él ated Financial Statements (Part 3) jon ? 243 _ Chapter 6 a nsolidated Financial Statements (Part 3) cai ing Objectives [Le the effect of impai: ‘account for of impairm i | consolidated financial statements, Dae petermine the effects of changes in ip i : , Ownership interests that {@) result in loss of control and (b) does not result in of ns loss of Describe the importance of consolidatio: i Leet Caen m and the theories impairment of Goodwill When NCI is measured at proportionate share, goodwill is attributed only to the owners of the parent. Therefore, any impairment of goodwill is also attributed only to the owners of the parent. When NCI is measured at fair value, goodwill i~ attributed to both the owners of the parent and NCI. Therefore any impairment of goodwill is allocated to both the owners of the parent and NCI. Ilustration: Impairment of goodwill On January 1, 20x1, ABC acquired 80% interest in XYZ, Inc. by issuing 5,000 shares with fair value of P15 per share. 20x1): have a carrying amount of jue to the Information on acquisition date (Jan. 1, + X¥Z’s net identifiable assets 74,000 and fair value of P90,000. The difference is d following:Chapter. Se palit value adjustineny (ry 20,000 24,009 4,009 Inventory oe on Equipment, net ia 60,000_76,000 16,000 r The remaining useful life of the ecpllaivent is 6 years, * ABC measured the investment in subsidiary at cost, Information on subsequent reporting date (Dec. 31, 20x1): ABC Co. Total assets 418,000 Total liabilities 73,000 Share capital 170,000 Share premium 65,000 Retained earnings 345,000 Profit for the year 60,000 * Case #2: NCI is Measure ‘Oportionate share d at i OR acquisition date ig mane value. The NCI Solutions: Step 1: An;yiaated Financial Statements (Part 3) conse 245 Dec. 31, 20x1 Net change 94,000 10,0006 Net assets at carrying amount 74,000 ait value. adjustments (FV.A) 16,0000 Net, assets a 90,000 Y 104,000 14,000 FVA, 1x1 Usepia if 000 ati, pet inventory 4,000 equipment__12,000 al So oe step 3: Goodwill . i Case #1: Proj jortionate share Consideration transferred (5,000 sh. x P15) 75,000 Non-controlling interest in the acquiree (90K x 20%) - (Step 2) 18,000 previously held equity interest in the acquire fe Total = ~ 93,000 fair value of net identifiable assets acquired (Step 2) (90,000) Goodwill at acquisition date —~3,000 Accumulated impairment losses since acquisition date (1,000) Goodwill, net - Dec. 31, 20x1 2,000 —= Case #2: Fair value : 75,000 Consideration transferred (5,000 sh. x P15) Less: Previously held equity interest in the acquiree Total 75,000 Less; Parent's proportionate share in the net assets of subsidiary (90K x 80%) (72,000) Goodwill attributable to owners of parent ~ Jan. 1. 20x1 3,000 Less; Parent’s share in goodwill impairment (P1,000 x 80%) (800) Goodwill attributable to owners of parent - Dec. 31, 20x1 2,200 Fair value of NCI (see given) 18,750 Less: NCI's proportionate share in the net assets of ary (90K x 20%) (18,000) 750 Goodtwill attributable to NCI ~ Jan. 1, 20x1; attributed only to the Owner, proportionate share (Casp , ¢ the parent and Nq st in net assets jing intere’ step 4: Non-controlling inte ae 104,01 XYZ's net assets at fair value ~ Dec. 31, 20x1 (Step 2) = fo Multiply by: NCL percentage Total Add: Goodwill attributable to NCI Dec. 31, 20x1 Non-control net assets De 31 20e1__70 No goodwill is attributed to NCI if NCI is measured q proportionate share (Case #1), while there is if NCI is measured fair value (Case #2). Step 5: Consolidated retained earnings Case #1 ABC's retained earnings - Dec. 31, 20x1 110,000 ABC's sh. in the net change in XYZ's net assets“ — 11,200 Impairment loss on goodwill attributable to parent (Step 3) Consolidated retained | earnings - Dec. 31, 20x1 (1,000) 720,20 @ Net change in XYZ’s net,assets (See Step 2) Multiply by: ABC’s interest in XYZ ABC's share in the net change in XYZ's net assetsd Financial Statements (Part 3) jdate . consolidated profit or loss " ste ie of ABC & XYZ (60K +20) 80,000 10" eciation of FVA (see Step 1 (6,000) De" ment of goodwill (1,000) ‘oi colidated profit 73,000 —e The consolidated profit is attributed rent and NClas follows: a ea BS Ouea ape cue Owners of parent NCI Consolidated i Parent's PrO! 60,000 N/A 60,000 to the owners of the ghase in XYZ's profit before FVA' 16,000 4,099 20,000 Depreciation of FVA ° (4,800) (1,200) 6,000) _inpairment of goodwill (1,000) - (1,000) Totals 70,200 2,800 73,000 18 20K x 80% = 16,000); (20K x 20% = 4,000) (0 (6K x 80% = 4,800); (6K x 20% = 1,200) Case #2 Owners of parent NCI Consolidated Parent's profit before FVA 60,000 N/A 60,000 Share in XYZ's profit beforeFVA® 16,000 4,000 20,000 Depreciation of FVA (® (4,800) (1,200) (6,000) Impairment of goodwill (800) (200) (1,000) Totals 70,400 _ 2,600 73,000 Consolidated total assets Case #1 Case #2 (proportionate) _ (fair value) Total assets of ABC Co. 418,000 418,000 Total assets of XY. 'Z, Inc. 124,000 124,000 'nvestment in subsidiary (75,000) (75,000) FVA, net (Step 2) 10,000 10,000 Goodwill, net (Step 3) 2,000 2,750 Consolidated total assets 479,000 479,750MBit Consolidated total liabilities ae ie a 5000 Total liabilities of ABC Co. 30 000 Total liabilities of XYZ, 1. Consolidated total liabilities __ 0,000 Aer Ua) Share capital of ABC Co. ees 170,09 Share premium of ABC Co. 360m 65,009 Retained earnings (Step 5) a 120,409 355,200 355,4 cued eo : 5,409 Ovwners of the paren 20,800, Non- ing is ts (Step 4) 21,359 _Non-controlling interests (Step __“""——_21 7 376,000__ Consolidated total e intercompany items in-transit and restatements Each of the group members’ individual financial statements q adjusted first for the following before consolidation: a. Accruals and deferrals of income and expenses a corrections of errors; b. _In-transit items — items arising from intercompany transaction that were already recorded by one party but not yet by t other (eg. intercompany deposits in transit, outstanding checks, credit memos; and debit memos). c. Hyperinflationary economy — the financial statements of a group member that reports in a currency of a hyperinflational economy are restated first in accordance with PAS 29 befo! they are consolidated. This is discussed in Chapter 9. d. Currency translations - the financial statements of a subsidia! whose functional currency is different from the group Presentation currency are translated first in accordance Will PAS 21 before they ar : , iif re ce oe ssed Chapter 10. 7 ‘onsolidated. This is discusoS mall Pie 249 istration: Comprehensiy, © proble January 1, 201, Peter Co. ac = ‘quired 9g, simon Co. for is 72,000. Peter Measureg the Neretship interest in 15,000. Simon’s assets and liabilitieg be ata fair Value of values OF January 1, 20x1; Ve the following fair Co. ing simon "Fair val _—— amounts alues ag bana! Cash 10,000 10.000 Adjustments nts receivable iS if a Accoun 150001509 Inventory " - Equipment, net 6 yrs remaining i) 40,009 2000 6,000 Patent (8 yrs. remaining life) Z ai 20,000 " 20, Account ayable 6,000) (6,000 a Net assets 84,000 30,000 76,000 Information on December 31, 20x1: Statements of financial Position As at December 31, 20x1 Peter Co. Simon Co. ASSETS ie Cash 362,000 21,300 Accounts receivable 178,000 5,000 Inventory 110,000 67,000 Investment in bonds (at amortized cost) 59,500 Investment in subsidiary (at cost) 122,000 Equipment, net 644,000 27,200 TOTAL ASSETS 1,416,000 180,000 = oes LAI BILITIES AND EQUITY no 20,800 Accounts Payable man a 10% Bonds pa able (issued at face amount) Loo aad pane 71 F hare capital 445,000 109,200 etained earnings 7,245,000 159,200 Total equity oak 1,416,000 180,000 2OTAL LIABILITIES AND EQUITY250 Shaper, Statements of profit or loss 31, 20x1 For the year ended December paca es 932,000 — (425,000) Cost of goods sold ( = oO Gross profit | Interest income (64.000) 4 Distribution costs a ipo (3604 Depreciation expense 000) Loss on sale of equipment Interest expense Ca, Dividend income 18,000 or the yea ee OF The transactions in 20x1 include the following: Peter has 3,000 accounts receivable from Simon, while Simg has P2,000 accounts payable to Peter. The difference is due to 71,000 check deposited by Simon directly to Peter's ta account which the latter failed to record. The check already cleared in Simon's bank account. b. Peter sold goods costing P20,000 to Simon for P32,000. 0 third of the goods remain unsold on December 31, 20x1. c. Simon sold goods costing P10,000 to Peter for P15,000. Half the goods remain unsold on December 31, 20x1. d. On January 1, 20x1, Simon sold equipment with carryil amount of P6,000 and remaining useful life of 5’years to Pet for P5,000. e. Peter declared dividends of P40,000, while Simon ded dividends of P20,000. 7 fe oe rie a purchased 50% of the outst ’ interests on the bond ha a ee © \Gaodwis ; ; Is have been paid by year-end. was impaired by P2,000. a. Requirement: Prepa : th Rete : . December 31, 20x, re the consolidation working pape”| adjusted. ated Financial Statements (Part 3) ide 251 oo 30° 1: Analysis of effects of intercompany transaction ansaction (a): In-transit item * ‘ i mons 1,000 payment is a valid Payment because the check has cleared. Therefore, Simon’s accounts payable need not be Fowever, as to Peter, the P1,000. difference is an in orded collection — a bank credit memo. The adjusting journal 7 (AJB) in Peter's books is as follows: Cashinbank 1,000 Accounts receivable 1,000 The remaining balance of 2,000 in the intercompany accounts receivable/accounts payable are eliminated in the consolidation. already > Summary of effects on the consolidated financial statements: « Cash is increased by P1,000 (aj). «Accounts recéivable is decreased by P3,000 (1K AJE+2K elimination). » Accounts payable is decreased by P2,000 (elimination) * Transactions (b) & (c): Intercompany sale of inventory Transaction (b) is downstream, while transaction (c) is upstream. The unrealized profits in ending inventory are determined as follows: Downstream Upstream Total Sale price of intercompany sale 32,000 15,000 Cost of intercompany sale (20,000) _ (10,000) Profit from intercompany sale 12,000 5,000 Multiply by: Unsold portion as of yr-end 18 1/2 Lnrealized gross profit 4,000. 2,500 6,500 Ending inventory of Peter Co. 110,000 "ding inventory of Simon Co. 67,000 Less: Unrealized profit in ending inventor (6,500) 01 Sousolidated ending inventor 170,500sales by Petet Co- ales by simon CO Less: intercompany Consolidated sales Cost of sales of Peter om & ‘ 0. x Cost of sales of Simon ; ‘ Less: Intercompany sales during 20x1 a ot Add: Unrealized profit in ending inventory i dd: ciation of FVA on inventor (see computation below) Add: Depre: Consolidated cost of sales Inventory 6,000 Equipment 20,000 Patent 20,000 Totals 46,000 12,500 * The entire inventory is assumed to have been sold during the year. % Transactions (d): Intercompany sale of PPE The sale is upstream. The effects of this transaction are analyzed follows: a) Unamortized balance of deferred Sale price Carrying amount of Loss on sale Multip! Bain (loss) on Dec. 31, 20x1! ‘ of equipment on Jan, 1, 20x1 of equipment — Jan. 1, 20¢1 'Y by: Ratio of useful life Depreciation is understated by P200ated cot iy nancial Statements (Part 3) q pte" 8 yts.)- i 20x1 (P6.000 carrying ( pe mount +5 yrs.) 253 ated consolidated accounts are com) er puted as fi : i ment, net ~ Parent ‘ollows sqiPh ent, net ~ Subsidiary ean su tized balance of deferred losst 27,200 na net (see coms yutation above) 800 se jidated equipment - net 16,000 eer 688,000 " jared loss is added because both “loss” and e “equiy ve tit and debit results to aditon SaePment” have a nonmal debit plan Depreciation - Peter 161,000 Depreciation - Simon in? 6,800 Understatement in depreciation : 200 Depreciation of FVA on equipment (sec computation above) 4,000 Consolidated depreciation 172,000 The P1,000 loss on sale Tecognized by Simon is eliminated inthe consolidated statement of profit or loss. + Transactions (e): Intercompany dividend The dividends declared by Simon are allocated as follows: (20,000 x 90% = 18,000 share of Peter); (20,000 x 20% = 4,000 share of NCI) The investment in subsidiary is measured at cost. Therefore, Peter recognized the ®18,000 dividends in profit or loss (as dividend income). We will eliminate this in Step 5 (consolidated Profit or loss) below. No consolidation adjustment is needed for the dividends declared by Peter because the dividends pertain solely to the Owners of the parent. * Transactions (f): Intercompany bond transaction ‘ain or loss on extinguishment of bonds:254 uired (100,000 x 50%) ing amount of bonds payable i vie ei fon cost of bonds (assumed ret Acquisitit Loss on extinguishment of bonds interest income: expense and 1 imran interest Of P2,500 (100K x 50x 10% x 6/12). Hower Peter paid Simon inl call 72,000 (ae Statement of pro rox Simon’s interest incom nee dendstization ie premium The a ‘bande Nonetheless, both Peter's inter, : a ts the ae att, and Simon's interest income of 2,000 a4 ated h i i its. inated in the consolidated financial statement b) Intercompany interest > Summary of effects on the consolidated financial statements, «Loss on extinguishment of bonds is increased by P10,000, «Interest expense is decreased by 2,500. «Interest income of P2,000 is eliminated. «Investment in bonds is eliminated. * Bonds payable is decreased by P50,000. Step 2: Analysis of subsidiary’s net assets Net XYZ, Inc, Jan1,20e1 Dee. 31,2001 Net assets at carrying amount 84,000 159,200 Fair value adjustments (FVA) 46,0000 33,5000 Unvealized profit (upstream) (2,500) Deferred loss on sale (upstream) 800 Interest income (2,000) Net assets at fair value 130,000 189,000 © (see computation above) Co | Step 3: Goodwill computation Consideration transferred Previously held luity i i i es equity interest in the acquiree Less: Parent's Proportionate share in the net assets ot subsidiary (130,000 x 90%) ~ Step 2 Goodwill attributable to Owners of the parentutd Financial Statements (Par 3 255 ceil ated impairment losses (2,999 90%) Ae ill attributable to owners Of the parent, n t —— (L800) ne cont ye of NCI ~~ 3200" pal ci’s proportionate share in the net as, 15,000 18 pgubsidiary (130000 x 10%) step 2 ee ui attributable to NCI — (13,000) _ i ymulated impairment losses (2,090 x 19%,) pone goutill attributable to NCI, net — 200) Foil! - DEC: 31, 20x1 ~ 5,000 The P2,000 impairment of goodwill is shared between the parent and NCI because NCI is measured at fair value. step 4: Non-controlling interest in net assets subs idiary's net assets at fair value ~ Dec. 31, 20x1 (step 2) 189,000 Multij ly by: NCI percentage 10% 18,900 Total ‘Aad; Good will attributable to NCI (step 3) 1,800 ee a ee a ee TT ag anni | Non-controlling interest in net assets — Dec. 31, 20x1 20,700 Step 5: Consolidated retained earnings Parent's retained earnings ~ Dec. 31, 20x1 445,000 Parent's share in the net change in subsidiary’s net assets ® 53,100 Unrealized gross profit (downstream only) - (Step 1) (4,000) Loss on extinguishment of bonds (step 1) (10,000) Intercompany interest expense (Step 1) 2,500 Parent's share in the impairment of goodwill (1,800) Consolidated retained earnings — Dec. 31, 20x1 484,800 Net change in subsidiary’s net assets (Step 2) 59,000 Multiply by: Parent's interest in Subsidiary 90% _ Parent's share in the net change in sub.’s net assets — 53,100_290,000 Profits before adjustments Effects of intercompany transactions: oo fon) : (65 Unrealized profits (Step Me ; ain sy p 1 \ Deferred loss on PPE (te Dividend income (Step 12) att : a Loss on bonds (Step 1,) (10, Bhim . Interest income (Step 1,9) 10 Interest expense (Step 1) er Profits before FVA 2 : ei Depreciation of FVA ® (11,250) Impairment of goodwill (Step 3) __ (1,800) Consolidated profit Parent's profit before FVA Share in sub.'s profit before FVA © 82,350 Depreciation of FVA (se atone) Impairment of g Peter Group ‘atement of financial Position oe AS of December 31, 20x1 Cash (362,009 5 21,300 + 1 Accounts Teceivable (1 78,000 + 5,099. Inventory (Step Lbéc) - ee _— i tin bonds (liminatea . tin subsidiary (climiy kimi ‘quipment, net Sepia" Patent, net Good) Consolidated st 000 AE Step 1,4)ancial Statements (Part 3) ted Fit onl? 257 | ytttes AND EQUITY | pines ts payable (91,800 + 71,000 -2,000 step 1.) | rg payable (100,000 - 50,000 step 1,p 89,800 50,000 iavilitie Ss E ital (Parent only) 139,800 « 800,000 cout easnings Gtep > 484,800 ge ‘putable to owners of parent z ty ater 1,284,800 eo ott interest (Step 4) Non: 20,700 Total ea 1,305,500 ITIES AND EQUITY TOTAL ‘ABE Qui 1,445,300 po ive Peter Group | Statement of profit or loss For the year ended December 31, 20x1 | Sales (Step 1.b&c) 1,140,000 |costofgoods sold (Stepibé (508,500) | Gross profit 631,500 | Interest income (eliminated - Step 1,) -| Distribution costs (200,000) | Depreciation expense (Step 1.4) (172,000) | Loss on sale of equipment (eliminated - Step 1.4) | | Interest expense (10,000 - 2,500 Step 1,) (7,500) | Dividend income (elintinated - Step 1.) Amortization expense on patent (Step 1.b) (2,500) Loss on extinguishment of bonds (Step 1,) (10,000) Profit for the year __ 337,500 | Reconciliation using formulas: Total assets of Peter Co. 1,416,000 Total assets of Simon Co. aeons, qeestoent in subsidiary ‘ : eon value adjustments, net (46,000 beg. ~ 12,500 depreciation) Sob _ Goodwill — net fe : “Sof intercompany transactions:Current accounts (elimination of accounts receivable) Inventory transactions (unrealized profit in ending inventory) b Equipment transaction (unamortized balance of deferred loss) Bond transaction (carrying amount of ireestment in bonds) Consolidated total assets_ Total liabilities of Peter Co. Total liabilities of Simon Co. Fair value adjustments, net Effect of intercompany transactions: Current accounts (elimination of accounts payable) Bond transaction (carrying amount of bonds payable) Consolidated total liabilities Share capital of Peter Co. Consolidated retained earning Equity attributable to owners of the parent Non-controlling interest (Step 4) Consolidated total equi Continuous assessment An investor reassesses whether it controls an in Circumstances indicate that there are three elements of control, Westee if facts ang changes to one or more of Changes in Ownershi tol If the parent’s ownership i eeidated Financial Statements (Part 3} const ) 259 ion 1: Changes in ow, ae tration ership int, : alert “tSt No loss of control Fadl january 1, 20x1, ABC Co, on Acquired ggoy . caodwill under each Of the available mee” TES in XYZ, in 1e . RS 3 is computed as follows. ‘surement options under Pi Fg Case #2 (Proportionate (fair value) a on share) sideration trans; a (0K x 20%); [7K + 80%) x 20% : isa ae previously held equi Total 5 ts 93,000 93,759 fair value of net identifiable assets acquired (90,000) _ (90,000) Goodwill - Jan. 1, 20x1 3000 aon interest in the acquiree 18,000 18,750 During 20x1, XYZ’s net assets increased by P10,000 after fair value adjustments. The NCL is updated as fol lows: Case #1 Case #2 (proy ortionate) (fair value) Share of NCI in change in net assets (LOK 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. ac quires all the remaining 20% NCI in XYZ for P30,000._ Requirements: * How much is the gain or loss on the transaction to be recognized in the consolidated Fitanclal statements? oo ' Compute for the effect of the transaction on the consoli financial statements. Solutions:260 Requirement (a): : None, The transaction is accounted for as equity because it does not result to loss of control. Requirement (b): Case #1: Proportionate share Before the transaction 80% 80,000" After the transaction 100% 100,000 Change - Inc (Decrease) * This represents the fair value of XYZ's net assets on December 31, 0, value on acquisition date + 10K increase during the year). © 100K fair value of net assets x 80% After acquiring the remaining 20% NCI, the pareny ownership interest is increased to 100%. Consequently, Netg teduced to zero. Therefore, after the acquisition, the NC] ina assets is eliminated and attributed to the owners of the parent, Case #2: Fair value Owners % _ofparent _% NCI of x7 Before the transaction 80% 83,0002 20% 20,750 After the transaction 100% 103,750 Change — Ine (Decrease) 20,750 a) “When NCI is measured at fair value, the subsidiary's net assets is grossed up reflect the goodwill attributable to the NCI (P20,750 NCI + 20% = P103,750) 4 103,750 x 80% = 83,000 % The effects of the transaction are determined as follows: Case #1 Case #2 roportionate) (fair value) Fair value of consideration Change in NCI (ee tables above) Direct adjustment to equitca e effects of the transaction may al tries. SO be , Z yrnal ent letermi, r ined by Preparing The entt in ABC's separate books is as fi je-, | Investment in Subsidiary follows; 0x2 Cash k to record the acquisition of rem; 0 record the acquisition of rena, quisition of re wring NCI in XYZ, Ing ‘ qhe consolidation journal entries ate as folloy pe WS; Case #1: NCI measured at pro, ortionate share jm1, | NCI (the decrease computed above) 0x2 Retained earnings - ABC Co, (squeeze) ee Investment in subsidiary oe ioe Case #2: NCI measured at fair value { Jon. 1. | NCI (the decrease computed above) 20,750 u0x2 | Retained earnings - ABC Co. (squeeze) 9.250 Investment in subsidiary 30,000 The “squeezed” amounts in the CJE’s above represent the direct adjustments in equity, which are attributed to the owners of the parent. ‘Scenario #2: ‘Acquisition of part of remaining NCI : | On January 1, 20x2, ABC Co. acquires 12% out of the 20% NCTin XYZ for 20,000. Case #1: Proportionate share -) Net assets ‘ pee t% _NCL___of XZ 6 a a% 20000 100000 Before the transaction 80% Alter the transaction _ 92% Change ~Inc.] (Decrease) sooo 8% 8000 _ To0000 72,000 12,000) solide ON Statements (Par 3 ‘iChapter ¢ 262 Case #2: Fair value ‘Owners Neta> % NCI o of parent °f kyo) wom 83,000 20% — 20,750 10375) Before the transaction pal 95,450 8% 8,300 103,75, After the transaction 12450 (22.450 Change —Inc.J (Decrease) _ + 20% = P103,750), is grossed up as follows (P20,750 NCI + 20 ), *The net assets Sa ined as follows; in equity is determine The direct adjustment in equi Case fi Case 3} (proportionate) (fair vay Fair value of consideration 00 20. Change in NCI (sce tables above) (12,000) (12,459) Direct adjustment to equit 00 2551 Scenario #3: Disposal of part of controlling interest — Control ng lost On January 1, 20x2, ABC. Co, sold its 10% interest in XYz, Ine. fg P20,000. The 70% (60% - 10%) remaining interest stil] ives AB _ control over XYZ, Case #1: Proportionate share Owners Net asse : % of parent» Ncr NZ Before the transaction 809% 80,000 20% 20,000 100,000} After the transaction 20% 70,000 30% 30,000 100,000 Net assets XYZvy col 263 , wins a Case #2 5 i ortionate) (fair value) considerati a i value ec Renae te 20,000 20,000 joe Financed Statements (Part 3) i fag (see tables above) Ce ee coal 2,000) 0375 pict dius 10,000 9,625 the in ABC's separate books is as follows: joel] Cash : d 20,000 Investment in subsidiary « 9375 Gain on sale 1 0, 25 to record the partial disposal of investment ‘ “Carrying amount of portion sold: (P75,000 cost x 10%/80%) the consolidation journal entries are: Case #1: NCI measured at proportionate share [or | Investment in subsidiary 9375 1, | Gain on sale 10,625 ee NCI (the increase computed above) 10,000 | Retained earnings - ABC Co. (squeeze) 10,000 Case #2: NCI measured at fair value | Investment in subsidiary 9,375 ig | Cain on sale 10,625 NCI (the increase computed above) 10,375 Retained earnings - ABC Co. (squeeze) 9,625 ee Pe Be Sea eee Scenario #4: Subsidiary issues additional shares - Control not lost The 80% interest acquired by ABC in XYZ on January 1, 20x1 ieee 40,000 of XYZ’s 50,000 outstanding shares as of that late, On January 1, 20x2, XYZ, Inc. issues additional 10,000 shares with Pat value of PL per share to other investors for P2.50 per share. though ABC acquires none of those shares, ABC still retains its « “ttl over X¥Z, >Epler, reg a a st in XYZ 18 deter, ownership inter? ‘The change in ABC's ig | follows: me : i issuance 7% _#ssuance 7 40,000 “a Shares held by ABC oe 30% i i Outstanding shares of XYZ 504 si A ; 2 (50,000 + 10,000 additional shares issued to NCI = 60, : ortionate share Case #1: Pro} aman a %. arent % NCI vs OFX 80,000 20% — 20,000 109 q35 83,333 33.38% 41,667 Jos Before the transaction 80% After the transaction _ 66.67% Change Inc.J (Decrease) eae 700,000 + 25,000 proceeds from issuance of additional shares. Case #2: Fair value Owners of parent % Before the transaction 80% 83,000 20% 20,750 After the transaction 66.67% 85,833 33.33% 42,917 12875) Change - Inc./ (Decrease) 2,833 22,167 25,000 y %. ‘The net assets is grossed up as follows: (P20,750 NCI + 20% = P103,750), 4 (P103,750 + P25,000 proceeds from issuance of additional shares = P128,750) The direct adjustment in equity is determined as follows: Case #1 Case #2 . (proportionate ir value) Fair value of consideration 25,000 2 4 2 100 Chan in NCI (ee tables above) (21,667 Direct adjustment to equ 1a Share capital (10,000 sh, XP par) Share premium t0 recon —1e60rd the issuance of sharesidated Financial otatements (Part 3) Ogee egg mee consolidation journal entries are ag follows. re 4 . NCI measured at proporti, oti N ‘Onate share os Share capital - XYZ, Inc. share premium — XYZ, Inc, 10,000 NCI (the increase computed above) 15,000 Retained earnings ~ ABC Co, ( 21,667 (squeeze) 3,333 ¢ #2: NCL measured at fair value Share capital - XYZ, Inc, Share premium ~ XYZ, Inc. NCI (the increase computed above) Retained earnings — ABC Co. (squeeze) cas 10,000 15,000 22,167 2,833 Notice in all the ‘scenarios’ above that no adjustment is made to goodwill because control is not lost. Instead, all adjustments are made directly in equity (ie., NCI and parent's retained earnings). Loss of control A parent can lose control of a subsidiary in much the same way it can obtain control. That is, with or without a change in absolute or relative ownership levels and with or without the investor being involved in that event. Examples: a Control is lost even without a change in the parent's ownership interest when the subsidiary becomes subject to the control of a government, court, administrator or regulator, or as a result of contractual agreement. b. Control is lost even without the parent being involved in that event if decision-making rights are given to another party or the decision-making rights previously granted to the parent have elapsed. : : © Control is lost if the parent ceases to be entitled to receive Teturns, ae Control is lost if the parent's previous status a5 @ principal changes to an agent. piebsidiary, the pare trol over a Su! oe nt loses ie and liabilities of the forme, t d statement of financial position, When a pare! a. Derecognize the a: from the consolidate F : investm ; sidia b. apn at the date control is lost and sup... 7 its fair e + the investment in accordance with relevant Pr oe the gain or loss associated with the los o¢ c fi = profit or loss. This is attributed to the former Control interest. 2 Z The gain or loss on disposal of controlling interest is Computeg follows: Consideration received (at fair value) a ; Investment retained in the former subsidiary (at fair value) Less: Former subsidiary’s net identifiable assets (carrying amount) Goodwill (carrying amount) Gain or loss on disposal of controlling interest Cash or other assets (Consideration received) Investment account (Investment retained) NCL Liabilities of former subsidiary Assets of former subsidiary Goodwill Gain on disposal of Controlling interest (squeeze) Illustration: Loss of control - Deconsolidation On January 1, 20x2, ABC Co. sells 60% out of its 80% interest XYZ, Inc, for P100,000, i ABC's Temaining 20% interest in XYZ i 2 Fe of £25000. This gives ABC significant anluonce bai parcial information immediately before the sale is OW:E it! d Financia? otatements (Pay 3) co i 267 Ee 4 Ane, at Consolidat is se 343000 14 lated ye eta ae ment in subsidiary 75,000 to Diack Ge oo | ygttT1£S AND EQUITY 0 json payable 73,000 sooqq i liailities 73,000 301 103,000 fo i a gare capital 235,000 59,009 103,000 yetained earungs 110,000 44000 235,000 i 345, 7 20,000 otal equ 000 94,000 7 TOTAL LIAB. & EQTY. __ 418,000 3,000 000 876,000 124,000 476,000 Requirement: Prepare the deconsolidated financial information after the sale. Solution: Step 1: Determine the carrying amounts of XYZ’s assets and . liabilities in the consolidated financial statements as at the date control was lost. . The carrying amounts in the consolidated financial statements may not be equal to the carrying amounts in the individual financial statements because of fair value adjustments (VA), Consoli- Carrying amount of ABC Co. XYZ,Ine ated __XYZ's net assets ABCC AIRE tad erences ASSETS @ ®_ O=0-@) Oh aig go) HHH quunent insubsidiary 75,000 4000 nd will “ , = 476,000____130,000 OTAL ASSETS 7,000 _ 124,000268 LIABILITIES AND EQUITY Accounts payable 73,000 sr Total liabilities 73,000 uae Share capital 235,000 ee Retained earnings 110,000 ; Non-controlling interest = Total equi 345,000 94,000 TOTAL LIAB. & EQTY._#! hapter 103,000 103,000 200 235,000 2009 118,000 20,000 373,000 ~ 101 476,000, 2.000 move (deconsolidate) the subsidiary’s assets, Step 2: Re liabilities from the consolidated financial statements. | ASSETS | Cash (consideration received from sale - see given) 1094 | Other assets (473,000 - 130,000) 3304 | Investment in subsidiary (eliminated) { Investment in associate (at fair value - see given) Boy | Goodwill (eliminated) LTOTAL ASSETS _ ie icaasaabegtidaion 468.0 LIABILITIES AND EQUITY Accounts payable (103,000 - 30,000) 73,0 Total liabilities 7300 Share capital (Parent only) 235,00 Retained earnings (118,000 + 42,000 gain on disposal*) 160,00 Non-controlling interest (eliminated) Total equit 395,00 Goodwill Gain on disposal (squeeze) TOTAL LIABILITIES AND EQUITY _ _ 468.08 +The gain or loss on disposal is computed as follows: Jax. 1.) Cash - ABC Co. (Consideration received) 100,000 Investment in associate (Investment retained) 25,000 Accounts payable - XYZ, Inc. 30,000 Non-controlling interest 20,000 Other assets - XYZ, Inc. rs 3,0! 4,00e eration received (at fair value) com nent retained in the former subsidy a ee E ic (c 100, xd (carying Ont S26 Consolidated Fnac coe Cale) 25000 t's) zy i! dent S000 ps xrZnet identifiable assets at fair value yy 745,000 Goodwill (see consolidated financial Statements) fee (100,000) 3,000) ig or loss on disposal of controltin iatbre Notice that the loss of ¢ control prospectively. No retrospective adjust is accounted for i . iments consolidated retained earnings, are made to the Derecognition of other comprehensive income When control is lost, the parent derecognizes amounts previously recognized in other comprehensive income (OCI) as follows: ‘Type of OC ‘Accosating a. Revaluation surplus directly in equity b, Actuarial gains or losses on defined benefit plans _ directly in equity « Unrealized gains or losses on FVOCI investments directly in equity 4, Translation gains or losses on foreign operations profit or loss e. Effective portion of cash flow hedges profit or loss The first three are accounted for directly in equity (ie, tansferred directly to retained earnings) because Pas 1 hibits the reclassification Presentation of Financial Statements prol h ofit adjustment for these items. The last two are transferred to profit | loss as reclassification adjustments. n of OCI stration: Loss of control - Derecogriti oes in XYZ, IE Ro 1, 20x1, ABC Co. ae le have a fait value of syns date, XYZ’s net identifiable el share. The business 000. NCI is measured at proportionate “mbination resulted to goodwill of 3,000.During the year, XYZ’s net assets increased by P13,009, value adjustments. The details of this increase are show, bat P ‘OW Ne assets (at fai value) - Jon, 94 Subsequent changes: Profit or loss after fair value adjustments Other comprehensive income: Gain on property revaluation Gain on translation of foreign operation Z| q Increase in net assets in 20x1 The NCI in net assets is updated as follows: NCI at acquisition date (P90,000 x 20%) NCI's share in the increase in net assets (P13,000 x 20%) Accordingly, the accumulated OCI attributable to the 07 parent in the consolidated financial statement following: Gain on property revaluation (P2,000 x 80%) Gain on translation of foreign operation (P1,000 x 80%) Consolidated other components of equity - Dec. 31, 20x1 woners off tS comprises fair value of F25,000. trae gS 20% interest in XYZ his eo " e is i Bigs : Bee XYE This does not ive ABC significant influent Requirements: a Compute for the interest. Bain oF loss on disposal of controll b. . ae the deconsotidation jorinal entries fot ™ ‘cumulated OCT in the Consolidated financial statementssl o — = Att 3) Fa ee ¢ ai oi yirement (a): Gain oF loss on disp Cash - ABC Co. (Consideration Held for trading securities (1, Sal of ¢ . ceived) ontrolling interest 100, : esti 7 000 Non-controlling interest estinent retained) Net identifiable assets « (, Se give Goodwill rt eon Gain.on disposal (Squeeze) 3,000 aNet jdentifiable assets is also excess of total SSets over total jj bi liabilities, oR consideration received (at fair value) jnvestment retained in the former subsidi 100,000 Non-controlliny interest (see given) 25,000 Total 20,600 ass: XYZ’s net identifiable assets (sce given) 145,600 oodwill (see given) (103,009 ) e gi (3,0 Gain or loss on disposal of controlling interest 39, at ary (at fair value) Requirement (b): Deconsolidation entry for accumulated OCI DJE #1: To transfer directly to retained earnings the parent's share in the subsidiary’s revaluation surplus | Ja.1, | Revaluation surplus 1,600 | | me Retained earnings - ABC Co. 1,600 | DJE #2: To record the reclassification adjustment of parent's share in | cumulative gain on translation of foreign operation ; | 1. | Cumulative exchange difference 800 L& Gain on translation (profit or loss) 800 |? he total effect of the sale transaction on profit or loss is as follows: 39,600 | Gzin on disposal of controlling interest ae “in On translation (reclassification adjustment) —aar tal effect on profit or loss —Accounting treatment ‘As an equity transaction: a No gain or loss is FeCOBNi 2g | control «Consideration less Chan oe NCI = Direct adjustment in , : duit ‘As sale of subsidiary: e —Deconsolidate as follows. Cash (consideration received) xy Investment retained xx | NCI i Goodwill Net identifiable assets Gain on disposal Results to loss of control Sale of a subsidiary to an associate or joint venture Ifa parent loses control of a subsidiary by selling its interest in subsidiary to an associate or a joint venture, the gain or loss fr, the transaction is recognized in the parent's profit or loss only the extent of the unrelated investors’ interests in that associate joint venture. The remaining part of the gain is eliminated agai the carrying amount of the investment in that associate or jv venture. Former subsidiary becomes an associate or Joint venture > If the parent retains an investment in the former subsid! and the former subsidiary is now an associate or a joi venture, the parent recognizes the part of the gain of I resulting from the remeasurement at fair value of investment retained in that former subsidiary in its prot loss only to the extent of the unrelated investors’ interes’ the Rew associate or joint venture. The remaining part 0! # gain is eliminated against the carrying amount o! q investment retained in the former subsidiary,sated Financial Statements (Part 3) lide co sl psidiary becomes an associate OF joint venture fat che parent retains an investment in the former subsidia ; iat 8 TOW accounted for in accordance with PERS 9, the patt of the gain or loss resulting from the Temeasurement at fair value of the investment retained in the former subsidiary is recognised in full in the parent's Profit or loss, quustration: Sale of a subsidiary to an associate ABC Co. owns 100% intrest in XYZ, Inc. On January 1, 20x1, ABC 0, sells 70% interest in XYZ, Inc. to DEF Co, C rh Nn associate of ABC Coin which ABC Co. owns 20% interest, Details on the sale are as follows: sale price 210,000 Carrying amount of the subsidiary's net assets 100,000 Fair value of investment retained in the former subsidiary 90,000 The investment retained in the former subsidiary (XYZ) is classified as investment in associate to be accounted for under the equity method. Step 1: Compute for the total gain The total gain before the required eliminations is computed as follows: fon] 202 Cash (Consideration received) Investment in associate (Investment retained) Net assets of former subsidiary” Gain (squeeze) 210,000 Net assets = Excess of assets over liabilities (Le, debit balance). This is credited in order to derecognize it, i The 200,000 gain above is the amount before the Sminations required by PERS 10.274 of the gain and pe Step 2: Segregate the components of form 7 eliminations i the following: bove consists of t 8: ae of the retained investment to the portion sold) The total gain 1. Gain on remeasurement 2. Gain on sale (pertaining segregated for Purposes nents are Laci ererty s of PFRS 10. applying the elimination requirement value is computeq > The gain on remeasurement at fair follows: Fair value of investment retained in former subsidiary Carrying amount of retained investment (100K x 30%) Gain on remeasurement before elimination Multiply by: Unrelated interest in the former subsidiary* Gain to be recognized in profit or loss Excess to be eliminated against carrying amount of investment in the former subsidiary (60,000 - 33,600) * The unrelated interest in the former subsidiary is computed as follows Total interest in XYZ 100% Direct interest retained by ABC Co. over XYZ (30%) Indirect interest of ABC Co. through the DEF Co. (the buyer) (20% x 70%) es) Unrelated interest in the former subsidiary = a > The gain on sale is computed as follows: Total gain before eliminations se journal entry above) 200,00 Gain on remeasurement before elimination _ (6000) Gain on sale before elimination 14000 Multiply by: Unrelated interest in i the existi . ie., DEF Co,, the buyer (1 - 20%) ing associate, a Gain 10 be recognized in Profit or loss 712,008dat! i Financial Statements (Part 3) li 275 ggt0 be eliminated against carrying amount of ee in the existing associate (140K ~ 112k) iat 28,000 elimination entries are as follows: fhe Gain Gain on remeasurement ~ P/L one Investment in associate ~ XYZ, Inc, eee a 26,400 ail 1 Gain on sale ~ P/L eae 112,000 vestment in associate — ’ Inve’ iate ~ DEF Co, 28,000 The total amount of gain recognized in ABC's profi fit or joss is P145,600 (33,600 + 112,000). “ importance of consolidation 1, Consolidated financial statements provide true and fair view of the financial position and performance of the group. Users are provided with a clearer view of the risks and rewards surrounding the group of entities. It would be burdensome for users to gather together all the individual financial statements of a parent and its many subsidiaries in order to get an idea of the financial position and performance of the group; so parent entities are required to prepare consolidated financial statements. 3 Consolidated financial statements lessen the temptation of hiding certain activities in the subsidiary’s or special purpose entity’s (SPE) separate financial statements. Although, a possible loophole in consolidated financial statements is that certain activities of subsidiaries or SPEs may be buried or obscured in the notes. SPEs will be discussed momentarily. | Consolidated financial statements eliminate the effects of ttansactions with related entities making the consolidated financial statements more useful than the aggregate of each of the group members’ separate financial statements.: jidation . Theories of ES has evolved oae years. The thecy Consolidation accoun” outlined below: supporting this evolution a eory focuses on the parent's |, a. Propriety gt idiary- Advocates of this concept beliey, interest in the subs} aly a portion of the subsidia ires O! that since the parent a be shown on the consolidate financial statem (NCI) are excluded fro This concept suppor wherein the consolidat rent’s net identifiable as identifiable assets of the applied for income and expenses. ia: the “proportionate consolidation, ed financial statements include th, sets plus the parent’ 's share in the subsidiary. Similar procedure Parent company theory — this theory focuses on the parent’ ability to control the subsidiary as a whole and not only up the extent of its legal interest in the subsidiary. Advocates this concept believe that the subsidiary is an extension of t parent company. Therefore, the consolidated finandi statements should be prepared from the viewpoint of the owners of the parent. All of the subsidiary’s net identifiable assets are include a not as part of equity, The followi : ona peut are peculiar characteristics of the pare! i 100% of oe inched pmiters Net identifiable assets carrying dnetini ee financial statements ® plus the parent's share in the fair vali adjustments (FVA) at acquisiti FVA\isnot presencg sition date, The NCI's sha® NCI is measure lability nna POtionate share and. presented consolidated financial statements.jadated Financial Statements (Part 3) 277 The sub: theory Giikel te evolution of the parent mezzanine” line it Presentation from i ity ea “ item, ie, between lishing iability to a put neither part of liabilities nor equi abilities and equity, quity, , Goodwill pertains only to th called ‘partial goodwill’). © oveners ofthe parent (also Consolidated profit includes only the parent's 0 fi wn profit iii. iv. plus the, parent’s share in the subsidi 1 z sidiary’s i NCIs share in the subsidar’s prot is en expense. In other words, consolidated profit med, A to the owners of the parent. pertains only v. Unrealized gains and losses from upstream sales are eliminated only up to the extent of the parent's ownership interest in the subsidiary. Entity theory (Contemporary theory) - similar to the parent company theory, the entity theory is also based on “control.” However, advocates of this concept believe that the parent and the subsidiary are members of a group (the consolidated entity). Therefore, consolidated financial statements should be prepared from the viewpoint of the group rather than of the owners of the parent. All of the subsidiary’s net identifiable assets are included in the consolidated financial statements, irrespective of the parent's ownership interest in the subsidiary. Accordingly, NCI is included in the consolidated financial statements within equity but separate from the equity of the owners of the parent. The following are peculiar chi theory: ; i. 100% of the subsidiary’s net identifiable assets are included in the consolit lated financial statements at carrying amounts plus the total FVA at the acquisition date. aracteristics of the entityiii. her proportionate share oy ni ated financial State Xa em rate from the equity of the own Ne at eith is measured 7 NCI is measu! the com solid and presented in within equity but sep" of the parent. to both the owners of the pare, Goodwill pertains nt ‘full goodwill’), : rticularl n NCI (also called particulan'y when No, dat fair value. 7 baer profit combines the parents oni subsidiary's profits in total, De the paren ownership interest in the subsidiary. The Consoliday profit is then attributed to the (a) owners of the ae and (b) NCI. similar treatment is made , comprehensive income. In other words, CONSolidat, profit or comprehensive income pertains to both y owners of the parent and NCI Unrealized gains and losses from upstream sales eliminated in full. Hybrid theory (Traditional theory) - like the parent company and entity theories, the hybrid theory is also based “control.” As the name implies, the hybrid theory incorpora characteristics of both the parent company theory and entity theory. However, the hybrid theory has the followi peculiarities: 100% of the subsidiary’s net identifiable assets ax included in the consolidated financial statements carrying amounts plus the total FVA at the acquisiti date. Nal is measured at proportionate share (i.e., no fair vl option) and presented in the consolidated financi statements within equity but separate from the equity the owners of the parent. . Goodwill pertains only to the owners of the parent (28 called ‘partial goodwill’). ome Profit combines the parent's “4 sidiary’s profits in total, irrespective of the pat"oso — eee ownership interest in the subg; : subsidi. attributable to the NCI ig sidiary, However, the profit a deduct, profits but not reported as een the combined * other words, consolidated profit pertains only tp parent. the owners of the eliminated in full. The current standards require the use allour previous discussions are based on this OF the entity theory theory. historical background « PAS 31 Interests in Joint Ventures, the predecessor of PERS 11 Joint Arrangements, required the use of the “proprieta: theory” in accounting for investments in jointly controlled entities. This theory was eliminated in PFRS 11 and PAS 28 Investments in Associates and Joint Ventures. « PAS 22 Business Combinations, which became effective on January 1, 1985, supported the “parent company theory.” PAS 22 is the predecessor of PFRS 3 which became effective on April 1, 2004. « The. original PFRS 3 Business Combinations and PAS 27 Consolidated and Separate Financial Statements _ initially supported the “hybrid theory.” « However, on July 1, 2009, PERS 3 and PAS 27 were revised. The revised standards discarded the “hybrid theory” and requires the use of the “entity theory.” * PERS 10 Consolidated Financial Statements and PFRS 12 Disclosure of interests in other en tities which became effective on January 1, 2013 also support the “entity theory.” ly in response to user's yolve primaril to continually financial statements te the various changes in the basic objective remains Accounting theories & needs, This is in order for Provide useful information. Despi Consolidation accounting over time,ine the assets, liabilities, < to comb! ~~ and its subsidiaries. fa parent s of the entity theory tity theory over the other theog ides more relevan; i to users because oft the same, and that is ity income, and expenses © Advantages and disadvantage’ i f the ent The primary advantage © is that the entity theory prov: representationally faithful information following reasons: a. The entity theory subsidiary as 2 whole interest in the subsidiary (substanc contrast with the proprietary view. : pb. The entity theory adheres better with fair value measuremen because all the fair value adjustments are incorporated in th, consolidated financial statements. This avoids part measurement at fair value and partial measurement at boo value. This is in contrast with the parent company view. c. Many critics believe that the consideration transferred by the parent company for its controlling interest is not a valid basi in valuing NCI. Thus, a measurement choice betwe proportionate share and fair value. The entity theory is consistent with this view. It supports the ‘acquisition method, wherein control is obtained with or without any consideratiot transferred and with or without the parent involved in # transaction. The parent company and hybrid theories suppo the ‘purchase method,’ wherein control is primarily obtained through a purchase transaction. d. In contrast with the other three theories, un theory, the consolidated financial statements pertai group and not just primarily to the parent. Accordingly, i, Assets, liabilities, equity, income and expenses in to parent's ability to contro, th and not only up to the extent of its le e over form). This ee ir der the entity; in to the consolidated financial statements pertain pot ‘ controlling interest and NCI. ii. Profit or loss and comprehensive income ' 7 consolidated financial statements pertain to Pe =e | nated Financial Statements (Part 3) Cet controlling interest and Nj " Cl. ; attributed to the controlling hice items are then cl disadvantage of the entity theory : tat measuring goodwill at fi Mahl ce any ets vel it. Goo twill is an unidentifiable asset, peta and w esarenent inherently difficult. which makes its a paler gitional illustrations: ing illustrations ai . e succeeding ¥ aim to provide the : ejgonal learning materials e CPA examinee piustration 1; Intercompany receivables and payables on January 1, 20x1, Horse Co. acquired 80% interest in Colt Co. b suing ponds with fair value of P250,000. NCI is measured 7 xoportionate share. The following information was determined immediately before the acquisition: Horse Co. Colt Co. Colt Co. Total assets 1,000,000 400,000 430,000 Total liabilities (600,000) (200,000) (200,000) Net assets 400,000 200,000 230,000 Included in Colt’s liabilities is an account payable to Horse amounting to P20,000. Requirements: Compute for the following: te financial statements a Total assets in Horse's separa immediately after the combination. b, Total assets in the consolidated financial statements. Solutions: 46 A te ial statement Requirement (a): Total assets it separate financta 1,000,000 To ination eee = esstment in subsidiary aaa 1,250,000 otal assets of Horse after the combinatio aTsets in consolidated financiql State, Requirement (0): Total as: the combination (see above) 12s Total assets of Horse after ; ™ Total assets of Colt (carrying amoun! “ ! i idiar} “ ea ei ae Tig PO FVA onasse 230K (230K x 20% NCI] ; Soe oes transactions (intercompany receivable) Effect of intercomp Consolidated total assets _ . jjustment — Decrement ion 2.1; Fair value adjus| fies bud 807% of Cub Co. on January 1, 20x1 for Ptog 4 mena g information was determined at acquisition date, Equipment Accumulated depreciation Remaining useful life, 1/1/x1 10 yrs. a ol a Question #1: How much is the consolidated “Equipment - net’ the December 31, 20x2 financial statements? Solution: Equipment, net - Lion Co. (600,000 x 8/10) pment, net ~ Cub Co, (carrying amount) (400,000 x 3/5) on equipment, net - dec; : Tement [(320,000 — 400,000) x 3/5] olidated equipment, net - Dec, 31, 20x2 Equi PVA Cons: Alternative solution: Equipment, Equipment, Consolidate net ~Lion Co, (800,000 x 8/0) Ret-Cub Co, (fair value) (320,000 x 3/5) 4d equipment, net — Dec. 31, 2043283 jon #2: What is the consolidation we3"" ation of the fai jou reciation air value adjustment on mal entry for the December 31, 20x22 nt ‘Accumulated depreciation (80,000 x 2/5 Depreciation expense (80,000 +5) : Retained earnings - Lion Co.* Retained earnings ~ Cub Co.* 32,000 16,000 12,800 3,200 are the shakes of Lion and Cub in the depreciation ofthe FVA in th in the prior These year 2081 (16,000 x 80% & 20%). illustration 2.2: Fair value adjustment - Increment on January 1, 20x1, Kangaroo Co. acquired 75% of Joey Co. At that time, Joey’s equipment has a carrying amount of P100,000 and afair value of P120,000. The equipment has a remaining useful life On December 31, 20x2, Kangaroo and Joey reported of 10 years. equipment with carrying amounts ‘of P500,000 and P300,000, respectively. Question: How much is the consolidated “equipment - net” in the December 31, 20x2 financial statements? Solution: Equipment, net - Kangaroo a Equipment, net — Joe r Va ree 900 — 100,000) x 8/10] 16,000 816,000 FVA on equipment, net - increment ((120, Conalidcten equipment, net ~ Det. 31 202 - Illustration 3: NCI in net assets 5 , i . Owl Owl Co, paid P150,000 for is 75% interest y Oar eeaialle : le elected to measure at fair value ition date. The . 5 at acquis! assets approximated their fair value i il to NCL acquisition resulted to 10,000 goodwill attributable to