Acquisition of a subsidiary

In this lesson

1. 0:00 Group accounting advanced issues overview
2. 0:23 Mid-year subsidiary acquisition and pro-rating
3. 1:27 Worked example: calculating consolidated profit
4. 3:04 Step acquisitions and piecemeal control
5. 4:16 Accounting for step acquisitions: remeasurement
6. 5:31 Worked example: step acquisition with fair value
7. 7:42 Goodwill calculation in step acquisitions

About this lesson

You'll discover why timing matters when control is achieved mid-year, how to pro-rate subsidiary results correctly, and how to handle situations where controlling interest is built up in stages over time. The session covers the core principle that only post-acquisition income and expenses are consolidated. When you acquire a subsidiary partway through the year, you simply include that subsidiary's results from the date control is gained. For example, if acquisition happens on 1 July with a 31 December year-end, you include six months of the subsidiary's revenue, costs, and expenses. This straightforward pro-rating approach ensures your consolidated statement of profit or loss reflects only the periods when the subsidiary was actually under your control. Step acquisitions—where you build a controlling stake through multiple share purchases over time—require more careful handling. When control is finally achieved, the previously held equity interest must be remeasured to fair value, with any gain or loss recognised in profit or loss. Goodwill is then calculated using the fair value of both the new shares purchased and the previously held interest, plus the non-controlling interest at fair value. Crucially, goodwill isn't recalculated if you buy additional shares after control is established; only your ownership percentage changes. The lesson works through practical examples showing how to apply these principles in consolidated financial statements, helping you master the technical requirements you'll face in exam questions and real-world group accounting scenarios.

Duration: 9m