One Year After Acquisition: Consolidated F.S
One Year After Acquisition: Consolidated F.S
One Year After Acquisition: Consolidated F.S
Note: Each time a Consolidated Financial Statement is prepared, ASSUME that it is the FIRST TIME
preparation of Consolidated F.S. In CONSOLIDATED FS, Parent and Subsidiary are VIEWED as ONE entity.
Meaning, ANY transactions between the Parent and Subsidiary must be elimimated.
Using that formula, we can observe that in Consolidation, the Subsidiary is measured at F.V. Therefore,
Fair Value measurement of the Subsidiary(S) must be done EVERYTIME CONSOLIDATED FINANCIAL
STATEMENTS are prepared.
The ONLY Consolidated F.S. prepared at the DATE of ACQUISITION is the Consolidated B.S.
A Consolidated Income Statement is ALSO prepared on the SUBSEQUENT preparation(s) of consolidated
FS.
The main problem here is how to prepare consolidated income statement and what are the effects of
the operations of S in the consolidated BS.
B.V of SHE of S
Common Stock (CS) Pxx
APIC xx
RE xx Pxx
F.V. adjustments on Assets of S xx
Goodwill/(Gain) xx
TOTAL CONSIDERATION (F.V. of S) Pxx
BV of Net Assets(NA) of S
Add: FV adjustments on Assets of S
Goodwill/(Gain) .
Total F.V.(date of acquisition) of S
Add: Cumulative Effects of Operations of S
Total F.V. of S – End
The TOTAL F.V. of S-END will be allocated to CONTROLLING INTEREST(CI) and NCI in accordance to their
percentages.
Observe that the cumulative effects of operations of S is the only reason that changes the F.V. of
Subsidiary.
Don’t forget that a Consolidated F.S. is to be prepared here, meaning, some EFFECTS of operations of S
is not found in the BOOKS of subsidiary.
Those effects came from the ADJUSTMENTS TO F.V. on ASSETS OF S. Remember that F.V.
measurements in the Net Assets of Subsidiary will reflect ONLY in Consolidated FS.
Normally, there are three(3) major changes in the SUBSIDIARY resulting from its operations:
1. R.E. due to Net Income of Subsidiary (NIS). This is already recorded in the books of Subsidiary.
2. R.E. due to dividends distributed by S to its owners(CI and NCI). Already recorded in the books of
Subsidiary AND Parent but needs to be ELIMINATED.
3. Amortization (Depreciating/Charge to COGS) of FV Adjustments on Assets of S.
It is Not recorded in any books and therefore included in the ELIMINATION ENTRIES.
FV Adjustments on Assets of S
It is determined at the date of acquisition. The Fair Value of Assets is identified on item by item basis.
If the excess is from Depreciable Asset, the excess must be AMORTIZED also in the manner how the
asset is depreciated.
IF the excess is from Inventories, the excess must be AMORTIZED in proportion to the inventories sold.
All entries related to the Excess Attributable to Identifiable Assets must be found in Elimination Entries
only.
As a result, the Total Amortization of excess attributable to identifiable assets will be adjusted to Net
Income of Subsidiary in Consolidation purposes only.
All of the effects above must be reflected to Consolidated R.E. to compute the F.V. of S-END.
Entity Approach
Net Income of P Pxx
Less: Dividends from S xx
NI of P own operation Pxx
Add: NIS Px
Less: Amort of Excess x xx .
Consolidated Com Income Pxx
Less: NI of S Attri to P* xx
NCI in NIS Pxx
ELIMINATION ENTRIES