Illustration: Consolidation at acquisition date
On January 1, 20x1, ABC Co. (parent) acquires 80% interest in XYZ Inc. (subsidiary). The financial statements of
the combining entities immediately after the business combination are shown below:
Parent Subsidiary
Cash 10,000 5,000
Accounts receivable 30,000 12,000
Inventory 40,000 23,000
Investment in subsidiary 75,000 -
Equipment, net 180,000 40,000
Total assets 335,000 80,000
Accounts payable 50,000 6,000
Share capital 170,000 50,000
Share premium 65,000 -
Retained earnings 50,000 24,000
Total liabilities and equity 335,000 80,000
Additional information:
* The subsidiary's assets and liabilities are stated at their acquisition-date fair values, except for the following:
Inventory, Php 31,000
Equipment, net Php 48,000
* The goodwill determined under PFRS 3 is Php 3,000.
* The NCI in the net assets of the subsidiary, also detemined under PFRS 3, is Php 18,000.
Requirement:Prepare the cosolidated statement of financial position.
Solution:
Step 1: Eliminate the "Investment in subsidiary" account and;
a. Measure the subsidiary's assets and liabilities at their acquisition-date fair values;
b. Recognize the goodwill; and
c. Replace the subsidiary's pre-combination equity accounts with the NCI in net assets.
Step 1 - Eliminate "Investment in
subsidiary" accounts.
Parent Subsidiary
Cash 10,000 5,000
Accounts receivable 30,000 12,000 Step 1(a) -Measure subsidiary's
Inventory 40,000 31,000 and liabilities at acquisition-date
Investment in subsidiary 75,000 - values.
Equipment, net 180,000 48,000
Goodwill 3,000 Step 1(b) -Recognize goodwill.
Accounts payable 50,000 6,000 Step 1(c) - Replace the subsidiar
Share capital 170,000 50,000 combination equity accounts wi
Share premium 65,000 - in net assets.
Retained earnings 50,000 24,000
NCI in net assets 18,000
Step 2: Add, line by line, similar items of assets and liabilities of the combining constituents.
Parent Subsidiary Consolidated
Cash 10,000 5,000 15,000
Accounts receivable 30,000 12,000 42,000
Inventory 40,000 31,000 71,000
Investment in subsidiary
Equipment, net 180,000 48,000 228,000
Goodwill 3,000 3,000
Total assets 359,000
Accounts payable 50,000 6,000 56,000
Share capital 170,000 170,000
Share premium 65,000 65,000
Retained earnings 50,000 50,000
NCI in net assets 18,000 18,000
Total liabilities and equity 359,000
The consolidated statement of financial position is shown below:
ABC Group
Consolidated statement of financial position
As of January 1, 20x1
ASSETS
Cash 15,000
Accounts receivable 42,000
Inventory 71,000
Equipment, net 228,000
Goodwill 3,000
TOTAL ASSETS 359,000
LIABILTIES AND EQUITY
Accounts payable 56,000
Total liabilities 56,000
Share capital 170,000
Share premium 65,000
Retained earnings 50,000
Owners of parent 285,000
Non-controlling interest 18,000
Total equity 303,000
TOTAL LIABILITIES AND EQUITY 359,000
Traditional Accounting Methods
a. Consolidation journal entries
CJE #1: To eliminate investment in subsidiary and recognize goodwill.
Jan. 1, Inventory 8,000
20x1 Equipment 8,000
Share capital - XYZ, Inc. 50,000
Retained earnings - XYZ, Inc. 24,000
Goodwill 3,000
Investment in subsidiary 75,000
Non-controlling interest 18,000
to adjust the subsidiary's assets to acquisition-date
fair values, to eliminate the investment in subsidiary
and subsidiary's pre-comnbination equity, and to
recognize goodwill and non-controlling interest in
the consolidated financial statements.
b. Consolidation worksheet.
ABC Group
Consolidation Worksheet
January 1, 20x1
ABC Co. XYZ, Inc. CJE ref. # Consolidation adjustments
ASSETS Dr. Cr.
Cash 10,000 5,000
Accounts receivable 30,000 12,000
Inventory 40,000 23,000 1 8,000
Investment in subsidiary 75,000 75,000
Equipment, net 180,000 40,000 1 8,000
Goodwill 1 3,000
Total assets 335,000 80,000
LIABILTIES AND EQUITY
Accounts payable 50,000 6,000
Total liabilities 50,000 6,000
Share capital 170,000 50,000 1 50,000
Share premium 65,000 -
Retained earnings 50,000 24,000 1 24,000
Non-controlling interest - - 18,000
Total equity 285,000 74,000
TOTAL LIABILITIES AND EQUITY 335,000 80,000 93,000 93,000
atements of
he following:
(a) -Measure subsidiary's assets
bilities at acquisition-date fair
(b) -Recognize goodwill.
(c) - Replace the subsidiary's pre-
nation equity accounts with the NCI
CJE ref. # Consolidated
15,000
42,000
71,000
1 -
228,000
3,000
359,000
56,000
56,000
170,000
65,000
50,000
1 18,000
303,000
359,000
