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Consolidated Financial Statements-Subsequent Partial

P200,000 Land: P300,000 Building: P1,000,000 Investment in Khah: P360,000 Accounts Payable: P100,000 Common Stock: P1,000,000 Retained Earnings: P500,000 Total: P2,900,000 Khah Current Assets: P100,000 Land: P50,000 Building: P350,000 Accounts Payable: P50,000 Common Stock: P300,000 Retained Earnings: P100,000 Total: P900,000 Additional information: - Khah building has an estimated remaining useful life of

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72 views24 pages

Consolidated Financial Statements-Subsequent Partial

P200,000 Land: P300,000 Building: P1,000,000 Investment in Khah: P360,000 Accounts Payable: P100,000 Common Stock: P1,000,000 Retained Earnings: P500,000 Total: P2,900,000 Khah Current Assets: P100,000 Land: P50,000 Building: P350,000 Accounts Payable: P50,000 Common Stock: P300,000 Retained Earnings: P100,000 Total: P900,000 Additional information: - Khah building has an estimated remaining useful life of

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Joseph Salido
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Consolidated Financial

Statements
Subsequent Date of Acquisition
Partially Owned Corporation
First Year of Acquisition
Consolidated Net Income

Consolidated Net Income may be computed in two approaches;

Parent Company Approach

For wholly owned – all income of the parent and its


subsidiaries accrues to the parent company.
Partially owned – a portion of its income accrues to its non-
controlling shareholders and is excluded from
consolidated net income

Entity Approach

Wholly owned – the consolidated net income is computed


similarly as that of the parent company approach.
Partially owned – the portion of its income accruing to NCI
is included in the consolidated net income.
Illustrative Problem:

Abbreviated trial balance of Papa and Son Corporations at December 31,


2010.

Papa Son
Current Assets P 240,000 130,000
Land 300,000 50,000
Plant & Equipment (net) 1,000,000 350,000
Investment in Son 450,000
Cost of sales 1,000,000 300,000
Other Expenses 250,000 120,000
Dividends declared 100,000 50,000
3,340,000 1,000,000

Current Liabilities 295,000 100,000


Ordinary shares 1,000,000 300,000
Retained Earnings 500,000 100,000
Sales 1,500,000 500,000
Dividends income 45,000 ________
3,340,000 1,000,000
Papa Corporation acquired a 90% interest in Son Corp. for P450,000 cash
on January 1, 2010. Plant and equipment has remaining 10 years useful
life from January 1, 2010. The elimination entries made on separate
working papers on January 1, 2010 are as follows:

E1: Ordinary Shares 300,000


Retained Earnings 100,000
Investment in Son 360,000
Non Controlling Interest 40,000

E2: Plant and Equipment 50,000


Goodwill 50,000
Investment in Son 90,000
Non controlling Interest 10,000
Consolidated Elimination Entries for Partially Owned Corporation

1. Eliminate intercompany dividends and recognized NCI share


of subsidiary’s dividends declared.

2. Eliminate equity accounts of subsidiary at date of acquisition


against investment account and NCI. (1st elimination entry on
the date of acquisition)

3. Allocate excess to the specific assets and liabilities of the


subsidiary. ( 2nd Elimination Entry on the date of Acquisition)

4. Amortized the allocated excess.

5. Assign Income of subsidiary to NCI.


1. Eliminate intercompany dividends and recognized NCI share of
subsidiary’s dividends declared.

Accounting for Investment

Cost Method – used when the acquirer owns directly or indirectly


more than of the voting power of an entity, thereby exercising
control.

- Investment retained at its original cost ( the acquisition cost).


Income on investment is limited to dividends received from the
subsidiary.

Equity Method – used when acquirer/ investor owns 20% or more but
less than 50% of the voting power of the investee/acquiree,
thereby exercising significance influence.

- investment account fluctuates by the share of net income or


loss of the investee/acquiree and decrease by receiving dividends
from the investee or acquiree.
1. Eliminate intercompany dividends and recognized NCI share of
subsidiary’s dividends declared.

Cost method:

Declaration/payment of Dividends; Parent Received dividends: Entry

Papa

Dividends Declared (RE) 100,000


Cash 100,000

#
Cash 45,000
Dividend Income 45,000 (50,000 x 90%)

Son

Dividends Declared (RE) 50,000


Cash 50,000
1. Eliminate intercompany dividends and recognized NCI share of
subsidiary’s dividends declared.

Elimination Entry:

Dividends Income 45,000


Non Controlling Interest 5,000 (50,000 x 10%)
Dividends Declared (RE) 50,000
2. Eliminate equity accounts of subsidiary at date of acquisition against
investment account and NCI. (1st elimination entry on the date of
acquisition)

Ordinary Shares 300,000


Retained Earnings 100,000
Investment in Son 360,000
Non Controlling Interest 40,000

3. Allocate excess to the specific assets and liabilities of the subsidiary.


( 2nd Elimination Entry on the date of Acquisition)

Plant and Equipment 50,000


Goodwill 50,000
Investment in Son 90,000
Non controlling Interest 10,000
4. Amortized the allocated excess.

Depreciation Expense/
Operating Expense 5,000
Plant and Equipment 5,000

Excess of Plant and Equip - 50,000


Divided by 10 years - 10
Amortization 5,000
5. Assign Income of subsidiary to NCI.

Son Unadjusted Son Adjusted

Sales 500,000 500,000


Dividend Revenue _________ _________

Total Revenue 500,000 500,000

Cost of Sales 300,000 300,000


Operating Expenses 120,000 125,000**

Total Cost and Expenses 420,000 425,000

Net Income 80,000 75,000

Attributable to Parent (90% x 75,000) 67,500

Attributable to Non-controlling interest (10% x 75,000) 7,500

12 **120,000 + 5,000 on E4 =125,000


5. Assign Income of subsidiary to NCI.

NCI on net income of subsidiary 7,500


Non Controlling Interest (NCI) 7,500
Consolidated Statements
Consolidated Net Income

Parent Company Approach:

Papa Son Elimination Consolidated


Sales 1,500,000 500,000 2,000,000
Dividends Income 45,000 ________ (45,000) ___________

Total Revenue 1,545,000 500,000 2,000,000

Cost of Sales 1,000,000 300,000 1,300,000


Operating Expenses 250,000 120,000 5,000 375,000

Total Cost and expenses 1,250,000 420,000 1,675,000

Income 295,000 80,000 325,000

Less: NCI on net income of Subsidiary 7,500

Consolidated Net Income 317,500


Consolidated Net Income

Parent Company Approach:

Papa Net Income 295,000


Dividend Income (from Son) (45,000)
Net Income from Own Operation 250,000

Unadjusted Son Net income 80,000


Less: adjustment (depreciation) 5,000 75,000

Total 325,000

Less: NCI on net income 7,500

Consolidated Net Income 317,500


Consolidated Net Income

Entity Approach:

Papa Son Elimination Consolidated


Sales 1,500,000 500,000 2,000,000
Dividends Income 45,000 ________ (45,000) ___________

Total Revenue 1,545,000 500,000 2,000,000

Cost of Sales 1,000,000 300,000 1,300,000


Operating Expenses 250,000 120,000 5,000 375,000

Total Cost and expenses 1,250,000 420,000 1,675,000

Consolidated Net Income 295,000 80,000 325,000

Less: NCI on net income 7,500

Attributable to Papa 317,500


Consolidated Net Income

Entity Approach:

Papa Net Income 295,000


Dividend Income (from Son) (45,000)
Net Income from Own Operation 250,000

Unadjusted Son Net income 80,000


Less: adjustment (depreciation) 5,000 75,000

Consolidated Net Income 325,000

Less: NCI on net income 7,500

Attributable to Papa 317,500


Consolidated Retained Earnings

Papa Son Elimination Consolidated

Beginning RE 500,000 100,000 (100,000) 500,000


Add: Net Income 295,000 80,000 317,500
Less:
Dividends declared:
Papa 100,000 100,000
Son ________ 50,000 (50,000) _________

Ending RE 695,000 130,000 717,500


(to be carry to
Balance Sheet)
Consolidated Statement of Financial Position

Papa Son Elimination Consolidated

Current Assets 240,000 130,000 370,000


Land 300,000 50,000 350,000
Plant and Equipment 1,000,000 350,000 45,000** 1,395,000
Goodwill 50,000 50,000
Investment in Son 450,000 (450,000) ________

Total 1,990,000 530,000 2,165,000

Current Liabilities 295,000 100,000 395,000


Ordinary Shares 1,000,000 300,000 (300,000) 1,000,000
Retained Earnings 695,000 130,000 717,500
NCI _________ ________ ***52,500

Total 1,990,000 530,000 2,165,000


** Plant and Equipment Elimination

E3: Debit 50,000


E4: Credit 5,000

Balance 45,000

*** NCI on Balance sheet

E1: Debit 5,000


E2: Credit 40,000
E3: Credit 10,000
E5: Credit 7,500

Balance 52,500
Problem
Accounting 8b – Problem

On January 1, 2010, Tick Corporation acquired the 90% of all


outstanding ordinary shares of Khah Corporation at book value. The
following statement of financial position pertains to Tick and Khah
Corporation on January 1, 2010:

Tick Khah
Current Assets 130,000 80,000
Land 500,000 350,000
Plant and Equipment 450,000 350,000
Investment in Khah Corp420,000 ______
Total 1,400,000 780,000
 
Current Liabilities 350,000 360,000
Ordinary Shares 800,000 300,000
Retained Earnings 350,000 120,000
Total 1,400,000 780,000
Plant and equipment of Khah Corp. has a remaining useful life of 10 years.
Cost method is used by Tick in accounting the investment in Khah Corp.
 
On December 31, 2010, San Corp. purchased all the outstanding shares of
Tick Corporation at book value. The following financial statements pertain
to Tick, Khah and San Corporation on December 31, 2010.
 
 
Tick Khah San
Current Assets 230,000 180,000 300,000
Land 500,000 300,000 350,000
Plant and Equipment 405,000 360,000 350,000
Investment in Khah Corp420,000
Investment in Tick Corp ______ 1,250,000

Total 1,555,000 840,000 2,250,000


Tick Khah San

Current Liabilities 305,000 200,000 360,000


Ordinary Shares 800,000 300,000 1,000,000
Retained Earnings 450,000 340,000 890,000
Total 1,555,000 840,000 2,250,000
 
Net Income 150,000 250,000
Dividends Paid 50,000 30,000
 
 
Required Prepared the consolidated Financial Position of Tick, Khah and San
Corp. on December 31, 2010.

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