ILLUSTRATION 1: Changes in ownership interest - No loss of control

Fact pattern
On January 1, 20x1, ABC Co. acquired 80% interest in XYZ Inc. for P75,000.
XYZ's net identifiable assets have a fair value of P90,000.
The investment in subsidiary is measured at cost.
Goodwill has been computed under each of the available options under PFRS 3 as follows.

Case #1 Case #2
(proportionate share) (fair value)
Consideration transferred 75,000 75,000
NCI in the acquiree (90000x 20%); [(75000 ÷ 80%) 18,000 18,750
Previously held equity interest in the acquiree
Total 93,000 93,750
Fair value of net identiable assets acquired (90,000) (90,000)
Goodwill - Jan. 1, 20x1 3,000 3,750

During the year, XYZ's net assets increased by P10,000 (after fair value adjustments). The NCI is updated as follows:

Case #1 Case #2
(proportionate share) (fair value)
NCI at acquisition date -Jan. 1, 20x1 18,000 18,750
Subsequent increase (P10,000 x 20%) 2,000 2,000
NCI in net assets - Dec. 31, 20x2 20,000 20,750

Scenario #1: Acquisition of all remaining NCI

On January 1, 20x2, ABC Co. acquires all the remaining 20% NCI in XYZ for P30,000.

Requirements:
a. How much is the gain or loss on the transaction to be recognized in the consolidated financial statements?
b. Compute for the effect of thw transcation on the consolidated financial statements.

Solutions:
Requirement (a):
None. The transaction is accounted for as equity transaction because it does not result to loss of control.
Requirement (b):
Case #1: Proportionate shares
% Owners of parent
Before the transaction 80% 80000
After the transaction 100% 100000
Change - Inc./ (Decrease) 20000

a) This represents the fair value of XYZ's net assets on December 31, 20x1 (P90,000 fair value on acquisition date + P10,000 in

After acquiring the remaining 20% NCI, the parent's ownership interest is increased to 100%. Consequently, NCI is reduced to
Therefore, after the acquisition, the NCI in net assets is eliminated and attributed to the owners of the parent.

Case #2: Fair value

% Owners of parent
Before the transaction 80% 83750
After the transaction 100% 103750
Change - Inc./ (Decrease) 20750

b) When NCI is measured at fair value, the subsidiary's net assets is grosses up to reflect the goodwill attributable to the NCI (P

The effects of the transaction are determined as follows:

Case #1 Case #2
(proportionate share) (fair value)
Fair value of comsideration 30,000 30,000
Change in NCI (see tables above) (20,000) (20,750)
Direct adjustment to equity 10,000 9,250

The effects of the transaction may also be determined by preparing journal entries.

The entry in ABC's separate books as follows:

Jan 1, 20x2 Investment in Subsidiary
Cash
to record the acquisition of remaining NCI in XYZ, Inc.

The consolidation journal entries are as follows:

Case #1:NCI measured at proportionate share
Jan. 1, 20x2 NCI (the decrease computed above)
Retained earnings - ABC Co. (squeeze)
Investment in subsidiary

Case #2: NCI measured at fair value

Jan. 1, 20x2 NCI (the decrease computed above)
Retained earnings - ABC Co. (squeeze)
 Investment in subsidiary

The "squeezed" amounts in CJE's above represent the direct adjustments in equity, which are attributed to the owners of the par

Scenario #2: Acquisition of part of remaining NCI

On January 1, 20x2, ABC Co. acquires additional 12% equity interest held by non-controlling interests in XYZ for cash conside

Case #1: Proportionate shares

% Owners of parent
Before the transaction 80% 80000
After the transaction 92% 92000
Change - Inc./ (Decrease) 20000

Case #2: Fair value

% Owners of parent
Before the transaction 80% 83000
After the transaction 100% 95450
Change - Inc./ (Decrease) 12450

* The net assets is grossed up as follows (P20,750 NCI / 20% = P103,750)

The direct adjustment in equity is determined as follows:

Case #1 Case #2
(proportionate share) (fair value)
Fair value of comsideration 20,000 20,000
Change in NCI (see tables above) (12,000) (12,450)
Direct adjustment to equity 8,000 7,550

The entry in ABC's separate books as follows:

Jan 1, 20x2 Investment in Subsidiary
Cash
to record the acquisition of additional interest

The consolidation journal entries are as follows:

Case #1:NCI measured at proportionate share
Jan. 1, 20x2 NCI (the decrease computed above)
Retained earnings - ABC Co. (squeeze)
Investment in subsidiary

Case #2: NCI measured at fair value

Jan. 1, 20x2 NCI (the decrease computed above)
Retained earnings - ABC Co. (squeeze)
 Investment in subsidiary

Scenario #3: Disposal of part of controlling interest - Control not lost

On January 1, 20x2, ABC Co. sold its 10% interest in XYZ, Inc. for P20,000.
The 70% (80%-10%) remaining interest still gives ABC control over XYZ.

Case #1: Proportionate shares

% Owners of parent
Before the transaction 80% 80000
After the transaction 70% 70000
Change - Inc./ (Decrease) -10000

Case #2: Fair value

% Owners of parent
Before the transaction 80% 83000
After the transaction 70% 72625
Change - Inc./ (Decrease) -10375

The direct adjustment in equity is determined as follows:

Case #1 Case #2
(proportionate share) (fair value)
Fair value of comsideration 20,000 20,000
Change in NCI (see tables above) (10,000) (10,375)
Direct adjustment to equity 10,000 9,625

The entry in ABC's separate books as follows:

Jan 1, 20x2 Cash in bank
Investment in subsidiary
Gain on sale
to record the partial disposal of investment

The consolidation journal entries are as follows:

Case #1:NCI measured at proportionate share
Jan. 1, 20x2 Investment in subsidiary
Gain on sale
NCI (the increase computed above)
Retained earnings - ABC Co. (squeeze)

Case #2: NCI measured at far value

Jan. 1, 20x2 Investment in subsidiary
Gain on sale
NCI (the increase computed above)
Retained earnings - ABC Co. (squeeze)
Scenario #4: Subsidiary issues additional shares - Control not lost
The 80% interest acquired by ABC in XYZ on January 1, 20x1 represents 40,000 of XYZ's 50,000 outstanding shares as of that

On January 1, 20x2, XYZ, Inc. issues additional 10,000 shares with par value of P1 per share to other investors for P2.50 per sh
Although ABC acquires none of those shares, ABC still retains its control over XYZ

The change in ABC's ownership interest in XYZ is determined as follows:

Before issuance %
Shares held by ABC 40000
80%
Outstanding shares of XYZ 50000

Case #1: Proportionate shares

% Owners of parent
Before the transaction 80% 80000
After the transaction 66.67% 83333
Change - Inc./ (Decrease) 3333

Case #2: Fair value

% Owners of parent
Before the transaction 80% 83000
After the transaction 66.67% 85833
Change - Inc./ (Decrease) 2833

The direct adjustment in equity is determined as follows:

Case #1 Case #2
(proportionate share) (fair value)
Fair value of comsideration 25,000 25,000
Change in NCI (see tables above) (21,667) (22,167)
Direct adjustment to equity 3,333 2,833

The entry in ABC's separate books as follows:

Jan 1, 20x2 Cash on hand
Share capital (P10,000 x P1 par)
Share premium
to record issuance of shares

The consolidation journal entries are as follows:

Case #1:NCI measured at proportionate share
Jan. 1, 20x2 Share capital - XYZ Inc.
Share premium - XYZ Inc.
NCI (the increase computed above)
Retained earnings - ABC Co. (squeeze)

Case #2: NCI measured at fair value

Jan. 1, 20x2 Share capital - XYZ Inc.
Share premium - XYZ Inc.
NCI (the increase computed above)
Retained earnings - ABC Co. (squeeze)

NOTICE: No adjustments is made to goodwill because control is not lost.

The NCI is updated as follows:

financial statements?

o loss of control.

% NCI Net assets of XYZ

20% 20000 100000 a)
100000
 -20000

ir value on acquisition date + P10,000 increase during the year).

100%. Consequently, NCI is reduced to zero.

owners of the parent.

% NCI Net assets of XYZ

20% 20750 103750 b)
103750
-20750

ct the goodwill attributable to the NCI (P20,750 NCI ÷ 20% = P103,750)

30000
30000
ing NCI in XYZ, Inc.

20000
10000
n subsidiary 30000

20750
9250
n subsidiary 30000

ch are attributed to the owners of the parent.

rolling interests in XYZ for cash consideration of P20,000.

% NCI Net assets of XYZ

20% 20000 100000
8% -8000 100000
-12000

% NCI Net assets of XYZ

20% 20750 103750 *
8% 8300 103750
-12450

20000
20000
nal interest

12000
8000
n subsidiary 20000

12450
7550
n subsidiary 20000

% NCI Net assets of XYZ

20% 20000 100000
8% 30000 100000
10000

% NCI Net assets of XYZ

20% 20750 103750
8% 31125 103750
10375

20000
n subsidiary 9375 (portion sold 75000 consideration / 80% x 10%)
10625 (20000 proceeds - 9375 CA)

9375
10625
rease computed above) 10000
nings - ABC Co. (squeeze) 10000

9375
10625
rease computed above) 10375
nings - ABC Co. (squeeze) 9625
YZ's 50,000 outstanding shares as of that date.

share to other investors for P2.50 per share.

After issuance %
40000
66.67%
60000
(50000 + 10000 addt'l shares issued to NCI)

% NCI Net assets of XYZ

20% 20000 100000
33.33% 41667 125000
21667 25000

% NCI Net assets of XYZ

20% 20750 103750
33.33% 42917 128750
22167 25000

25000
l (P10,000 x P1 par) 10000
15000
 10000
15000
rease computed above) 21667
nings - ABC Co. (squeeze) 3333

10000
15000
rease computed above) 22167
nings - ABC Co. (squeeze) 2833
The gain or loss on disposal of controlling interest is computed as follows:

Consideration received (at fair value) xx

Investment retained in the former subsidiary (at fair value) xx
NCI (carrying amount) xx
Total xx
Less: Former subsidiary's net identifiable assets (carrying amount) (xx)
Goodwill (carrying amount) (xx)
Gain or loss on disposal of controlling interest xx

OR

Date Cash or other assets (Consideration received) xx

Investment account (Investment retained) xx
NCI xx
Liabilities of former subsidiary xx
Assets of former subsidiary
Goodwill
Gain on disposal of controlling interest (squeeze)

Illustration: Loss of control - Deconsolidation

On January 1, 20x2, ABC Co, sells out 60% out of its 80% interest in XYZ, Inc. for P100,000.
ABC's remaining 20% interest in XYZ has a fair value of P25,000.
This gives ABC significant influence over XYZ. The statement of financial position immediately before the sale are shown bel

Statement of financial position

As at January 1, 20x2
ABC Co. XYZ Inc. Consolidated
ASSETS
Cash 23000 57000 80000
Accounts receivable 75000 22000 97000
Inventory 105000 15000 120000
Investment in subsidiary 75000
Equipment 200000 50000 260000
Accumulated depreciation -60000 -20000 -84000
Goodwill 3000
TOTAL ASSETS 418000 124000 476000

LIABILITIES AND EQUITY

Accounts payable 43000 30000 73000
Bonds payable 30000 30000
Total liabilities 73000 30000 103000
Share capital 170000 50000 170000
Share premium 65000 65000
Retained earnings 110000 44000 118000
Noncontrolling interest 20000
Total equity 345000 94000 373000
TOTAL LIAB. & EQUITY 418000 124000 476000

Requirement:
Prepare the statement of financial position immediately after the sale.

Step 1: We will identify the carrying amounts of XYZ's assets and liabilities in the consolidated financial statements as at the da

Statement of financial position

As at January 1, 20x2
ABC Co. XYZ Inc. Consolidated
ASSETS (a) (b)
Cash 23000 57000 80000
Accounts receivable 75000 22000 97000
Inventory 105000 15000 120000
Investment in subsidiary 75000
Equipment 200000 50000 260000
Accumulated depreciation -60000 -20000 -84000
Goodwill 3000
TOTAL ASSETS 418000 124000 476000

LIABILITIES AND EQUITY

Accounts payable 43000 30000 73000
Bonds payable 30000 30000
Total liabilities 73000 30000 103000
Share capital 170000 50000 170000
Share premium 65000 65000
Retained earnings 110000 44000 118000
Noncontrolling interest 20000
Total equity 345000 94000 373000
TOTAL LIAB. & EQUITY 418000 124000 476000

Step 2: We will prepare the deconsolidation journal entries (DJE):

DJE #1: To reognize the gain or loss on the disposal of controlling interest
Jan. 1, 20x2 Cash - ABC Co. (Consideration received) 100000
Investment in associate (Investment retained) 25000
Accounts payable 30000
Accumulated depreciation - XYZ, Inc. 24000
Non-controlling interest 20000
Cash - XYZ Inc.
Accounts receivable - XYZ Inc.
Inventory - XYZ Inc.
Equipment - XYZ Inc.
Goodwill
Gain on disposal of controlling interest (squeeze)

or

Consideration received (at fair value) 100000

Investment retained in the former subsidiary (at fair value) 25000
NCI (carrying amount) 20000
Total 145000
Less: Former subsidiary's net identifiable assets (carrying amount) -100000
Goodwill (carrying amount) -3000
Gain or loss on disposal of controlling interest 42000

DJE #2: To close the gain on disposal to retained earnings.

Jan. 1, 20x2 Income summary - working paper 100000
Retained earnings - ABC Co.

* Loss of control is accounted for prospectively.

* No retrospective adjustments are made to the consolidated retained earnings.

Consolidated DJE ref. # Deconsolidated adjustmen

ASSETS Dr
Cash 80000 100000
Accounts receivable 97000
Inventory 120000
Investment in subsidiary 25000
Equipment 260000
Accumulated depreciation -84000 24000
Goodwill 3000
TOTAL ASSETS 476000

LIABILITIES AND EQUITY

Accounts payable 73000 30000
Bonds payable 30000
Total liabilities 103000
Share capital 170000
Share premium 65000
Retained earnings 118000
Noncontrolling interest 20000 20000
Total equity 373000
TOTAL LIAB. & EQUITY 476000 199000

ABC Company
Statement of financial position
As at January 1, 20x2

ASSETS
Cash 123000
Accounts receivable 75000
Inventory 105000
Investment in subsidiary 25000
Equipment 200000
Accumulated depreciation -60000
Goodwill
TOTAL ASSETS 468000

LIABILITIES AND EQUITY

Accounts payable 43000
Bonds payable 30000
Total liabilities 73000
Share capital 170000
Share premium 65000
Retained earnings 160000
Noncontrolling interest
Total equity 395000
TOTAL LIAB. & EQUITY 468000
 xx
xx
xx

e the sale are shown below.

statements as at the date contol was lost.

Carrying amount of XYZ's net assets

(c) = (a) - (a)
57000
22000
15000

60000
-24000

130000

30000

30000

100000
 57000
22000
15000
60000
3000
42000

22000

consolidated adjustments DJE ref. # Deconsolidated

Cr
57000 123000
22000 75000
15000 105000
25000
 60000 200000
-60000
3000
468000

43000
30000
73000
170000
65000
42000 160000

395000
199000 468000