 25%. Out of these goods, 40% remained unsold in Sunshine Ltd.'s inventory at year-end.

Required: Prepare the Consolidated Statement of Profit and Loss for Moonlight Ltd. and its subsidiary for the year ended 31st December 2024.

Suggested solution:

For consolidated statements of profit or loss, W2, W3, W4, and W5 (from the statement of financial position approach) are not required. Focus on the group structure (W1), compute and post the relevant adjustments (such as W2 here), and then calculate profit attributable to the group and the NCI.

W1: Group structure

Work it out and compare with the suggested solution.

(spoiler)


Parent company	Moonlight Ltd
Subsidiary	Sunshine Ltd
Ownership	80%
NCI holding	20%
Acquisition date	1 January 2024
Reporting date	31 December 2024
Post-acquisition period	12 months (1 year)

W2: Computation and adjustments

W2 is not standardised. In any consolidated statement of profit or loss question, read the additional information carefully and compute the adjustments needed to eliminate intra-group transactions.

For this question, you need to:

eliminate the intra-group sale, and
recognise the provision for unrealised profit (PURP) in closing inventory.

Refer to the intra-group trading adjustment to deepen your understanding if you are not on top of this.

(spoiler)

For the intra-group sales, eliminate it by:

Debit: Sales $500,000

Credit: Cost of sales $500,000

(These amounts would be subtracted respectively on the face of the consolidated statement of profit or loss).

For the provision for unrealised profit arising on the intra-group sales: PURP = $500,000 x 40% x 25% = $50,000

Debit : Cost of sales $50,000

Credit: Inventory $50,000

> Take your time and prepare the full consolidated statements before proceeding to check the answer.

Preparation of the consolidated statement of profit and loss

Moonlight Group Limited

Consolidated Statement of Profit and Loss for the year ended 31st December 2024.

	$
Revenue (5,000,000 + 2,000,000 - 500,000)	6,500,000
Cost of sales (2,000,000 + 800,000 - 500,000 + 50,000)	(2,350,000)
Gross profit	4,160,000
Other income (70,000 + 50,000)	120,000
Distribution costs (400,000 + 180,000)	(580,000)
Administrative expenses (700,000 + 370,000)	(1,070,000)
Finance costs (200,000 + 100,000)	(300,000)
Profit before tax	2,320,000
Income tax expense (530,000 + 180,000)	(710,000)
Profit for the year	1,610,000

W3: Profit attributable to group and NCI

The consolidated profit for the year must show how much is attributable to the group and to the NCI. Use the steps given earlier to allocate the profit.

(spoiler)

	$
Sunshine Limited’s profit for the year	420,000
Any adjustment	0
Adjusted profit	420,000
Profit attributable to NCI (20%*420,000)	84,000
Profit attributable to the group (Balancing figure) ($1,610,000 - $84,000)	1,526,000
Group profit for the year	1,610,000

Now incorporate the profit allocation into the statement.

Moonlight Group Limited

Consolidated Statement of Profit and Loss for the year ended 31st December 2024.

	$
Revenue (5,000,000 + 2,000,000 - 500,000)	6,500,000
Cost of sales (2,000,000 + 800,000 - 500,000 + 50,000)	(2,350,000)
Gross profit	4,160,000
Other income (70,000 + 50,000)	120,000
Distribution costs (400,000 + 180,000)	(580,000)
Administrative expenses (700,000 + 370,000)	(1,070,000)
Finance costs (200,000 + 100,000)	(300,000)
Profit before tax	2,320,000
Income tax expense (530,000 + 180,000)	(710,000)
Profit for the year	1,610,000
*Profit attributable to:*
NCI ($420,000 * 20%)	84,000
Owners of parent company ($1,610,000 - $84,000)	1,526,000

Note: The workings (especially W2 and W3) are not standardised requirements. They are included to help you follow the logic, capture all necessary adjustments, and use a consistent roadmap when preparing a consolidated statement of profit or loss.

Consolidated Statement of Profit or Loss - Key Concepts\

Consolidate income and expenses, not investment or equity balances
Adjust for intra-group trading and unrealised profit (PURP)
For mid-year acquisitions, consolidate only post-acquisition results (pro-rata)Elimination of Intra-group Trading\
Remove intra-group sales from revenue and cost of sales
Adjust for unrealised profit in closing inventory (PURP)
- PURP = intra-group sales x % unsold x profit marginProfit Attribution: Group vs. NCI\
Split consolidated profit between parent and non-controlling interest (NCI)
Steps:
- Start with subsidiary’s profit after tax
- Adjust for intra-group transactions (e.g., PURP if subsidiary is seller)
- NCI share = adjusted subsidiary profit x NCI %
- Group share = consolidated profit - NCI sharePreparation Steps (Illustration)\
Combine parent and subsidiary figures line by line
Eliminate intra-group sales ($500,000) from revenue and cost of sales
Add PURP ($50,000) to cost of sales
Sum other income, distribution, admin, and finance costs
Calculate consolidated profit before and after taxProfit Allocation Example\
NCI profit = subsidiary profit x NCI % (e.g., $420,000 x 20% = $84,000)
Group profit = consolidated profit - NCI profit (e.g., $1,610,000 - $84,000 = $1,526,000)

Next | 8.7.2 Walkthrough question two

Walkthrough question one

This chapter walks you through how to prepare a consolidated statement of profit or loss for a full-year acquisition. It also shows how to apportion (allocate) the group’s profit between:

the owners of the parent company, and
the non-controlling interest (NCI).

Learning objectives

By the end of this chapter, you should be able to prepare a full consolidated statement of profit or loss, considering:

Elimination of intra-group trading balances
Removal of unrealised profit arising on intra-group trading
Acquisition of subsidiaries part way through the financial year

Consolidated statement of profit or loss

The procedure for consolidating statements of profit or loss is similar to the procedure used for the consolidated statement of financial position. The key difference is this:

In the statement of profit or loss, we consolidate income and expenses.
We don’t offset (eliminate) the carrying amount of the parent’s investment against the parent’s share of the subsidiary’s equity, because those items relate to the statement of financial position, not profit or loss.

Profit attributable to parent and subsidiary

After you consolidate the statement of profit or loss line by line, you’ll have a single profit for the year for the group. That profit must then be split to show how much is attributable to:

the owners of the parent (the group), and
the NCI.

Use the steps below consistently to allocate profit between the group and the NCI.

Write down the profit for the year (i.e., profit after tax) for the subsidiary company.
Adjust the subsidiary’s profit for the year for any intra-group transactions that affect that profit.

Hint: If the subsidiary is the seller in an intra-group sale that creates PURP, the subsidiary’s profit is overstated by the PURP. You reduce the subsidiary’s profit by that amount. At this level, this is likely to be the only adjustment you may be tested on.
Compute the NCI share of profit as: Adjusted profit of subsidiary (from step 2) x NCI % holding
Compute the group share of profit as: Consolidated profit for the year - NCI share of profit (from step 3)

Illustration 1: Full year acquisition

	Moonlight Ltd.	Sunshine Ltd.
	$	$
Revenue	5,000,000	2,000,000
Cost of sales	(2,000,000)	(800,000)
Gross profit	3,000,000	1,200,000
Other income	70,000	50,000
Distribution costs	(400,000)	(180,000)
Administrative expenses	(700,000)	(370,000)
Finance costs	(200,000)	(100,000)
Profit before tax	1,770,000	600,000
Income tax expense	(530,000)	(180,000)
Profit for the year	1,240,000	420,000

Required: Prepare the Consolidated Statement of Profit and Loss for Moonlight Ltd. and its subsidiary for the year ended 31st December 2024.

Suggested solution:

For consolidated statements of profit or loss, W2, W3, W4, and W5 (from the statement of financial position approach) are not required. Focus on the group structure (W1), compute and post the relevant adjustments (such as W2 here), and then calculate profit attributable to the group and the NCI.

W1: Group structure

Work it out and compare with the suggested solution.

(spoiler)


Parent company	Moonlight Ltd
Subsidiary	Sunshine Ltd
Ownership	80%
NCI holding	20%
Acquisition date	1 January 2024
Reporting date	31 December 2024
Post-acquisition period	12 months (1 year)

W2: Computation and adjustments

W2 is not standardised. In any consolidated statement of profit or loss question, read the additional information carefully and compute the adjustments needed to eliminate intra-group transactions.

For this question, you need to:

eliminate the intra-group sale, and
recognise the provision for unrealised profit (PURP) in closing inventory.

Refer to the intra-group trading adjustment to deepen your understanding if you are not on top of this.

(spoiler)

For the intra-group sales, eliminate it by:

Debit: Sales $500,000

Credit: Cost of sales $500,000

(These amounts would be subtracted respectively on the face of the consolidated statement of profit or loss).

For the provision for unrealised profit arising on the intra-group sales: PURP = $500,000 x 40% x 25% = $50,000

Debit : Cost of sales $50,000

Credit: Inventory $50,000

> Take your time and prepare the full consolidated statements before proceeding to check the answer.

Preparation of the consolidated statement of profit and loss

Moonlight Group Limited

Consolidated Statement of Profit and Loss for the year ended 31st December 2024.

	$
Revenue (5,000,000 + 2,000,000 - 500,000)	6,500,000
Cost of sales (2,000,000 + 800,000 - 500,000 + 50,000)	(2,350,000)
Gross profit	4,160,000
Other income (70,000 + 50,000)	120,000
Distribution costs (400,000 + 180,000)	(580,000)
Administrative expenses (700,000 + 370,000)	(1,070,000)
Finance costs (200,000 + 100,000)	(300,000)
Profit before tax	2,320,000
Income tax expense (530,000 + 180,000)	(710,000)
Profit for the year	1,610,000

W3: Profit attributable to group and NCI

The consolidated profit for the year must show how much is attributable to the group and to the NCI. Use the steps given earlier to allocate the profit.

(spoiler)

	$
Sunshine Limited’s profit for the year	420,000
Any adjustment	0
Adjusted profit	420,000
Profit attributable to NCI (20%*420,000)	84,000
Profit attributable to the group (Balancing figure) ($1,610,000 - $84,000)	1,526,000
Group profit for the year	1,610,000

Now incorporate the profit allocation into the statement.

Moonlight Group Limited

Consolidated Statement of Profit and Loss for the year ended 31st December 2024.

	$
Revenue (5,000,000 + 2,000,000 - 500,000)	6,500,000
Cost of sales (2,000,000 + 800,000 - 500,000 + 50,000)	(2,350,000)
Gross profit	4,160,000
Other income (70,000 + 50,000)	120,000
Distribution costs (400,000 + 180,000)	(580,000)
Administrative expenses (700,000 + 370,000)	(1,070,000)
Finance costs (200,000 + 100,000)	(300,000)
Profit before tax	2,320,000
Income tax expense (530,000 + 180,000)	(710,000)
Profit for the year	1,610,000
*Profit attributable to:*
NCI ($420,000 * 20%)	84,000
Owners of parent company ($1,610,000 - $84,000)	1,526,000

Note: The workings (especially W2 and W3) are not standardised requirements. They are included to help you follow the logic, capture all necessary adjustments, and use a consistent roadmap when preparing a consolidated statement of profit or loss.

Achievable ACCA Financial Accounting

8. Preparing basic consolidated financial statements

8.7. Consolidated statement of profit or loss

Our ACCA course is currently in development and is a work-in-progress.