Analysis of Equity (AOE) — The Heart of Groups
90 min read • Last updated January 2026
The Analysis of Equity (AOE) is the single most important working paper in group accounting. It is the "engine room" where you calculate the figures that populate your consolidation journals and financial statements. Master the AOE, and you master Groups.
1The Golden Rule: Work in 100% First
Always work in the 100% column first. Only once you have calculated the total movement for a period do you split it between the Parent and the Non-Controlling Interest (NCI).
Why? Because it reduces rounding errors and ensures that your split always reconciles back to the total. It makes the logic much easier to follow when things get complex (like with fair value adjustments).
2The Structure of the AOE
An AOE is typically divided into three time-based sections. Each section calculates the equity of the subsidiary at a specific point in time or for a specific period.
🔵 Column 1: At Acquisition
Calculates the Net Asset Value (NAV) of the subsidiary on the date control was obtained. This is used to calculate Goodwill.
- • Share Capital
- • Retained Earnings (at acq date)
- • Fair Value Adjustments (Land, PPE, Brands)
- • Deferred Tax on FV Adjustments
🟡 Column 2: Since Acquisition to Start of Current Year
Calculates the growth in equity from the date of acquisition until the beginning of the current reporting period.
- • Total profits made since acquisition (pre-current year)
- • Depreciation on FV adjustments (pre-current year)
- • Dividends paid from pre-acquisition profits (if any)
- • Impairment of goodwill (if fair value method used)
🟢 Column 3: Current Year
Calculates the movements in equity for the current reporting year. This figure goes to the Group Income Statement and SOCI.
- • Profit for the current year
- • Current year depreciation on FV adjustments
- • Current year impairment of goodwill
- • Other Comprehensive Income (OCI) items
3Recommended AOE Template
Below is the standard template we recommend for all Groups questions. Using a consistent layout reduces the "mental load" during an exam.
| Description | Total (100%) | Parent (x%) | NCI (y%) |
|---|---|---|---|
| AT ACQUISITION | |||
| Share Capital | X | ||
| Retained Earnings (at acq) | X | ||
| FV Adjustments (Net of Tax) | X | ||
| At Acquisition Equity | NAV | Split | Split |
| SINCE ACQUISITION (Pre-CY) | |||
| Movement in Retained Earnings | X | ||
| Depreciation on FV Adj (Pre-CY) | (X) | ||
| Total Since Acquisition | Total | Split | Split |
| CURRENT YEAR | |||
| Profit for the Year | X | ||
| Current Year Depreciation on FV Adj | (X) | ||
| Total Current Year | Total | Split | Split |
Note: Dividends and FCTRs would also be included here depending on the scenario.
4Dealing with Deferred Tax in the AOE
Deferred tax must be accounted for on every fair value adjustment. This is where many students lose easy marks.
The Dual Rate System
In South Africa, the rate depends on how the asset's value will be recovered.
Use / Normal Recovery
Rate: 27% (Current rate)
Applies to: Inventory, Depreciable PPE, Provisions.
Sale / CGT Recovery
Rate: 21.6% (27% x 80% inclusion)
Applies to: Land, Investment Property.
Calculations to show in AOE:
FV Adj (PPE) = FV - Cost
Deferred Tax = FV Adj x 27%
Net FV Adj = FV Adj - Deferred Tax
*Use the Net figure in the main AOE calc to save time on splits!
5The Split: NCI vs. Parent
Once you have the total movement for a column (e.g., "Since Acquisition"), multiply that total by the ownership percentages.
Parent Share
Goes to Group Retained Earnings or SOCIE. This represents the parent's portion of the subsidiary's growth.
NCI Share
Goes to the NCI line in Equity on the SOFP. This represents the minority shareholders' portion of the subsidiary's equity.
Important: Negative NCI
Under IFRS 10, NCI can be negative. If the subsidiary makes losses that exceed its equity, NCI continues to share in those losses unless the parent has a contractual obligation to cover them.
Summary Checklist
- Did I identify the correct acquisition date and NAV?
- Did I account for all FV adjustments and related deferred tax?
- Did I use the correct tax rates (27% vs 21.6%)?
- Did I work in 100% first before splitting?
- Does my current year column match the Income Statement?
Coming in Part 5...
We'll tackle Complex Transactions: step acquisitions, disposals (loss of control), FCTRs, and complex intra-group transfers of assets.