Group Statement of Changes in Equity

Three of the four primary statements a group publishes are covered elsewhere in these notes: the consolidated statement of financial position, the consolidated statement of profit or loss and other comprehensive income, and the consolidated statement of cash flows. This chapter deals with the fourth. The consolidated statement of changes in equity is the bridge between the equity the group had at the start of the year and the equity it has at the end of it, and it is the only primary statement that shows the non-controlling interests as a column of their own rather than as a single line.

Nothing in it is new. Every figure it contains has already been calculated somewhere else in the consolidation — in the net assets working, in the goodwill and non-controlling interest workings, or at the foot of the consolidated statement of profit or loss. What is new is the point in time at which two of those workings are performed, and that is the whole difficulty of the topic.

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1 What the statement does

For a single company the statement of changes in equity is entirely literal. It takes the opening balance on each component of equity, adds the profit and other comprehensive income for the year, deducts the dividends paid, adds any shares issued, and arrives at the closing balance. Each column casts down to the closing figure that appears in the statement of financial position.

A group has the same statement and the same logic, but it has two sets of owners. Some of the group's equity belongs to the shareholders of the parent; the rest belongs to the outside shareholders of the partly owned subsidiaries — the non-controlling interests. The consolidated statement therefore runs in three money columns: one for the owners of the parent, one for the non-controlling interests, and a total.

That is the sentence to hold on to: the opening column headings are standard working 5 and standard working 4 done at the beginning of the year instead of at the end of it. Students who find this chapter hard almost always find it hard for that one reason — every other consolidation working is performed at the reporting date, and here two of them are not.

2 IFRS 18 and this chapter

3 The pro-forma

Consolidated statement of changes in equity for the year ended [date]:

The last two rows appear only when the group has issued shares or bought or sold a stake without gaining or losing control; sections 4.5 and 4.6 explain them. The first four rows appear in every question.

4 Building the statement line by line

4.1 The balances at the start of the year

These are the two figures that cause the trouble, and they are worth doing first only if you like doing the hard part first. Most people find it easier to work up from the bottom — dividends, then the profit split, then the opening balances — and to take the closing balances as the casting figure.

The parent column. Take 100% of the parent's own equity at the start of the year, and add the parent's share of the subsidiary's post-acquisition movement in equity up to the start of the year:

Opening parent column = 100% of P's equity b/f + P% × (S's equity b/f − S's equity at acquisition)

The non-controlling interests column. Take the non-controlling interests at acquisition — measured either at fair value or at the proportionate share of the subsidiary's net assets, whichever the group's policy is — and add the non-controlling interests' share of the same post-acquisition movement, again only up to the start of the year:

Opening NCI column = NCI at acquisition + NCI% × (S's equity b/f − S's equity at acquisition)

If the subsidiary was acquired part way through a previous year, the post-acquisition movement still runs from the acquisition date; the mid-year apportionment was dealt with in that earlier year and does not have to be repeated here.

4.2 Total comprehensive income for the year

This line is a transfer, not a calculation. The consolidated statement of profit or loss and other comprehensive income already ends with total comprehensive income attributed between the owners of the parent and the non-controlling interests; those two figures are the two entries on this row. Where the question does not give you a consolidated statement of profit or loss, build the split in a working:

1. Add the whole of the parent's profit (or total comprehensive income) to the whole of the subsidiary's, adjusting for the usual consolidation items — unrealised profit, fair value depreciation, goodwill impairment, and the elimination of any intra-group dividend the parent has recorded.

2. Take the non-controlling interests' share: NCI% × the subsidiary's figure after those adjustments, time-apportioned if the subsidiary was acquired during the year.

3. The amount attributable to the owners of the parent is then the balancing figure.

Where a group presents a single statement of profit or loss and other comprehensive income, this row is the total comprehensive income line. Where a group publishes two statements, the row is still total comprehensive income — profit for the year on its own is not enough, because the other comprehensive income has to reach equity somehow.

4.3 Dividends

Dividends are the easiest figures in the statement, and are usually where an exam question starts.

• The parent's dividend goes in the parent column at 100%. All of it leaves the group, because the parent's shareholders are outside it.

• The subsidiary's dividend appears in the non-controlling interests column at NCI% only. That is the part of it that leaves the group. The parent's share of the same dividend is cash moving from one group company to another; it is eliminated on consolidation and appears nowhere in this statement.

Watch for a parent that has recorded the dividend it received from its subsidiary as investment income. That income is intra-group and must be eliminated in the profit working before the split at 4.2 is done; otherwise the parent column is overstated.

4.4 The balances at the end of the year

Cast each column down. The closing parent column should equal standard working 5 at the reporting date and the closing non-controlling interests column should equal standard working 4 at the reporting date, so if you have already prepared the consolidated statement of financial position you have a free check on the whole statement. The total column must equal total equity in that statement.

4.5 Issues of share capital

Only the parent's share issues appear in the parent column, at their full proceeds. Shares issued by a subsidiary to the parent are intra-group. Shares issued by a subsidiary to the outside shareholders increase the non-controlling interests and change the ownership proportions — which is the subject of 4.6.

4.6 Changes in ownership that do not result in a loss of control

Where a parent buys more shares in a subsidiary it already controls, or sells some but keeps control, IFRS 10 Consolidated Financial Statements treats the transaction as a transaction between owners. Control does not change, so the group does not remeasure the subsidiary's assets and liabilities, does not recognise any goodwill on the purchase and does not report any gain or loss on the sale. The carrying amount of the non-controlling interests is adjusted to reflect the new proportion held, and the difference between that adjustment and the consideration paid or received is recognised directly in equity, attributed to the owners of the parent.

That is why the row exists in the pro-forma and why it casts to nil in the total column: the amount taken out of one column is put into the other. The mechanics of computing it are outside these notes, but the row and the principle are worth recognising, because a change in ownership is the situation in which this statement is most often examined.

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5 Worked example

6 Exam technique

Objective test questions rarely ask for the whole statement. They ask for one cell of it, and by far the most common cells are the two opening balances — because they are the two figures that cannot be lifted from anywhere else. Work in this order and you will not lose your place:

1. Dividends. Parent 100%; subsidiary at NCI% only.

2. The profit split. Group figure first, non-controlling interests second, parent as the balancing figure.

3. The opening balances. Standard workings 5 and 4, struck at the start of the year.

4. The closing balances, by casting.

One reassurance. Because the closing balances of this statement are the same two workings you have already done for the consolidated statement of financial position, a question that gives you both statements gives you a free check: if the columns do not cast to the equity figures in the statement of financial position, the error is in this statement, not in that one.

7 Test your knowledge