-Date of Acquisition
*Consolidated Statement of Financial Position
The Company whose assets were
acquired is dissolved
Consolidation of the two Companies are
AUTOMATIC because all subsequent
transactions are recorded in a single set of books of the
Acquirer.
Acquisition of Control
Net asset acquisition
Stock Acquisition
Parent controlling Interest
SubsidiaryControlle
d Company
% of Voting Stock
Over 50% voting stock
Remaining interest
Non-Controlling
Interest (formerly called as Minority Interest)
Statutory ConsolidationA comp.+ B= C company
Statutory MergerA comp. + B = A
companyRetains its legal identity and continues to
prepare its own financial
statements.
*Consolidated Statement
NatureConsolidated statements- presents the financial statements of the parent and its subsidiary as those of a single economic entity.
Consolidation working papers- are prepared to facilitate the consolidation of the separate statements of the parent and its subsidiary(s) into a single set of consolidated statements.
ConditionsStatements are to be consolidated when a parent company owns over 50% of the voting common stock of another company thereby having a controlling interest.
Techniques of Consolidation
Basic Procedure
To eliminate the Investment account on the parent company’s statement of financial position against the stockholder’s equity accounts in the statement of financial position of the subsidiary company.
Elimination entries appear only on the consolidation working papers, they are not recorded on the books of either the
parent or subsidiary company.
Two Types of Stock Acquisition
100% stock Acquisition
Less than 100% stock
Produce the same consolidated statement
of financial position after acquisition with an asset acquisition
Differ from asset acquisition
because there will be a non-controlling
interest in the consolidated statement of
financial position.
Part 2
Journal Entry on P Company to record Acquisition of S company’s net assets.
Accounts receivable 32,000Inventory 20,000Equipment 158,000
Accounts payable110,000
Cash 100,000
Part 3P CompanyStatement of Financial Position Subsequent to Asset AcquisitionDecember 1,2011
Assets Current AssetsCash 130,000Accounts receivable 72,000Inventory 70,000Total Current assets 272,000
Noncurrent AssetsEquipment 338,000TOTAL 610,000
Liabilities and Equity Current LiabilitiesAccounts payable 390,000 Stockholders EquityCommon Stock 100,000Additional Paid In Capital 80,000Retained Earnings 40,000 220,000Total liabilities and equity 610,000
Stock Acquisition
Entry of P company on the date of Acquisition:
Investment in S company 100,000Cash 100,000
*Acquisition of Wholly Owned Subsidiary
-100% InterestCase 1: Acquisition at Book Value
P company acquires all of S company’s outstanding common stock for P100,000 cash.
Consideration given (price paid)100,000Less: BV of Interest acquired (100%): Common stock, S company P50,000 APIC-S company 30,000 Retained Earnings- S comp. 20,000 100,000Excess P -0-
Note: In Financial Position of P company, only the statement of financial position has changed to reflect the P100,000 reduction in cash and the recording of the Investment in S company Account
for the same amount.
P Company and S CompanyStatement of Financial PositionDecember 1, 2011
P Company S Company
AssetsCash P130,000 P -0-Accounts receivable 40,000 32,000Inventory 50,000 20,000Equipment-net 180,000158,000Investment In S company stock 100,000
Total Assets P500,000 210,000
Liabilities and Stockholder’s EquityAccounts Payable 280,000
110,000Common Stock 100,00050,000Additional Paid in Capital 80,00030,000Retained Earnings 40,00020,000 Total Liabilities and SHE P500,000210,000
Working Paper Elimination Entry
E(1) Common Stock- S Company 50,000 Additional paid-in capital- S comp. 30,000 Retained Earnings- S company 20,000
Investment in S Company100,000
Consolidation Working Paper
P Compan
y
S Compan
y
EliminationsConsolidate
dDebit Credit
AssetsCashAccounts receivableInventoryEquipment-netInvestment In S company stock
P130,00040,00050,000
180,000
100,000
P-0-32,00020,000
158,000
(1)100,000
130,00072,00070,000
338,000
--
Total Assets 500,000 210,000 610,000
Liabilities and Equity
Accounts payableCommon stock:
P companyS company
APIC:P companyS company
Retained Earnings:P companyS company
280,000
100,000
80,000
40,000
110,000
50,000
30,000
20,000
(1) 50,000
(1) 30,000
(2) 20,000
390,000
100,000
80,000
40,000
Total Liabilities and Equity
P500,000 P210,000 P100,000 P100,000 P610,000
P Company and SubsidiaryConsolidated Statement of Financial PositionDecember 1,2011
AssetsCurrent AssetsCash 130,000Accounts receivable 72,000Inventory 70,000Total Current assets 272,000
Noncurrent AssetsEquipment 338,000TOTAL 610,000
Liabilities and EquityCurrent LiabilitiesAccounts payable 390,000Stockholders EquityCommon Stock 100,000Additional Paid In Capital 80,000Retained Earnings 40,000 220,000Total liabilities and equity 610,000
Case 2: Acquisition at More than Book Value
When the book values of the net assets of the subsidiary are equal to their fair values, and the consideration given (price paid) is more than the book value of interest acquired from the subsidiary, the excess is treated as GOODWILL
Illustration: Assume that P Company acquires 100% of S company’s outstanding common stock for P110,000 in cash on
December 1,2011.
Entry on the date of acquisition in P company:
Investment in S Company 110,000 Cash 110,000
Computation of excess of the consideration over the BV of Interest Acquired:
Consideration given (price paid)110,000Less: BV of Interest acquired (100%): Common stock, S company P50,000 APIC-S company 30,000 Retained Earnings- S comp. 20,000 100,000 Goodwill P10,000
Two factors that results an excess in Consideration given over BV of Interest:
1. A difference between the book value of the subsidiary’s asset and/or liabilities and their fair values.
2. The existence of goodwill in the subsidiary company.
Working Paper Elimination Entries
E(1) Common Stock- S Company 50,000 Additional paid-in capital- S comp. 30,000 Retained Earnings- S company 20,000 Goodwill 10,000
Investment in S Company 110,000
Consolidation Working Paper
P Compan
y
S Compan
y
EliminationsConsolidate
dDebit Credit
AssetsCashAccounts receivableInventoryEquipment-netGoodwillInvestment In S company stock
P120,00040,00050,000
180,000
110,000
P-0-32,00020,000
158,000
(1) 10,000(1)110,00
0
120,00072,00070,000
338,00010,000 --
Total Assets 500,000 210,000 610,000
Liabilities and Equity
Accounts payableCommon stock:
P companyS company
APIC:P companyS company
Retained Earnings:P companyS company
280,000
100,000
80,000
40,000
110,000
50,000
30,000
20,000
(1) 50,000
(1) 30,000
(2) 20,000
390,000
100,000
80,000
40,000
Total Liabilities and Equity
P500,000 P210,000 P110,000 P110,000 P610,000
P Company and SubsidiaryConsolidated Statement of Financial PositionDecember 1,2011
Assets Current AssetsCash 120,000Accounts receivable 72,000Inventory 70,000Total Current assets 262,000
Noncurrent AssetsEquipment 338,000Goodwill 10,000TOTAL 610,000
Liabilities and Equity Current LiabilitiesAccounts payable390,000 Stockholders EquityCommon Stock 100,000Additional Paid In Capital 80,000Retained Earnings 40,000220,000Total liabilities and equity610,000
Case 3: Acquisition at less than Book Value-Bargain Purchase
A Bargain purchase exist when the price paid is Less than the fair value of the subsidiary’s net identifiable assets. The excess
is treated as gain on Acquisition.
Illustration: Assume that P Company paid only P80,000 for the 100% interest in the stockholders’ equity of S company.
Entry of P company to record the acquisition:
Investment in S Company 80,000Cash 80,000
Computation:
Consideration given (price paid) 80,000Less: BV of Interest acquired (100%): Common stock, S company P50,000 APIC-S company 30,000 Retained Earnings- S comp. 20,000 100,000 Gain on acquisition P(20,000)
E(1) Common Stock- S Company 50,000 Additional paid-in capital- S comp. 30,000 Retained Earnings- S company 20,000
Investment in S Company 80,000
Retained Earnings-P comp. (gain) 20,000
Working paper elimination entry:
Consolidation Working Paper
P Compan
y
S Compan
y
EliminationsConsolidate
dDebit Credit
AssetsCashAccounts receivableInventoryEquipment-netInvestment In S company stock
P150,00040,00050,000
180,000
80,000
P-0-32,00020,000
158,000
(1)80,000
150,00072,00070,000
338,000
--
Total Assets 500,000 210,000 630,000
Liabilities and Equity
Accounts payableCommon stock:
P companyS company
APIC:P companyS company
Retained Earnings:P companyS company
280,000
100,000
80,000
40,000
110,000
50,000
30,000
20,000
(1) 50,000
(1) 30,000
(2) 20,000(1) 20,000
390,000
100,000
80,000
60,000
Total Liabilities and Equity
P500,000 P210,000 P100,000 P100,000 P630,000
*Acquisition of Partially Owned Subsidiary (less than 100%
interest)Non-controlling Interest
-It is a term applied to the rights of stockholders other than the parent company(controlling interest) to the net income or loss and net assets of the subsidiary.
The non-controlling interest in the net income of the subsidiary is presented in the consolidated statement of comprehensive income and the non-controlling interest in the subsidiary’s net asset is shown in the consolidated statement of financial position in total and is not broken into common stock, additional paid-in capital, and retained earnings. It must be shown as a component of stockholders’ equity.
Measurement of Non-controlling Interest
IFRS 3 (2008) provides two options of measuring non-controlling interest in acquiree:
at fair value, or At the non-controlling interest’s proportionate share of the
acquiree’s identifiable net assets.