ACCA FR Consolidated Statements: Goodwill, NCI and Worked Example

ACCA FR consolidated statements answer one question first: does the parent control the subsidiary? If control exists, the parent adds the subsidiary line by line, eliminates the investment, recognizes goodwill, and shows the outside shareholders as non-controlling interest. This note explains control, goodwill, non-controlling interest, fair value adjustments, and intra-group eliminations, then works a full example from acquisition to the consolidated statement of financial position and the consolidated statement of profit or loss and other comprehensive income.

First, build your study week around this note with the free study timetable generator, which turns an exam date and daily study hours into a day-by-day plan with revision and mock slots. Work one section at a time, then test yourself against the worked example before you read the solution steps.

ACCA FR Consolidated Statements: The Control Test First

ACCA FR consolidated statements present a parent and its subsidiaries as an economic entity. A subsidiary is an entity controlled by the parent, and control requires all three elements: power over the investee, exposure or rights to variable returns, and the ability to use that power to affect those returns.

First, power means existing rights that give the current ability to direct the relevant activities, the activities that significantly affect the investee returns. For example, in most exam questions, power comes from majority voting rights. In addition, power can come from contractual rights, especially when voting rights relate only to administrative tasks. Protective rights alone do not give power, because they protect the holder without giving control over relevant activities.

Second, variable returns are returns that can vary with the investee performance. Dividends give the obvious example, but returns can also run negative, such as losses, or indirect, such as cost savings from using the subsidiary products. Third, the link element requires the investor to use its power to affect the amount of those returns. An investor that holds decision rights only as an agent for another party does not control the investee.

Three exam points from the control test

Three exam points follow from the control test. First, a shareholding above 50% usually indicates control, but the test is control, not the percentage alone. Second, control can exist below 50% if other rights give power, and it can stay absent above 50% if the rights are only protective. Third, consolidation starts on the acquisition date, the date control passes, and stops when control ends. As a result, results before acquisition never enter the group statements, and pre-acquisition reserves of the subsidiary never form part of group retained earnings.

According to ACCA, the Financial Reporting pass rate was 50% in the March 2026 sitting and 52% in the June 2026 sitting, which shows that about half of candidates pass each sitting. That result gives a useful warning: consolidation questions reward a method, not a memorized answer. Candidates who follow the same steps every time, and who label every adjustment, score more consistently than candidates who try to shortcut the workings.

ACCA FR Consolidated Statements: Goodwill and NCI

Goodwill is the residual in a business combination. Under IFRS 3, you calculate goodwill as consideration transferred, plus the amount of non-controlling interest, plus the fair value of any previously held equity interest, less the fair value of the identifiable net assets acquired. If the result runs negative, first review the calculation to confirm that you identified and measured every asset and liability correctly, and only then recognize the gain as a bargain purchase in profit or loss.

Non-controlling interest, often shortened to NCI, is the share of the subsidiary owned by outside shareholders. For each business combination, IFRS 3 gives the parent a policy choice. The parent can measure NCI at fair value, called the full goodwill method, or at the proportionate share of the fair value of the subsidiary net assets, called the partial goodwill method. The choice changes goodwill, and it also changes the NCI balance, so the exam question must state which method to use, or give the fair value of NCI so you can apply the full method.

Item	Full goodwill method	Partial goodwill method
Consideration transferred	Included in full	Included in full
NCI in goodwill calculation	NCI at fair value	NCI share of net assets at fair value
Goodwill recognized	Goodwill for the whole subsidiary, including the NCI share	Goodwill for the parent share only
Later goodwill impairment	Shared between parent and NCI	Charged to the parent only

Fair value adjustments at acquisition

Fair value adjustments matter because the subsidiary net assets must enter the group statements at fair value on the acquisition date, not at book value. As a result, a common adjustment uplifts property, where the fair value exceeds the carrying amount. That uplift increases net assets at acquisition, which reduces goodwill, and it also affects later depreciation, unless the uplift relates to land, which does not depreciate. The worked example below uses a land uplift for exactly that reason, so you need no extra depreciation adjustment.

Goodwill impairment under IAS 36

Under IFRS, you never amortize goodwill. Instead, you test goodwill for impairment at least annually under IAS 36. If the recoverable amount of the cash-generating unit falls below its carrying amount, recognize the impairment loss in profit or loss, and allocate it first to goodwill. In addition, never reverse an impairment loss on goodwill in a later period.

ACCA FR Consolidated Statements: The Worked Example

Parent P acquired 80% of subsidiary S on 1 January 2026. The facts below give the complete exam data. Read them once, then follow the five steps in order.

• Consideration transferred by P: $800.
• S share capital at acquisition: $400. S retained earnings at acquisition: $200. S net assets at book value: $600.
• Fair value adjustment at acquisition: land uplift of $100. Fair value of S net assets at acquisition: $700.
• Fair value of the 20% NCI at acquisition: $185.
• S profit for the year ended 31 December 2026: $120, all earned after acquisition. S paid no dividends.
• Reporting date: 31 December 2026. All amounts are in $ thousands.

Goodwill under both methods

Step 1 calculates goodwill under the full method. Consideration of $800, plus NCI at fair value of $185, less net assets at fair value of $700, gives goodwill of $285. Step 2 calculates goodwill under the partial method for comparison. Consideration of $800, less the parent share of net assets, 80% of $700, which is $560, gives goodwill of $240. The difference of $45 is the NCI share of goodwill, and it equals NCI at fair value of $185 less the proportionate NCI of $140, which is 20% of $700. As a result, that cross-check catches most goodwill errors.

NCI and group retained earnings

Step 3 calculates the NCI balance at the reporting date under the full method. Opening NCI at fair value is $185. Add the NCI share of post-acquisition profit, 20% of $120, which is $24. Closing NCI is $209. In contrast, under the partial method, opening NCI would be $140, and closing NCI would be $164, but the exam data in this example use the full method, so $209 is the figure for the consolidated statement of financial position.

Step 4 calculates group retained earnings. Start with P retained earnings, then add the parent share of S post-acquisition profit, 80% of $120, which is $96. However, never add S pre-acquisition retained earnings of $200, because those earnings belonged to the former shareholders, not to the group. If S had paid a dividend after acquisition, the parent share would already sit inside the investment elimination, and the NCI share would reduce closing NCI, so you must track dividends in both places.

The consolidated statement extract

Step 5 builds the consolidated statement of financial position extract. Add P and S assets and liabilities line by line, add the land uplift of $100 to property, add goodwill of $285, eliminate the investment of $800 against S equity at acquisition, and present NCI of $209 as a separate line within equity. Finally, note that the investment elimination is a consolidation adjustment only. It does not appear in either company separate statements.

Consolidated statement of financial position extract ($000)	Amount	Working
Goodwill	285	800 + 185 – 700
Property, including land uplift	P + S + 100	Fair value adjustment at acquisition
Non-controlling interest (within equity)	209	185 + (20% x 120)
Group retained earnings: parent share of S profit	96	80% x 120, post-acquisition only
S pre-acquisition retained earnings in group	0	Eliminated, never included

ACCA FR Consolidated Statements: Intra-Group Eliminations and SPLOCI

Eliminate intra-group transactions in full, because the group cannot sell to itself. In particular, the two eliminations that cause the most lost marks are intra-group sales and unrealized profit in inventory, often shortened to PURP, which stands for provision for unrealized profit.

Suppose P sold goods to S for $50, and those goods cost P $40 to produce. If S still holds the goods at the reporting date, the group has not yet earned the $10 profit, because no outside sale has happened. The consolidation adjustment removes $10 from group profit and $10 from group inventory. In addition, eliminate the intra-group sale of $50 and the matching purchase of $50 from revenue and cost of sales, so the consolidated statement of profit or loss shows only sales to outside customers.

Who bears the PURP adjustment

Who bears the PURP adjustment depends on who sold the goods. If the parent sold to the subsidiary, charge the unrealized profit against the parent, so NCI stays unaffected. If the subsidiary sold to the parent, the unrealized profit reduces the subsidiary profit, so the parent and NCI share it in their ownership proportions. Indeed, exam questions test that distinction directly, so always state the seller before you allocate the adjustment.

The consolidated statement of profit or loss and other comprehensive income follows the same line-by-line method as the statement of financial position. Add P and S revenue and expenses from the acquisition date, eliminate intra-group sales and purchases, adjust for PURP, and then split the resulting profit between the owners of the parent and NCI. Similarly, split other comprehensive income in the same way, and show the NCI share separately.

Consolidated profit split, based on the worked example ($000)	Amount	Working
S profit for the year, all post-acquisition	120	Given, no pre-acquisition profit included
Attributable to owners of the parent	96	80% x 120
Attributable to non-controlling interest	24	20% x 120
Intra-group sale eliminated from revenue and cost of sales	50	Full elimination, group cannot sell to itself
Unrealized profit removed (parent sold to subsidiary)	10	Sale 50 less cost 40, charged to parent only

Two further eliminations to complete

Two further eliminations complete the basic method. First, eliminate intra-group balances, such as a loan from P to S or a receivable and matching payable, from the consolidated statement of financial position, because the group does not owe money to itself. Second, eliminate intra-group dividends, because a dividend from S to P is a transfer inside the group, not income for the group. In addition, apply uniform accounting policies, and if the subsidiary year end differs from the parent year end, adjust the subsidiary figures to the parent reporting date where the difference is material.

ACCA FR Consolidated Statements: Exam Traps and Revision Checklist

First, distinguish a subsidiary from an associate. An associate is an entity over which the investor has significant influence, usually indicated by a 20% to 50% holding, but not control. Do not consolidate associates line by line. Instead, account for them by the equity method, with a single investment line and a single share of profit line. For example, if a question gives a 30% holding with no control indicators, the correct treatment is an associate, not a subsidiary, and line-by-line consolidation would be wrong.

Second, watch the dates. Only post-acquisition profits enter group retained earnings, and only post-acquisition results enter the consolidated statement of profit or loss. Similarly, a subsidiary acquired mid-year contributes results only from the acquisition date. Third, watch the NCI method. Full goodwill and partial goodwill give different goodwill and different NCI balances, and after acquisition you share a goodwill impairment differently under each method.

Label every working and check the balance

Fourth, label every working. Examiners award marks for method even when a later figure is wrong, but only if the working shows the step. For instance, a goodwill calculation with no labels, or a retained earnings working that mixes pre-acquisition and post-acquisition reserves, loses method marks that a labeled working would have kept. Fifth, check the statement of financial position balances: assets, liabilities, and equity must reconcile after every elimination, and NCI must sit within equity, not as a liability.

Revision checklist

• State the three control elements and apply them, not just the percentage held.
• Write the goodwill formula in full, then substitute the numbers, then cross-check full against partial goodwill.
• Split post-acquisition profit between parent and NCI, and never include pre-acquisition reserves in group earnings.
• Eliminate intra-group sales, balances, and dividends in full, and allocate PURP according to the seller.
• Test goodwill for impairment, never amortize it, and never reverse a goodwill impairment.
• Distinguish a subsidiary, consolidated line by line, from an associate, accounted for by the equity method.

Related reading: ACCA Qualification Explained and ACCA 2027 Redesign Guide. In fact, both guides explain the qualification structure, while this note covers the consolidation technique itself.

Sources: ACCA March 2026 exam pass rates (FR 50%) and ACCA June 2026 exam pass rates (FR 52%). Standards cited: IFRS 10 Consolidated Financial Statements (control test), IFRS 3 Business Combinations (goodwill and NCI measurement), IAS 36 Impairment of Assets (goodwill impairment, no amortization, no reversal).

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