IAS 27 - Consolidated and Separate Financial Statements - Statement of Financial Position

A parent is an entity that controls another entity. An entity that is controlled by the parent is called a subsidiary.
Control is the ability to govern the financial and operating policy decisions of an entity.It is commonly expressed by having a significant shareholding (greater than 50%), although this is not the only indicator of control.

The consolidated Statement of Financial Position
The key concept is called SIMPLE ADDITION. it applies to all assets and liabilities of the parent and the subsidiary. For instance, if a parent has inventory of 100/- and the subsidiary has inventory of 50/-, the consolidated inventory is 100+50=150! So simple, isn't it?
However, there are several adjustments to this rule of simple addition:

Property Plant and Equipment = Parent + Subsidiary + Revaluation gain - Additional depreciation due to revaluation - Unrealised profit on intragroup sale of PPE + Excess depreciation due to the unrealised profit.

Inventory = Parent + Subsidiary - unrealized profit on closing inventory

Receivables = Parent + Subsidiary - intragroup receivables

Payables = Parent + Subsidiary - intragroup payables

EQUITY
We only take the parent's equity (share capital, share premium,reserves etc). A common trick is that if a parent paid for its stake in the subsidiary or associate in form of shares, then we will have to consider the additional shares that have been issued. This will thus have an impact on share capital and share premium.

For retained earnings, we take the parent's retained earnings + parent's share of subsidiary's post acquisition profits + parent's share of associate's post acquisition profits.
Note that any adjustments that affect profit and loss will be adjusted from the retained earnings, for example, depreciation, impairment, armortisation, unrealised profits etc.Now, here's the catch: for any adjustments affecting the subsidiary, take the group's share of the adjustment, while for any adjustment affecting the parent, take the entire adjustment. Just think of a scenario: parent sells to subsidiary goods and makes unrealized profit of 10/-. The entire profit of 10/- is due to the parent and will thus be adjusted from the retained earnings. if however, the transaction were a sale from subsidiary to parent, then the subsidiary would make the profit of 10/-. if the parent owns say 80% of the subsidiary, then it should only adjust a relevant 80% of the unrealised profit i.e. 8/-. The balance of 2/- will be adjusted from the Non controlling interest.