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CONSOLIDATED

FINANCIAL STATEMENT
(Date of Acquisition)
Applicability. . .
All Parent Companies with subsidiaries:
EXCEPT:
A.
- Parent is a Wholly or Partially Owned Subsidiary
- Debt & Equity are not traded
- Not filling FS nor in the process of filling FS with
the SEC
- The Parent Company is preparing Consolidated FS.
Applicability. . .
B.
-Post Employment Benefit Plans or Long
Term Employee Benefits
C.
- Required to Measure the Subsidiaries at
FMV through P & L (Financial Instruments)
CONDITIONS FOR CONSOLIDATED STATEMENT
• THERE MUST BE CONTROL. . .
- Over 50% of the Voting Share

Other Factors:
- Power over the Investee
- Right to a Variable Return
- Ling of Power to the Variable Return
TECHNIQUES FOR CONSOLIDATION
• CONSOLIDATE THE ASSETS OF THE ACQUIRER
(BV) AND THE ASSETS OF THE ACQUIREE (FMV)
• ELIMINATION OF INVESTMENT IN SUBSIDIARY
ACCOUNT & STOCKHOLDER’S EQUITY ACCOUNT
OF THE SUBSIDIARY
A QUICK REVIEW OF THE JOURNAL ENTRIES…
A. Net Asset Acquisition by the Acquirer
Assets @ FMV XXX
Goodwill XXX
Cash / NCA / Payable / SC XXX
Gain on the Acquisition XXX
A QUICK REVIEW OF THE JOURNAL ENTRIES…
B. Stock Acquisition by the Acquirer

INVESTMENT IN SUBSIDIARY XXX


CASH / NCA / Payable / SC XXX
Eliminating Entry

Note: Recorded in the Working Paper ONLY

COMMON STOCK XXX


SHARE PREMIUM XXX
RETAINED EARNINGS XXX
INVESTMENT IN SUBSIDIARY XXX
Working Paper
ACCOUNTS PARENT SUBSIDIARY ELIMINATING ENTRIES CONSOLIDATED
Current Assets XXX XXX XXX
NCA XXX XXX XXX
Investment in Subsidiaries XXX (XXX) XXX
TOTAL ASSETS XXX XXX XXX
Current Liabilities XXX XXX XXX
NCL XXX XXX XXX
TOTAL LIABILITIES XXX XXX XXX
Common Stock XXX XXX XXX XXX
Share Premium XXX XXX XXX XXX
Retained Earnings XXX XXX XXX XXX
TOTAL LIABILITIES & SHE XXX XXX XXX
Eliminating Entry (With Goodwill)

Note: Recorded in the Working Paper ONLY

COMMON STOCK XXX


SHARE PREMIUM XXX
RETAINED EARNINGS XXX
GOODWILL XXX
INVESTMENT IN SUBSIDIARY XXX
Working Paper
ACCOUNTS PARENT SUBSIDIARY ELIMINATING ENTRIES CONSOLIDATED
Current Assets XXX XXX XXX
NCA XXX XXX XXX
Investment in Subsidiaries XXX (XXX) XXX
Goodwill XXX XXX
TOTAL ASSETS XXX XXX XXX
Current Liabilities XXX XXX XXX
NCL XXX XXX XXX
TOTAL LIABILITIES XXX XXX XXX
Common Stock XXX XXX XXX XXX
Share Premium XXX XXX XXX XXX
Retained Earnings XXX XXX XXX XXX
TOTAL LIABILITIES & SHE XXX XXX XXX
Eliminating Entry (With Gain on Acquisition)

Note: Recorded in the Working Paper ONLY

COMMON STOCK XXX


SHARE PREMIUM XXX
RETAINED EARNINGS XXX
INVESTMENT IN SUBSIDIARY XXX
GAIN ON THE ACQUISITION XXX
Working Paper
ACCOUNTS PARENT SUBSIDIARY ELIMINATING ENTRIES CONSOLIDATED
Current Assets XXX XXX XXX
NCA XXX XXX XXX
Investment in Subsidiaries XXX (XXX) XXX
TOTAL ASSETS XXX XXX
Current Liabilities XXX XXX XXX
NCL XXX XXX XXX
TOTAL LIABILITIES XXX XXX
Common Stock XXX XXX XXX XXX
Share Premium XXX XXX XXX XXX
Gain on the Acquisition (XXX) XXX
Retained Earnings XXX XXX XXX XXX
TOTAL LIABILITIES & SHE XXX XXX XXX
ELIMINATING ENTRY

PARTIAL PURCHASE– with NCI


NCI – MEASURED @ FMV rather than
proportionate in the NET assets.

Note: The FMV of the NCI is never lower


than its Proportionate Share in the Net
Assets.
Note: Recorded in the Working Paper ONLY

COMMON STOCK XXX


SHARE PREMIUM XXX
RETAINED EARNINGS XXX
ASSETS/LIABILITIES (ADJUSTMENTS) XXX
GOODWILL XXX
INVESTMENT IN SUBSIDIARY XXX
NON CONTROLLING INTEREST XXX
GAIN ON THE ACQUISITION XXX
ASSETS / LIABILITIES (ADJUSTMENTS) XXX
TO ILLUSTRATE…
Pepper Co. Steak Co.
Cash P450,000 P 15,000
Inventories 300,000 30,000
PPE, net 750,000 105,000
Total Assets P1,500,000 P150,000

Current Liabilities P 90,000 P 15,000


Common stock, P100 par 150,000 15,000
Additional Paid in capital 450,000 30,000
Retained earnings 810,000 90,000
Total Liabilities and Stockholders’ equity P1,500,000 P150,000

The fair value of Steak Company’s equipment is P153,000.


Assuming Pepper Company acquired 70% of the outstanding common stock of Steak Company for
P105,000 and Non-controlling interest is measured at fair value of P61,000, how much is the goodwill
(gain on acquisition)?
SOLUTION…
CONSIDERATION (105,000 + 61,000) 166,000

CASH 15,000
INVENTORIES 30,000
PPE, NET 153,000 @ FMV
LIABILITIES (15,000)
NET BV 183,000
Gain on the Acquisition 17,000
TO ILLUSTRATE…
Pepper Co. Steak Co.
Cash P450,000 P 15,000
Inventories 300,000 30,000
PPE, net 750,000 105,000
Total Assets P1,500,000 P150,000

Current Liabilities P 90,000 P 15,000


Common stock, P100 par 150,000 15,000
Additional Paid in capital 450,000 30,000
Retained earnings 810,000 90,000
Total Liabilities and Stockholders’ equity P1,500,000 P150,000

The fair value of Steak Company’s equipment is P153,000.


Assuming Pepper Company acquired 90% of the outstanding common stock of Steak Company for
P243,000 and Non-controlling interest is measured at fair value, how much is the total consolidated
assets on the date of acquisition?
JOURNAL ENTRY

INVESTMENT IN SUBSIDIARIES 243,000


CASH 243,000
Computation of Goodwill
CONSIDERATION 243,000
NCI (243,000 / 90%) X 10% 27,000
TOTAL 270,000

CASH 15,000
INVENTORIES 30,000
PPE, NET 153,000 @ FMV
LIABILITIES (15,000)
NET BV 183,000
GOODWILL 87,000
ELIMINATING ENTRY
COMMON STOCK 15,000
SHARE PREMIUM 30,000
RETAINED EARNINGS 90,000
EQUIPMENT 48,000 (153,000 – 105,000)
GOODWILL 87,000
INVESTMENT IN SUBSIDIARIES 243,000
NON CONTROLLING INTERESTS 27,000
SOLUTION…
Pepper Co. Steak Co. ELIMINATING ENTRY
Cash P207,000 P 15,000 222,000
Inventories 300,000 30,000 330,000
PPE, net 750,000 105,000 48,000 903,000
Investment in Subsidiaries 243,000 (243,000) 0
Goodwill 87,000 87,000
Total Assets P1,500,000 P150,000 1,542,000

Current Liabilities P 90,000 P 15,000 105,000


Common stock, P100 par 150,000 15,000 15,000 150,000
Additional Paid in capital 450,000 30,000 30000 450,000
Retained earnings 810,000 90,000 90000 810,000
NCI (27,000) 27,000
Total Liabilities and Stockholders’ equity P1,500,000 P150,000 1,542,000
SUBSIDIARY WITH PRE EXISTING GOODWILL..
• GOODWILL IS IGNORED IN THE COMPUTATION AND
ALLOCATION OF EXCESS.
• CONSIDERED IN THE PREPARATION OF ELIMINATING
ENTRY.
STEP ACQUISITION…
• Original PFRS – Re-measure the investment at FMV at
the original date of purchase.
• Revised PFRS – Re-measure the investment at FM at the
latest acquisition date with the difference to Profit &
Loss.
ELIMINATING ENTRY…
COMMON STOCK XXX
SHARE PREMIUM XXX
RETAINED EARNINGS XXX
ASSETS/LIABILITIES (ADJUSTMENTS) XXX
GOODWILL XXX
INVESTMENT IN SUBSIDIARY XXX
NON CONTROLLING INTEREST XXX
GAIN ON THE ACQUISITION XXX
ASSETS / LIABILITIES (ADJUSTMENTS) XXX
REMEASUREMENT INCOME XXX
PUSH DOWN ACCOUNTING
• Eliminating Entries are recorded on the books of the Subsidiary
• Assets and Liabilities are recorded with a corresponding debit or
credit to Retained Earnings
• Simplifies the Consolidation
Reverse Acquisition…
1. The legal Acquirer becomes the Acquiree (Accounting Perspective)
2. The legal Acquiree becomes the Acquirer (Accounting Perspective)

The Consideration (Stock) issued by the Parent is so large


that the Subsidiary now owns more stock than that of
the stockholders of the Parent.

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