Preparing consolidated financial statements for a group
Consolidated financial statements combine the financial results of a parent company and its subsidiaries. Under IFRS 10, a parent must consolidate a subsidiary when it controls the subsidiary, defined as having power over the subsidiary, exposure to variable returns, and the ability to affect those returns through its power.
To prepare consolidated financial statements, follow these steps:
- Identify the parent and subsidiaries: Ensure all entities are included based on control criteria.
- Adjust for inter-company transactions: Eliminate any transactions between the parent and subsidiaries, such as sales, dividends, and loans.
- Combine financial statements: Add together the financial statements of the parent and subsidiaries line by line.
- Account for non-controlling interests: Recognize the portion of equity in subsidiaries not attributable to the parent.
- Prepare the consolidated income statement and statement of financial position: Present the consolidated results, ensuring that all figures are accurate and comply with IFRS standards, particularly IFRS 3 for business combinations and IAS 28 for investments in associates.
In Kenya, ensure compliance with the Companies Act 2015 and relevant guidelines from ICPAK. This includes proper disclosures and adherence to the Nairobi Securities Exchange regulations if applicable.
Key points to remember
- Consolidate when control exists (IFRS 10).
- Eliminate inter-company transactions.
- Combine financial statements line by line.
- Account for non-controlling interests accurately.
- Follow Companies Act 2015 and IFRS standards.
Worked example
Example: Consolidated Financial Statements Preparation
Parent Company (P Ltd)
- Revenue: KES 1,000,000
- Profit: KES 200,000
Subsidiary (S Ltd)
- Revenue: KES 500,000
- Profit: KES 100,000
- Inter-company sales: KES 50,000 (eliminate this)
Consolidated Income Statement
For the year ended 31 December 2026
| Particulars | KES |
|----------------------------------|-----------|
| Revenue | 1,000,000 |
| + Revenue from S Ltd | 500,000 |
| - Inter-company sales | (50,000) |
| Total Revenue | 1,450,000 |
| Profit from P Ltd | 200,000 |
| + Profit from S Ltd | 100,000 |
| Total Profit | 300,000 |
Consolidated Statement of Financial Position
| Assets | KES |
|----------------------------------|-----------|
| Total Assets of P Ltd | 1,500,000 |
| + Total Assets of S Ltd | 800,000 |
| Total Assets | 2,300,000 |
| Liabilities | KES |
| Total Liabilities of P Ltd | 600,000 |
| + Total Liabilities of S Ltd | 300,000 |
| Total Liabilities | 900,000 |
| Equity | KES |
| Share Capital | 1,000,000 |
| + Retained Earnings | 400,000 |
| Total Equity | 1,400,000 |