You are asked to prepare a consolidated balance sheet for a parent with one 80% subsidiary. What are the key steps?

What the interviewer wants to hear

• Align accounting policies and reporting dates
• Add assets and liabilities line by line
• Eliminate the investment against the subsidiary’s equity and calculate goodwill
• Recognise non-controlling interest
• Eliminate intra-group balances, transactions and unrealised profit

Model answer

First I make sure the subsidiary uses the same accounting policies and reporting date as the parent, adjusting its figures if needed. At acquisition I compare the consideration paid plus non-controlling interest with the fair value of the subsidiary’s identifiable net assets; the excess is goodwill, and any fair value adjustments are carried into consolidation. Then I add the parent’s and subsidiary’s assets and liabilities line by line, using 100% of the subsidiary’s figures even though we own only 80%. The parent’s investment is removed against the subsidiary’s share capital and pre-acquisition reserves. NCI is shown in equity at 20% of net assets, or at fair value if that option was chosen, plus its share of post-acquisition profits. Finally I eliminate intra-group receivables and payables, intra-group sales and purchases, dividends and any unrealised profit in inventory or assets, and test goodwill for impairment.

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