Chapter 2 - Separate and

Consolidated Financial Statements -

Date of Acquisition
Introduction
In acquiring another company, the ocquirer must allocate its purchase price to the fair value of
the underlying assets and liabiliHes acquired. Because determination of foir values often involves
~ome degree of subjectivity, acquiring firms sometimes use their discretion to allocate the values
tn such a way as to pave the way for future growth in earnings and reported profitability.
These topics ore developed and illustrated fully in Chapter I. Among the assets that hove drawn
the attention of regulators in recent years are technology-related Intangibles and In-process
research. and development costs becaust of Its doubts as to /ts treatment In business
combination.

Recall that business combinations may be negotiated either as asset acquisitions or as stock
acquisitions. In Chapter I the procedural focus was on business combinations arising from asset
acquisitions. In those situations the acquiring company survived, and the acquired company or
companies ceased to exist as separate legal entities. The focus in this chapter is on accounting
practices followed in stock acquisitions, that is, when one company controls the activities of
another company through the direct or indirect ownership of some or all of its voting stock.
When this occurs, the acquiring company is generally referred to as the parent and the
acquired company as a subsidiary. That holding any remaining stock in a subsidiary is referred to
as the non-controlling interest. Any joint relationship is termed an affiliation, and the related
companies are called affiliated companies. Each of the affiliated companies continues its
separate legal existence, and the investing company carries its interest as an investment. The
affiliated companies continue to account individually for their own assets and liabilities, with the
parent company reflecting the investment on its books in a single account, Investment in
Subsidiary. This account will ultimately be eliminated in the consolidation process to produce a
set of consolidated financial statements. However, the investment account will be maintained in
the "parent" records. Thus, on important distinction is noted between the consolidated
statements and the parent only records for statements in the case of stock acquisitions.
The Levels of Investment (Coverage of Chapters 2 - Chapter 5)
The acquisition of common stock of another company receives different accounting
treatments depending on the level of ownership and the amount of influence or control
caused by the stock ownership. The ownership levels and accounting methods can be
summarized as follows:
Level of Ownersh/n Initial Recordina £Chanter 21 Recordina of Income £Chanters 3-51
Passive Investment - generally At cost including brokers' fees. Dividends as declared. except
under 20% ownership stock dividends /usina Cost Model)
Stratealc (Active) Investment:
a. lnffuenHal - generally At cost including brokers' fees. Ownership share of income (or.loss)
20% to 50% ownership is reported. Shown as investment
income on financial statements.
Dividends declared are distributions
of income already recorded; they
reduce the investment account.
/Eauitv Method)

AtlwltadFlntMtkd A..-,.• A~"""""""'~ Proadt,o/ Approod,._. ~

 CHAPTER 2
b. COlllrolng
over ~ ~ ~ er al y
0 At cost
Ownership share of incom
\Some adjustments are ex
e (or
---
lossf
plained in
later chapters.) Accomp
lished by
consolldating the subsidia
ry income
statement accounts wit
h those of
I the parent in the co
nsolidation
To illustr t . process . (Cost Mode
l, Equity
a e the d1
shares owned (thistte re Method, and Fair Value
fo ~n es in· :
reporting the income applicable
Ootlon\
fallowing example ba to the common sto -
~ • bt dlscusstd thorough ck
lcompany whose shar ly In Chapters 3 to 5). co
se on the reported nsider the
es are owned by investor income of the investor and investee
):
Sales ~ccount
~~ct~~ Investee Ac ulree
Gross rofit
p~
Less: ~neral/ Administra 36 000
0 eratin Income tive and selfln
ex enses P 24,000
Assume that the inves 16000
prepare the followin tee .
. company paid P2,00) in cash dividend P 8.0
g mcome statements de s. The investor00would
' pe nd ing on the leVel of owners
h'1p:
Investor \ Acaulrer
i,.., Passive Strategic (Active) Investm
Investment ent
lnllutntlal
Sales
Level at Owntflhlo
'°"
~nOw nenh
d l&N lallp
mOwnenhlp
Eaultv M•lhM
Con1YoRlna
80%0wnenhlp
Consolidated f~
Less: Cost of aoods sold P 100,000 P 100,000
Gross profit lil' lrM
P 160,CXX)
50000 86 CXX)
Less: General/Administra p 50.000 p 50 ,000
tive and selling p 74,CXX)
Expenses
Ooeratina Income 20 .000 20000
p 30,000 36CXX)
Dividend income II0% x p 30,000
P2,000 dividend\
Investment income (30% 200
x PS,000
reported income\
Net income 2400
•Consoldated net Income. p ~? M p 32400 p *38 .000
Note: The tMn Mlnvestor•
II used when ownership
MAc:qu1rer· 1s more than In common dock (nof pr
50% « 51" « more tfefrtd stock) Is 501. o,
1tss;
DlstTlbutlon of Consoldattd
Ntt Income CNI
Controlling interest in CN
100% of investor's P30,0
I
00 + BO'- of investee's PS
Non-contromn interest in ,000
011 m xPS.cm p 36,400
Consolidated Net Incom
e 1IJfJ
With a 10% passive inv P 38.00l
estment, the investor inc
declared by the inves luded only its share of
tee as its income. With the dividends
investor reported 30% a 30% influential ownersh
of the investee income ip interest. the
as a separate source of
income.

=
SEPARA111ne1 CONsotJo
- DATE OF ACQUISITION ATID PINANCW. ffATIMINTS
109

With an 80% controlli ·

investee's (now ng interest, the investor (now termed the paren t) merges
d d
the
Investment Inc a subsidiary) nominal accounts with its own amounts. Dlvlden an
ome no longer txlst.
A single set of fina . · ff es If
the parent ow td nciat statements replaces the separate statement of the en~ pi,
consolldattd n t .a JOO% lnttrtsf, net Income would simply be reported as ,31,0 t be
shown as di fri~• t income). Since this Is only an 80% lnttrest, the net Income mus e
s u td between the controlling and non-controlling interests
1h 0
e ; ~-controlllng Interest is the 20% of the subsidiary not owned by the parent. The
con ° 1
ng Interest is the parent Income, plus 80% of the subsidiary Income ·
Acqulsfflon of Net Assets versus Acquisition of Stock (Voting) / Equity
~in~eptualty, a "group", which comprises a partnt and Its subsidiaries, is a type of
.. ~:ine:s combination"• A group Is a buslntss combination In which the acquire, is a
P ent and the acqulree Is a "subsidiary", and the business combination results from
the parent
acquiring a controlling Interest In the tqulfy (not net assets) of the subsidiary.
In this business combination, both parent and subsidiary retain their status as
s~parate legal enfflles. However, from an economic perspecffve, they are a
single reporting enffly.

Two sets of financial statements must be prepared - separate financial

statements for the legal entity and consolidated nnanclal statements for the
group.
• Separate financial statements of the legal entity in accordance with PAS 27
Separate Financial Statement; and
• Consolidated financial statements, if the legal entity is also a parent, in
accordance with PFRS 10 Conmlidated Financial Statement.
This is in contrast with a business combination whereby an acquirer buys over the net
assets of another entity. A businesscombination such as this, which is brought about by
the purchase of net assets (not equity) of the other entity, does not result in a parent-
subsidiary relationship.
In this business combination, the legal and economic entities are one. The separate
financial statements of the acquirer provide information about the enlarged entity.
Likewise , a set of consolidated financial statements is not required . ·
The focus of this chapter is on the business comblnotfon In general that results to a
parent-subsidiary relationship which Is property termed as a consolidation. PFRS 3
presumes that there is a dominant party in a business combination, which may be
identified as an "acquire,".
Classification of lntercorporate Investment
An lntercorporate Investment is any purchase by one corporation of the securities of
another corporation. Broadly speaking, the investment may be in either:
• debt securities or
• equity securities - preferred or common shares.

Adwmff d Fmondol A"'°"""1t1 • A ,,,._ ,..A,,,,Nd,

no cHAPT Efl 2
The focus of this text is on equity (ordinary shares/common stoc k) investments.
.
The investment poration can broadly be
of a corporation In the equity of another cor
classified as either passive or strategic:
1· A passive Investment is made to earn dividends or to earn proflts by actively
trading the investment for short-term profit.
2· A strategic (active) Investment is made to slgnfflcantly Influence or control the
operations of the investee (acquire) corporation .
Passive Investments
Accounting for passive investments poses no particular problems. Th~y are lnltlally
recorded at cost and are reported at fair market value on each period s statement of
financial position or balance sheet.
The treatment of gains and losses depends on how the company has elected to classify
the Investment - a choice that the reporting entity makes for each separate passive
equity Investments when the Investments is first made.
The choices available under PFRS 9, Financial Instruments. are to report the investment
at either:
1. fair value through proffl or loss (MPL), or
2. fair value through other comprehensive Income (FVTOCIJ
If an equity Investment is classiffed as fVTPL. both:
• dividends and
• the change in fair value from one period to another are reported in the net
income section of the statement of comprehensive income (SCI).
If, on the other hand, an equity Investment Is classiffed as FVTOCI:
• dividends from that investment are recognize in net income. but
• changes in the fair value of the investment are reported as other
comprehensive income (OCI); the accumulated gains and losses are reported
as a separate component of stockholders' equity. The choice to classify an
equity investment as FVTOCI is irrevocable - the choice cannot be changed
subsequently.
Strategic (Active) Investments

Strategic investments provide a strategic or long-term advantage by giving the investor

the ability to either slgnlffcanffy Influence or control the operating or financial decisions
of an investee. Strategic equity investments can take several different forms depending
on the investor's strategic objectives:

• Controlled entities:
• Subsidiaries (PAS 27 and PFRS10)
■ Structured entines (or variable interest entities)
■ Associated companies (PAS 28)
■ Joint ventures (PFRS 11)

A""'1nfftl FIMndol A«oflllllni-A ~ 1, "'-"nl App,ood,

•w t1 _. CON10uDATID
• DA11 Of ACQUISITION fflWlcw, nATIMINTS
m
Generally, Investments or
indirectly, 2~ o, ~ ofI consldertd strategic if a comp
any owns. either directly or
demonstrated that the . fht voting shares of the Investee.
unless it can be clearty be
investments ore passive.
In the following sectio
one ol the two basis ns and chapters. the focus Is on the concept of "cont
rol", which Is
ott,., one Is •s1gn1ca;onc1pts t~ u?d~le accountin
g for strategic Investments (the
lnftuence , which 1s not covered in this discussion).
Equity Investments anct ltpcwflng Methods under PFRS
The table provides the d . .
the methOd of the· e_c,sion rules to be followed to classify equity investments and
consolidation and ir re~ort,ng u~der PFRS. In the following sectio
ns, we will illustrate both
r - - - -e_q_u,ty reporting.
Sole control ? r---------.
Subsidiary/ Consolidate following
~ G;J Structured Entitv PFRS 10 & disclose
followino PFRS 12
Joint control?

+G;J Report share of assets,

Rights over individual Joint Operation L__.. liabilities, revenues. and
assets & liabilities of ~--- -_ _J I expenses & disclose
joint arrangement G;J following PFRS 12

~
Joint Venture ~ Report using equity
~- --- --- -l method following PAS
28 & disclose following
G;J I~-_ __
Significant influence? - - -
__
Associate L-.
_JI . ..__ PFRS 12
_ _ _ _ _____.

~ Passive Investment Report as MPL or

FVTOCI following PFRS 9
As we review consolidation, it is crucial to understand that
reporting is not the same as
recording. Consolidated amounts never appear on the
parent company's book-
reported numbers are the results of spreadsheet analysls.
either computer-based or
manual.
Controled Entitles
There are many aspects of control that accountants must be
aware of. The two general
types of controlled entffles are subsidiaries and structured
entitles or variable Interest
enffly-VIE (this will be discussed on the later part of this chap
ter).
Subsidiaries
By far the most common type of controUed entity ls a subsi
diary. A subsidiary is a
corporaffon (or an unincorporated entity such as a partnership
or trust company) that is
 y

fll CH AP TE R 2

controll~d by a parent company that owns, usua11y, a majority of the voting

r oration's board of
s~ares/nghts of the subsidiary. Since stockholders elect a ~~P
any to control the
directors, holding most of the shares enables the parent c
p
composition of the subsidiary's board .
The Concept of Control
Conso'Idatfon ,s. the process of combining . b·i·t· earnings and cash flo-ws
the assets, 1,a ' 1 ,es, . · .
of a parent and its subsidiaries as if they were one economic entity
. Since ?n e~~~omic
and not legal perspective is adopted, transactions between
companies wi in this
economic entity and their resultant balances must be eliminated.
A parent is an entity that controls one or more subsidiaries. A group
is a parent and all
its subsidiaries. ·
PFRS 10 Guidance on Control
An Investor determines whether it is O parent by assessing or
ft controls one or m~re
Investees. An investor considers all relevant facts and circum
stances when assessing
control over an investee.

PFRS JO uses control as the single basis for consolidation.

An investor 1:ontrols an
investee if and only if the investor has all of the following three eleme
nts of control:
1. Power over the Investee. Power is the ability to direct those
activities which
significantly affect the investee's returns. It arises from rights
, which may be
straightforward (e.g. through voting rights) or complex (e.g. throug
h one or more
contractual arrangements).
2. Exposure, or rights. to variable returns from involvement with
the investee
Returns must have the potential to vary as a result of the investee's
performance
and can be positive. negative or both.
3. The ability to use power over the investee to affect the amount of
the investor's
returns.
Power arises from rights. Such rights can be straightforward (e.g.
through voting rights).
An investor that holds only protective rights cannot have power
over an investee and so
cannot control an investee. Power can be obtained directly
from ownership of the
majority of the voting rights or can be derived from other rights.
such as:
• Rights to appoint, reassign or remove key management
personnel who can
direct the relevant activities:
• Rights to appoint or remove another entity that directs the releva
nt activities:
• Rights to direct the investee to enter into or veto changes to.
transactions for the
benefit of the investor: and
• Other rights. such as those specified in a management contr
act.
When assessing whether control exists, an investor with decisi
on making rights should
establish whether it is acting as a principal or agent of other partie
s. An investor that h
an agent does not control an investee when it exercises
decision-making rights
delegated to it. A number of factors are considered in makin
g this assessment. FOi'
SEPARATE and CONSOLIDATED FINANCIAL STATEMENTS
- DATl OF ACQUISITION

· t . . whether
ms once. the remuneratio
· .
n of the decision-maker is cons1d d ·
ere in determining
it is an agent.

Control as the Criterion for Consolldaflon

lhJ the parent.
A subsi~iary is ~efined as an entity that Is controlled by anoth~
ent.. 1 ' basis for
Control is the cnterion for identifying a parent-subsidiary relationship
an~ the ucial
consol.d
1 0 t·ion. The determination of wheth
er one entity controls ano ther 1s then• er cial
to the determination of which entities should prepare conso
lidated f1nan
statements.

The "Default Presumption"

The presence of "control" determines the existence of a parent-subsi
diary relationship .
In the context of PFRS JO the quantitatiye criterion of more than 50% of
voting power was
not menHoned but not superseded by a new rule.

For practical reasons, the presumption is that ownership of more than

50% of voting
power constitutes control, in the absence of any evidence to the contra
ry.
However. control also arises from many other sources: statute
, contractual
arrangements, implicit or explicit control over the board of directors
among others.
As PFRS JO is based on principles rather than rules, the use of a quant
itative criterion is
only a guide. This is known as the "default presumption".

Separate Financial Statements (PAS 27)

PAS 27 defines separate financial statements as "those presented
by a parent, an
investor in an associate or a joint venturer in a joint venture in which the
investments are
accounted for on the basis of the direct equity interest rather than on
the basis of the
reported results and net assets of the investees".

The investor's sepc;,rate financial statements reflect the legal interes

t in the investment
and its direct benefits (dividends) rather than the larger economic entitl~
ments (share
of profits) that is brought by "control" or "significant influence"
or "contractual
arrangement or joint control."
As economic boundaries are enlarged through "control" or "signif
icant influence" or
"contractual arrangement or joint control" that an investor possesses
over the financial
and operating policies of subsidiaries and associates respectively,
another level of
report ing is required. This level of reporting is described as the conso
lidated financial
statements that present the financial statements of a group as
those of a single
economic entity.
When the parent acquires a controlling interest in the subsidiary, the
parent makes an
entry debiting Investment in subsidiary and crediting either cash, debt,
or stock (or
some combination), depending on the medium of exchange.
Assume that the
acquisition relies on a cash purchase price of P500,000. The entry on
the parent's books
would ~ be::'.,::____ _--:-'. :-::-- ---- - - - - ---- ;:~::: ;;--- ---
,
I.
Investment in Subsidi ary . . . .. . • • • · • · · · · · · · · · · · · · · · · · · · · · · ·
Cash ... . . .. .... ....... ... • . • • • • • • · · · · • · • · · · · • · · · • · • ·
500.000
500.000
I
A ~,:i,,_ia,-Accountlng-A Com,nlNmlw: ~ I& Ptoadurol APPl'«lth
114
C H A P TE R 2
The Parent's lnvestm t
asset and liabTty en account represents the par .
gOOdwiU H 11 accounts of ent's Investment in the diff erent
the subsidiary and often Includ
subsidiar·y Inowever· it ·is record . es a significant amount of
ed 1n a single account entffle
values Th.es con,trasf, contin d "Investment". The
· ues to keep Its detailed books based on his
the date of e vaues are not as current torical book
O I
the process ~qu sffio~ . but the as the ma rket values assessed by the por~nt at
0 y are detailed as to classification
consohdating is to consider the . One way of looking at
following:
Subsidiary's looks
Parent's looks Asset and
Valuation
Investment Account Uabllltv accounts
Classificat\~~ · · · · · · · · · · · · · · ·
· · • •• . . Market value
.. · · · · · · · · · · · · · · • • • . . . Historical value
One account Multiple accounts
From the table ab
subsidia , d . ove, we see
that neither the parent's Invest
and cla~i:ica~tailed ?sse! an ment account nor the
d liability accounts serves to pro
on desired in the consolidated vide both the valuation
financial statements.
The purpose of consolldated
statements Is to present prima
owners and creditors of the pa rily for the benefit of the
rent, the results of operations and
a parent company and all Its the financial position of
economic entity. subsidiaries as ff the consolida
ted group were a slngte

~onsolidated statements Ign

ore the legal aspects of the sep
~nstead on the economic entity arate entffles but focus
under the "control" of manage
IS that most users of fina ment. The presumption
than the legal entity. ncial statements prefer to evaluate the economic entity rather

Thus, the preparation of co

nsolidated statements Is an
substance rather than form. example of focusing on

Investments at the Date of Acqu

isition
The general principles used
to record business combinatio
acquisitions were discussed in ns effected as asset
Chapter l . In this chapter and
and 5, we will concentrate on throughout Chapters 3, 4
accounting for the acquisition
voting stock. Appendix A to this of another company's
chapter presents issues related
Entities (VIEs) or Structured En to on Variable Interest
tities and Appendix B on defer
acquisition. red taxes at the date of

Recording Investment's at Cost

(Parent's Books)
The basic guidellnes for val
uation discussed In Chapter
combinations appty equally 1 pertaining to business
to the acquisition of voting sto
Under the acquisition method, ck In another company.
the stock Investment Is recorded
by the fair value of the considera at its cost as measured
tion given or the consideration
more clearly evident. received, whichever Is

Recall that the consideration

given may consist of cash. ot~
· · g comp er ?ssets, debt. securities . .
stock of the acqu1rtn an y any form of asset or a comb1n
· at1on of these ,terns.
SIPARATE GIid t
- DA11 OF Ac o:: .:DATED FINANCIAL STATEMENTS
115
Treatment of A.
Parent's 8ookstqulsltion-related Direct Costs In
the Separate Financial Statements (or

In acquisition f
basis is PFRS
3
°
th
• ·
net ?ssets discussed in Chapter 1 (Business Combina · h
tion) wherein t e
expenses . · ere is no doubt that the acquisitio
n-related direct costs are treated as

The followin d' .

the book 9 iscussion regarding the treatmen ·
t of acquisition-related dir~ct costs in·
manner ; of parent entity, does not affect the
0 computation of goodwill, only the
recording such costs In the books of the parent entity
.
In this chapt th
er e basis Is PAS 27 (2014):
• Before the separation of PAS 27 (2014) and PFRS
m ~nsoI'd 10 (2015). PFRS 27 (2008) termed
I ated and
Separate Financial Statements" the basis is PFRS 3, .
any acq · itt wherein
uis on-related costs are considered expenses .

7
• ~er th separation of PAS 27 "Separate Fina
ncial Statements" and PFRS JO
~nsobdated Financial Statements", there ls an argu
27 ment that the basis of PAS
is not anymore PFRS 3 and the.basis for determin
ation of "costs" will now be
under the general rule of recording costs, which inclu
des direct-acquisition costs
as part of the investment acquired.
.
th
On e other hand, only PFRS 1Ocan use PFRS 3 as
the basis . So, in the process of
prepar!ng the consolidated statement, the acqu
isition-related costs become
consolidated expenses through working paper elimi
nating entries.
:he auth~r believes that there fs logic on the basis
of applying the general rule in
interpreting the definition of ucosts" in PAS 27.

Despite, the logical analysis in interpreting the gene

ral rule, the author further
believes that the original treatment of acquisitio
n-direct costs whether for
business combination or separate or consolidated
financial statements, will still be
treated as expenses in the books of the parent entity
for the fallowing reasons:
1. To capitalize the acquisition-felated direct costs
as part of investmen t
seems to defeat the purpose or substance of the stand
ard which serves as a
guide for consolidation procedures (even in some
cases, stand-alone
financial statement would be possible).
2. If the parent records the direct costs as part of Investmen
t in subsidiary, it
may be a problem when there will be an impairme
nt test which will reveal
the costs (wherein the direct costs ll already included
and will be included
in the impairment) and in fact unrecoverable
and there must be an
impairment charge at the parent level (in which the
direct costs is included
as port of the Investment to be impaired when
in the consolidated
statements they ore not impaired since they will be
set-up as an expense) ,
which would have the effect of bringing the parent's
accounting (with the
impairment of the investment including the direc
t costs) In line with what
would later appear on the consolidated financial state
men_ts.

Adtlonml Flnondol ActOUtlllnl :_ A ~

Concfpluol & ProadutolApp,ood,
 f~~
116

T0 1·11 tr . .
CH AP TE R 2 r ·di<i'I·
ubs1 f1"1
us ate, if cash Is used for the acquisition the . ded at its cash cost . s liOblY
For example, assume that P Company acq inve stment is recor mmon stock re
~ires a\1100,000 shares of the co
of S Company for PS per share and pays acq ocG\u
uisiti on fees of P30,000. 1ne uisitiO
1 A · it'
· cqu,s ion-related direct costs are not
capitalizab1e, the entry to record the oca oc
st
inve ment on P Company's book is: onY9°
ln, eslment;n Subsidio,y . . . . . . . . . . . . . . .. . c,cQ l
Cash . . . ..
.. . . . ~ ~.-:-:- 500.000 S00.000:\ 1ne sof
Acquisition of s~b~d,~~ · · · · · · · · · • · · · • ·
·- -----==::'.~-
· · · · · · · · · · · _··_·_·
.... etces
Retained earnings \acquisition-related expe
nse - close to 1.
m,
retained earnings since only balance shee Q,
t accounts are
being examined) . . . . . . . . . . . . . . . . . . . . . .
. . .. . .. .. . . .. . · · 30.000
Re;i~~~--~l~h~~~~1~i~d ~~~~- ··············· ············ ·· 30 000
,
\
b.
The acquisition fee would be recorded
in a separate entry as an expense or
retained earnings .
2· Acquisition-related dire c.
ct costs are capitalizable, the entry to
investment on P Compan record the
y's book is:
Investment in Subsidiary .. . .... .... . .. ..
..... ... , ..... . . .. 11. th
Cqsh .. .. , . , , . . . . . . . . . . . . . . . . . . . . . . . . 530.000
....... .... .. ... 01
Acquisition of subsid iorv. 530,000

It should be noted again that the computa Where (I

tion of goodwill (or bargain purchase gain
under the two assumptions above are still )
the same.
ihe me<
Assume further, if P Company issues stock
in the acquisition, the investment is recorded are disc
?t the fair value of the stock issued, givin
g effect to any costs of registering the stoc
issue. Assume that P Company issues 10,0 k In lllustr
00 of its PlO par value common shares with
fair value of P13 per share for the 10,000 a
shares of S Company, and that registration subsidic
costs amount to P12,000 paid in cash
. The entries to record the investment
Company's books are : on P Consoli
Investment in Subsidiary . . ..... . . . .... ....
.. .. ... . . .. . . . . . 130,000 1here i'.
Common stock \PIO par x 10,000 shares) .....
. ..... .. . .. . 100,000 effect 1
Paid-in capital in excess of par [!Pl3 - PIO)
x 10,000] .. . ... . 30,000
Acquisition of subsidiary asse\ v1
Paid-in capita\ in excess of par .... .. . . .
... . .... .... . . ... . . When
Cash .... .. . .... . . . .. . .. .... . .. .... ... 12.000
Record acqu
.. . .. . .. : . .... . 12,000 consid
isition-related costs - costs to reaister stocks

If p Company paid an additional PS,000 In COSE

as an indirect costs, the entry would be:
value
Retained earnings (acquisition-related expe
nse - close to "ALLO,
retained earnings since only balance shee
t accounts
are being examined) . .. . . .... .... . . . ..
.. . .. .. . .... .. . .. 5,000
Cash ... . . .... . . .... .. ... .. . . . . . . ...
. . . . : .. .. .... . .. .
Consc
Record acquisition-related costs 5,000
When
The Acquisition Analysis (or Schedule of Dete deler,
rmination and Allocation of Excess)
As noted in· paragraph 33 of PFRS 3, whe PFRS :
re th~ b~siness combination occurs by
parent exchanging its equity interests for the
the equity interests of the former owners lobe
of the
 SEPARATE and CONSOLIDATED FINANCIAL STATEMENTS 117
_-_D_ATE
_ O_
FA_C_QU_IS_m__
ON
_:___ _ _ _ _ _ __ _ _ __
be more
·d· . .. · · 1 ·nterests rnaY
su bsi iary, the acqu1s1t1on-date fair values of the acquuee s
reliably measurable than that of the acquirer's interests.
. . . . . . the acquiree. At
The acqu1rer obtains control by acquiring shares (stock ocquisitio~) ,n_ has been
· ·t· d t
acqu,s, ion date, an acquisition analysis is undertaken to e ermi ne 1f there
any goodwill acquired. or a bargain purchase has occurred
asured as the
The acquirer shall recognize goodwlll as of the acquisition date. me
excess of (I) over (II) below.''
I. the aggregate of:
a. the consideration transferred measured in accordance with PFR5 3'
which generally requiresacquisition date fair value
b. the amount of any non-controlling Interest in the acquiree measured in
accordance with this PFRS 3 : and
c. in a business combination achieved in stages, the acquisition date fair
value of the acquirer's previously held equity interest in the acquiree.
II. the net of the acquisition date amounts of the identifiable assets acquired
and the liabilities assumed measured in accordance with PFRS3.

Where (II) exceeds (I), PFR~ 3 regards the giving rise to a gain on a bargain purchase.

The measurement of (II) had been discussed in Chapter 1. The items included within (I)
are discussed in Chapter 1 and in the succeeding discussions below.

In Illustration 2- 1 - Illustration 2-4, because the parent acquires all the shares in the
subsidiary, there is no effect due to (a) (ii) and (iii). •
Consolidation of WhoHy Owned Subsidiaries

There is no question of control in a wholly-owned subsidiary. Many factors have an

effect on the fair value of a company and its market per share of stock, including its
asset values, its earning power, and general market conditions.
When one company acquires another, the acquiree's fair value is based on the
consideration given may be equal. more than or less than the book value.

In case, there will be a difference between the fair value of the subsidiary and the book
value of the acquiree's net identifiable assets and this is referred to in this textbook as
"AUOCATED excess".

Consolidation of Partially-Owned Subsidiaries

When a subsidiary is less than 190% owned or partially-owned, problem arises as to the
determination and recognition of goodwill and the non-controlling interests.

PFRS 3 allows goodwill and non-controlling interests in the acquiree at acquisition date
to be measured at either:
118
CH AP T E R 2
• Fu!l-~oodwlll approach or Fair Value Basis ·(con
sistent with the measuremenl
pnnc::iple for other com ponents of the business com
bination), or
• Partial-goodwill approach or Proportional Basis
assets). (of the acquiree's identifiable net

fuR-goodwlll Approach (or Fair Value Basis)

• When non-controlling Interests are measured

at fair value (we refer to this o~tion
as the fair value option). goodwill attributable to
recog · d · non-controlling interests will be
.
rnze mthe consolida ted finan cial statements.
nd th
U er e fair value basis, non-controlling Interests
comprise three components:
• Share of book value of identifiable net assets of
subsidiary:
• Share (fair value - book value) of identifiab
le net asset: of subsidiary at
acquisition date; and
• Share of goodwili in subsidiary at acq uisition date
.
th
U~der e _fair value basis, non-controlling Interests
are determined with reference to
either active market price of equity shares of the
0ther valuation subsidiary at acquisition date or
techniques mentioned in Chapter J.
Fair value per share of non-controlling interests may
differ from fair value per share
of the acquirer because a control premium may
be paid by the acqulrer. For
example, in a takeover bid. an acquirer may pay
a 20% prem ium over market price
to gain control of the acquiree.

Partial-goodwill approach (or Proportional Basis

Assets) of the Acquiree's Identifiable Net

• Under the second option where non-controllin

g interests are measured as a
proportion of the acquiree's identifiable net asset
s. non-controlling interests
comprise two components asfollows:
- Share of book value of identifiable.net assets of
subsidiary; and
- Share (fair value - book value ) of identifiab
le net assets of subsidiary at
acquisition date.
• Non-controlling Interests' share of goodwill
(NCI-goodwill) is not recognized
under the second option (proportional basis).

Goodwill
The computation of goodwill depends on the optio
ns mentioned above. Goodwlll is an
unidentifiable asset in which its existence is an
important motivation for a parent to
acquire a subsidiary.
Hence. goodwill is the premium that a pa.rent pays
to ~cquire the su~sidiary and should
be separately recognized as an asset ,~ the c~ns
o~1dated ~nanc,a/ st~te~ents. The
·acquirer is required to recognize goodwill acqu
ired 1n a business comb1nat1on as an
asset.

. __ ..,___,. , A ~-i Ct Hn ~ C~Tttual & Proc~uro/ Approach

Adt ,ona tir,, __.
SIPARA11 and CON
.. Dlll OF Acouasm~DATED FINANCIAL STATEMENTS
119

Goodwill under PFRS

3 may be one of two values tb
for non-contro depending on the measuremen asis
fling interests as of acquisition date (refer to NCI discussion above).
It allows two meo
surement bases for non-controfUng Interest:
• Option 1 if
reco . · .non-controlling interests are measured at full-fair vaIue, odwill
go .
· t gnized in the consolidated financial statements will include non-co
ntrolling
in ere sts ' share of goodwill. This Is known as full-goodwill approach.

• ~tton 2· if non-confrolUng Interests are measured at the proportionat

e share of
0
,8
v~lue of the net identifiable assets acquired, non-controlling Interests'
shore
go dwffl Is not recognized under this second option under PFRS 3. This Is known
as partfal-goodwm approach.
While good ·11 •
wi is measured as a residual. it should in substance be:
• An expectation of future economic benefits arising from the acquis
ition and
• ~n a~set that is integral to the enHty as a whole, w),ich is not
individually
dent,ftable or severable as a stand-alone asset.
Entity (Economic Unit)·Theory

Under the entity theory, non-controlling Interests are deemed to be

as Important as a
sfalceholde, of the combined entity similar to the majority shareholders.
The distinction between the parent and the non-controlffng Interes
included in equity. ts both are both

Hence, the entity theory requires a consistent accounting treatment

for both parent
and non-controlling interests.
Under the entity theory:
• The consolidated financial statements should be prepared and presen
ted for the
benefit of both groups of equity holders.
• Non-controlling interests are shown as equity in the balance
sheet. The
accounting equation will be as follows:
Consolidated equity:
(Controlling and non-controlling interests) = Consolidated assets-
Consolidated liabilities
'
• The fair values of assets and liabilities of subsidiaries at the date
of acquisition
should be reported in full to reflect the stakes of both parent company
and non-
controlling shareholders in the net assets of the subsidiaries. A
consistent
accounting treatment is applied to both parent's and non-co
ntrolling
shareholders' interests in the net assets of a subsidiary.
Hence, if the assets and liabilities of an acquired subsidiary are shown
at fair
values at the date of acquisition, non-controlling interests are also deem
ed to
have a shore of the fair value increment arising from the revaluation of
net assets
to fair value. ·
 SI
;

120 CH APT ER 2_
-- --- --- - -- --
• . . .
Goodwill Is an asset of the economic unit. 0nd sho
uld be reflected in t_ull.
hange transaction
~nternally generated goodwill that is not evidenced by on exc
is recognized in full as of the date of acquisition.
. .
• Net profit of the subsidiary should be reported .In full as accruing to both mo1onty
?nd non-controlling shareholders. Non-controlling intere 5ts' share of current profit
is not shown as a deduction of profit.
Parent Theory

The parent theory focuses on the Information needs of the

parent company
shareholders . Features of the parent theory are as follows:
• Th · .
e consolidated financial statements are prepare d an d Presen.
ted primarily for
d f th
the benefits of the parent company shareholders . The
inform~tiona_ l nee s O e
non-controlling interests are better served by the separate financial st0
tements
of the subsidiary that the consolidated financial statements.
• Claims by non-controlling interests in the net assets of a subsidiary
a_re shown as a
separate component in the balance sheet. They are presented
,n a category
that is neither debt nor equity in the consolidated balance
sheet· The
accounting equation in the consolidated balance sheet is presented
as follows:
Consolidated equity
+ = Consolidated assets - Consolidated liabilities
Non-controlling Interests
• Since the focus is on the parent's perspective. only the parent's share
of the fair
values of the assets and liabilities of subsidiaries at the date of acquis
ition should
be reported. There is no "purchase" of the subsidiary by the non-c
ontrolling
interests. Hence , the non-controlling interests in the assets and
liabilities of a
subsidiary at the date of acquisition are shown at book (not fair) value
.
• Goodwill is an asset of the parent (not the economic unit)
and should be
restricted to the parent's share. Hence. the internally generated
goodwill of a
subsidiary that belongs to the non-controlling shareholders of a subsid
iary is not
recognized .
• Non-controlling interests' share of current profit is shown as a deduc
tion from
profit to show the final profit that is attributable to parent company
shareholders.
Essentially, the differences between the two theories are summarized
as follows:
Attributes Parent Theo
Fair value diflerences in Recognized only in respect of Recogn
ized in full, reflecting
relation to identifiable assets parent 's sh~re both parent's and non-
and liabilities at the date of controlling Interests' share of
ac uisition the fair value ad'ustments
Presentation of non-controlling Neither as equity nor debt As part of eq ulty
interests
Goodwill Goodwill is parent's asset Goodwill Is an entity asset and
should be recognized In ful as
at date of ac uisitlon.

Adfla~ Finandol A ~ -A ~ , _ Conaptual &Proctdutal Approach

: : ::oCONsouoAtm F1NANCIAl STATEMENTS ~ -
- - - _ ~SITIO N _ _ __
-- --- -- ·---- ----- ----
Proprietary Theo,y

The p,oprfeta th . olidation policies.

Under ti e ry tory Is fess critical to determining choice of con~ t interest in a
subsidi ''s proptietary t~eo~Y: the parent is seen as ha~ing a d1rec r roportlonol
c o m ~ssets and hab1ht1es. This perspective results 1n .p~o-rato :ac~ individual
asset and r b··tthereby the parent's interest is directly mulhpl1ed to t nd liabilities.
10 11
Yof the subsidiary and combined with the parent'sasse 5 a
The lmpllctt Consolldaflon Theory Underlylng PFRS 3
~e,::io~ments in accounting standards underscore an evolutionary shift tow~s t~
n..,, eo,y. PFRS 3 permits the recognition of non-control/Ing Intere sts ' s re
goodwlft.

lllu~tration 2-1 to Illustration 2-4 show different aspects of computing the. full-goo?~II
(fair _value) and partial (proportionate) goodwill approach and Illustration 2-5 is in
relation to bargain purchase gain.

IUuSfratton 2-1: fair Value of Non-Controlling Interest In Subsidiary Not Given

Par Company acquires 80% of Son Company for Pl0,000,000, carrying value of Son
Co~pants net assets at time of acquisition being P6,000,000 and fa~ value of th ese
net 1dent1fiable assets being PS,OOO,OOO.
The following computations for goodwill and non-controlling interest under two options
are as follows·. .
Proportionate Basis (Partial-goodwill Approach)
• Partial- oodwill
Fair value of subsidiary (80%):
Consideration transferred: Cash .. . . . ... . .. .. . .. . .. . .. . P 10,000.000 (80%)
Less: Book value of stockholders' equity (net assets)
- Son Company: P6,000,000 x 80% . . .... .. . . . .... . ..... . 4,800,000 (80%)
Allocated excess .... . ...... . ... .. .... : ....... . . . . . ... . . P 5,200.000 (80%)
Less: Over/undervaluation of assets and liabililies:
(P8,000,000 - P6,000,000) x 80% .... . ... .. . .. .. . . .. .. . 1.~00,0C!J (80%)
Positive excess: Goodwill ortial ........... .... .. ..... .. . P 3,600,()QO 80%
• Non-controllin Interest
Book Value of stockholders' equily of subsidiary . . . ... .. ... . ... . P6.000.000
Adjustments to reflect fair value (over/undervaluation of assets
and fiabi~ties) : (PS.000.000- P6.000.000) . .. . . . . . .. . ... ..... . 2,000,000
Fair value of stockholders' equity of subsidiary . ... ... . . ... . . .. . P8,000,000
Multiplied by: Non-controlling interest percenlage . . . . . . . .. .. . .
20%
Non-controllin interesl artial . ... . . .. .. . . .. . . .... ... .. .. . . p 1.600.0CQ
Fair Value Basis (Full-goodwill Approach)
, Full- oodwill
Fair value of subsidiary (100%) :
Consideration transferred: Cash (Pl0.000.000 / 80%) . . . . . . P 12,500.000 (100%)
Less: Book value of stockholders' equity (net assets)
- Son Company: P6,000,000 x 100% . . . . . . . . . . . . . . . . . . . . . .. . ~.000,000 (100%)
Allocated exc;ess . ... . . ... . . . . . ..... ...... . . . ... ...... . .. . . P 6,500.000 (100%)
Less: Over/undervaluation of assets and liabiHties:
(PB.000.000 - P6,000.000) x 100% . . . ... . . .. . .. . ..... . .. . . 2,000,000 {100%)
Positive excess: Goodwill full .. • • • · · · · · · · · · · · · · · · · · · · · · · .. · · J' ~,500,CQQ 100%

. A""'1nt«/ Fh,ando/ A«ountln, - ACom,,,.,,,,,,lw: Conapluol &"1«Hurol Approach

m CHA!!_!.ER 2

ich can be computed

The full _- goodwill of P4,500,000 consists of _two part~ wh _ when there will
be
proportionately as to 80%:20% ratio (unlike 1n Illustration 2 2·
control premium included):
Full-goodwill .. .. . . . . . . .... . ... . . . ... .. . . · · · · · · p 4,500,000
Less: Controlling interest on full-goodwill or
Partial-goodwill (P4.500,000 x80%). .. . .... · · · · · · }600,QQQ
NCI on full- oodwlll P(S00,000 x 20% . ... . . · · · · · · · ~

• Non-controllln Interest or refer to the first assum tion below : P _ ,rllJ

Non-controlling interest (partial) .. .. . . .. 1 600
... .
Ad~: Non-controlling interest on lull-goodwill (P4.500,0 00-
900,0QQ
3.600,000 p~rtial-goodwill) or (P-4,500.000 x mi• ... .. ••· · · · e.._i.5,00JlQQ
Non-controlftn interest lull . . . .... ...... . . . ...... . .... • · · · · rJv & no
• applcoble only wtt.n the tow value ot the non-conlrolllng Interest of subsldiorY Is not
en
control premium (or discount) Included - refer lo lllustrotfon 15-2.
• -'Jtemotivel . the NCI mo be com uted os follows:
Fair value of subsidiary (100%1.. .. .. .. .. .. .. . . .. .. .. .. .. . P 12,500,:
Multiplied by: Non-controlling interest percenl age . . . . . . . Ga)
Non-controllin interest. . . . .. . . .. . _. . . . . . . . . . . . . . . . . .
• If should be not.d that this Is
·.S:·
not on al-encompassing ohmalfv• approach. If Is only opplc:o
P2
depends I there Is no control premium (or discount) Included - refer lo llustroffon I5-2.

Several assumptions went into the above calculation for fair value basis:
• Fair value of subsidiary- it isassumed that if the parent would pay PI0,000 ,000 for
an~
interest, then the entire subsidiary company is worth P12,S00,000 (Pl 0,000.000/80%).
_This
amount is referred to as the M implied value" of the subsidiary company. Assuming this to
be true, the non-controlling Interest (NCQ Is worth P2,500.000 of the total subsidia
ry
company value (20% x PJ2.500,000).
This P12,500,000 approach assumes that the price the parent would pay Is directly
proportional to the size of the Interest purchased. This presumption differs In
the
succeeding iffusfratlons.
• Book value of the stockholders' equity (or net assets) of subsidiary - P6.000,000.
This
amount will be deducted to fair value of subsidiary to determine the allocated exces5.
• The over/under valuation of identifiable assets and liabilities (P2,000.000). This amount
is
from the comparison of book and fair values. All assets and liabilities will be adjusted
to
100% fair value regardless of the size of the controlling interest purchased.
• ·Fair value of stockholders' equity (or net assets) of subsidiary excluding
goodwill
(PS.000,000). This amount composed of the book value and over/undervaluation
of
identifiable assets and liabilities reflecting fair values of the subsidiary accounts.
• Goodwill - the total goodwill is the excess of the fair value of the subsidiary over the
fair
value of the subsidiary net assets. It is proportionately allocated to the controlling interest
and NCI.
Can there be an Allocation of lmpoiment of Goodwill as to Conholllng Interests
or Non-
controlllng Interests?
• If goodwill becomes impaired in a future period, the impairment charge
would be
allocated to the controlling interest and the NCI based on the percentage of
total
goodwill each equity interest received. In this case, where goodwffl on the NCI
was
assumed to be proportional to that recorded on the controlling Interest, the lmpaim
ent
charge would be 80/20 to the contronlng interest and NCI. But not In all cases that
the
impairment is proportion to the ownership Interests. It depends on how much wiff
the
management decide on the impairment as to parent and subsidiary.
 4 • •

SIPARATI Ond C0Nsouo4TID FINAHaAL STATEMEHTS

-DAll OF ACQUIS"10N 1D
- - . ._ ------ ---- 4. . . -------
Control Premium /Con-01 Dhcount t

. to pay over
. is. an amount that a buyer is usually willtn~ lhc curren
·ustified by e
A control prem,um thst
ma,,L,et P"Ce
• af o PUbUcly traded company. This pre"'u 11Y 1
· m 1s usuaesulting from co
expected synergies, such as the expected increase in cash flow r lidation.
· ond revenue enhoncemen~ achievable in
savings · the mergeror conso f non·

.on transferred is proportionoRy more than the

. rot1 . fair valuea oconlrol
. otion.
If the con11de
controlling interests. there is O control premium. In fhe oppo•te f 511"ntrol (sometimes
discoun t (which often arises in a fire sale) or discount for lock O
co
called a non-controlling interest discount) arises. tol

Value of Non-Controlling Interest In Subsidiary Given with Con

Premiumon 1-2: Fair
Illustrati

Sun Company hos 40% of its shore publicly traded on on exchonge Pluto
ny
Compa00.
ing P6.300.0 ~
purchases the 60% non-publk:ly froded shores in one fronsoct,on. P ( gaining confrci
Based on the frading price of the shores of Sun Company at_the_ dote (or air value of
of
f
a fair value of P4.000.000 assigned fo the 40% non-controlling. inferes frol Ipremium
and a
non-controlling inferesf). indicating tho! Sun Company has po,d O _c~
P300.000. The fair value of Sun Company's identifiable net assets is '000'000
carrying value of P5.000.000.

The following computations for goodwill and non-controlling .interes t under three
options are as follows:

Proportionate Basis (Partial-goodwill Approach)

, Partial- oodwill
' Fair value of subsidiary (60%):
Consideration transferred: Cash ....... .... .... .. p 6,300,000 (60%)
! Less: Book value of stockholders' equity (net assets)
- Sun Company: PS.000.000 x 60% . . . .. .... ••• • •· · · ~.000,000 160%)
Allocate d excess ......... .. . .... .. .. ..... . .. • • • • • · · · · p 3,300,000 (60%)
; Less: Over/undervaluation of assets and liabilities :
IP7.000,000 - P5,000,000) x 60% · · · · · · · · · · · · · · · · · 1,200,000 160%)
>~o~si~tiv~e~e~ G
xc~e~ss~:~o~o~d~w!! _il.{QQa~rfi2!alL. ·
..:...· · ·
·..:...
:....:. :. ·
.:. · •
.:..:..:...·:. . .· · •
•..:...
: : ·
...:.. ·
.:..: ·
·...:...:....:.
· ·- . &
~ ~ ~~ ~
2.100.QOO 60%~

, Non-controllln Interest
Book Value of stockholders' equity of subsidiary .••.•··· ······· ·· P5,000,000
Adjustmentsto reflect fair value {over/undervaluation of assets
and liabilities): (Pl,000,000 - P5.000,00?J. · · · · · · . .... .. ...... . 2,Q'.X).000
Fair value of stockholders' equity of subs1d1ary .... . .... . .... . . . P 7,000,000
Multiplied by: Non-controllin~ interest percentage . . . . ........ . 40%
Non-controllin interest art1al . • • • · · · · · · · · · · · · · · · · · · · · · · · · ·

Fair Value Basis (Full-goodwill Approach)

, Full- oodwlll
Fair value of subsidiary {100%) : . .. . . ..
Consideration trans'.erre~: Cash ... ...... .. ·.·.·.·.· .... .. . P 6,300.000 { 60%)
Fair value of NCI {given) · · · · · · · · · · · · · · · ·. ..
· ...... . . 4,000.QOO Lm!
Fair value of sub~dia ......... ......... .. .. P 10,300,000 100%
 - -- --·
124 CH ~E R 2
- p 10.300.000 (100%)
Fair value of subsidiary . . . .. . ..... . .. . . . .. .. .....
. . . .. • •
Less: Book value ot stockholders ' equity (net assets) -
(100%)
Sun Company: PS.000.000 x 100% .... . .. . ... • · · · · ·
··· ~ 1100%)
Allocated Excess . .. . . ..... . . . . . .... . ... . .. . . . .. p 5,300.000
...... .
Less: Over/undervaluation of assets and liabilities:
(100%)
(P7 .000.000 - PS,000 .000) x 100% ... . ..... . .. · · · · · ~
l Positive excess: Goodwill (full ...... . . . . . . .. ...... . . · · ·· · · .f 3,300.,QOO 100%

The full - oodwill of P3.300,000 consists of two arts:

Full-goodwill . . . .
D i.:mo.ooo
Less: Controlling interest on full-goodwill or
part1al-
· goodwill
.. .. .. .... .. ... .. .. ...... 2,100.0QQ
NCI on full oodwill .. .. .. .. .. .. .. .. .. .. . .. .
P 1.2100 000
L d
.
'Thisamount should not be lower compared to fair value
of NCI of Stockhol ers
equity of subsidiary (i.e.. Pl.000.000 x 40% = P2.B00.000/
Otherwise. the higher
amount should be used.

• Non-controllln Interest
Non-c ontrolling interest (partial) . .. , . . ... .. . p 2,800.000
Add: Non-controlling interest on full-goodwill (P3.300.000
--
P2, 100,000 par1iol-goodwill) . ... . ...... . . . .. . . . ..... 1,200,000
. •• • · · ·
Non-c ontrollin interest full .. .. ...... .. . . . ... . .. p _4,000.,000
. . . ...... . •
Observed that in relation to the first assumption made
in Illustration 15-1, the ?lternative
computation of NCI is not applicable. the NCI as
computed using the fair va/u~ of
subsidiary as computed above amounted to pf
0,300,000, the resulting goodwill of
P4, 120,000 /PI0,300,000 x 40%)) does not tally with
the amount of P4,000,000 as computed
above.
Similarly, the same effect as to the amount of good
will allocation to the controlling and
non-controlling interests wherein it does not equal to
the 60%:40%split of the total goodwill.
Since there is a control premium paid by Pluto, the
goodwill attributable to Pluto and the
non-controlling interests are not proportional to each
other. That is. if we multiply full/total
. goodwill (i.e., the P3,300,000) times the 60% contr
olling intere sts and the 40% non-
controlling interest we would have calculated propo
rtional goodwill of PI. 980,000 and
Pl.320,000, respectively. Instead, as we present in Illustr
ation 15-2, the actual amount of
goodwill allocated to the controlling interest is P2, 100,00
0 and the allocation to the non-
controlling interest is P1,200,000.
Bottom Line Analysis: The amount of goodwill that is
allocated to the controlling and non-
controlling interest is based on the separate fair value
s of each of those ownerships that
may not correspond with the proportion of the subsi
diary'sstock that they own.
Several assumptions went into the above calculation
for fair value basis:
• Fair value of subsidiary - this is now the sum of
the price paid by the parent plus the
newly estimated fair value of the NCI.
• Fair value of stockholders' equity (or net assets
) of subsidiary excluding goodwill. This
amount composed of the book value and over /unde
rvaluation of identifiable assets
and liabilities reflecting lair values of the subsidiary acco
unts.
• Goodwill - the total goodwill is the excess of the
fair value of subsidiary over the fair value
of subsidiary net assets.
• The NCI (full) computed above should be the
same with the NCI given per problem
which is P4,000,000.
• The NCI (full) can never be less than the NCI
percentage of the fair value of the
stockholders' equity of subsidiary (or net assets . in this
case , it cannot be less than 40% x
Pl ,000,000 = P2,800,000).
 125
ATEMENTS
and CO NSO UDATED FINANCIAL ST
SEPARATE
~TE OF ACQ
UISITION
. nt charge would be
. . toge of total
riod, the ,m po ,rme
. a future pe th oportional,
goodw ill becomes impaired in th e NC I ba se d on ~ p e rc : pr
If st and was n
controlling in tere , where goodwill
allocated to the ived . In this ca se
uity interest rece :- ;- ;- -: -- ~~ o /7
ta i
goodwill each eq :e d
:_ a~
::_s .
fol
=_~lo_w s
~ :_
would be dcvelo:p Value !o f TotQ
new percentage
0
63.64%
,I 00 ,0QQOOO ~ P2
. . . .. . . . . . . 1.00
to porenl .. . . . .
goodw dw!1
I1
I opp 1!coble
1opp1ICObie to NCI . PJ,300.000 ·. ·.·. ·. .
1;200
«

00
.. ·. .: ·. ·.·. ·. ·. ·. ·. ·. ·. ·.
amounote d to
Totol~ oodwil~. .:.:. : .. . . · Paid f no n-
e pnce .
roach). Assuming th ith no frnr valu~
Fair va ue Basis (Full-goo
1 • dw lll A p p
P294,000 w n are as
includes co nt rol premium of ba sed on this assumptio
00 w hich tations
P6,294,0 wing compu
ntrolling intere st given, the follo
co
follows:
• Full- oodwlll 0%): 10,000.000 I 100
%/
p
idiary /l0
Fair value of subs d (P6.294,000 - P2
94,000}/60% 294,00Q
ation tra ns fe rre (l00% /
Consider .. .. .. .. . . . p 10,294 ,000
~: i~ ~ ;m ium . . .. .. . . .. .. . . . ..
Fair v~~~ :o~~
(~-~t·~;s~t~i ~ · · · · ·.
· (l00%)
st oc .kh~ld~~ ,-~~~;~ · 5,000,000
ok va lue of .• .. (100% }
less: Bo .. . . .. .. .. .. .. . p 5,294,000
,000,000 x 100%.
Sun Company: PS
Allocated Excess s: · · · · · · · · · ·
e; ~l ~~ f
- i;~ ~s~~is.~~d li~bi1/ti~·
~f 2,000,000 I I00%/
less: Ove r/und . .. . . . . . l00%
00 ,00 0) x 100% .. . . . .. . . . £ _3~29-4..000
(Pl,000,000 - PS ,0 . .. . .. . . . . . .
: G oo dw ill full .. .. . . .. .. .. .. .
Positive excess
ts:
of PJ,294,000 consists of two ar P 3,294.000
The full - oodwi/1 . .. .. . .. . .
dw ill .. . . .. .. . . .. .. .. .. .. .. ..
Full-goo ill or
terest on full-goodw
less: Controlling in (PS ,00 0,000 x
6,294,000- 2,094,000
Partial-goodwill {P
60%) - (P2,000,00
0 x 60%/]
.. .. .. . .
P_L 200J200
ll- oo dw ill.. .. . .. .. .. .. .. . .. ..
NCI on fu
iven
io n 1- 3:- Fa ir V al ue of Subsidiary G {7 50 ,0 00 ordinary shares
} of Sare
Illustrat ire s 75 % are
be r 1, 20 x4 , Pa re Company acqu d ar ou nd th e a cquisition date, S
On Septem . In the per io mium
fo r P7 ,5 00 ,0 00 {P IOper sh are) ar e. P are C om pany pays a pre
Compa ny ut PB per sh on able to
pa ny's sh or es are trading at abo lie ve s it w ill g e t. It therefore reas an
Com
t b ec a us e of the synergies it be m ay no t be P I0,000,000. In fact ,
over marke value of Sare's as
a whole
is P9,700,000 {fair
value
d e th at th e fa ir Sa re C om pa ny
conclu e value of PB,000,000
pe nd e nt va lu a tion sh ows th°at th
va lu e o f th e ne t assets acquire d is
in de the fair
}. Assuming th at
of Sare Com pany
P6,000,000).
{carrying value is
ach)
te B as is (P ar tial-goodwill Appro
Proportiona
lll
• Partial- oodw idiary (75%}: .. P 7,500,000 (75%}
Fair value of subs . . .. . . .. . .. . .. ..
oH on tra ns ferred: Cash .. . ..
equity (net assets)
Cons ider (75%)
of stockholders ' . .. .. . . 4,500,000
less: Book value ,0 00 ,00 0 x 75 % . .. . .. .. . . .. . .. P 3,000,000 (75%)
: P6 .
- Sore Company .. . .. .. .. .. .. ..
d ex cess .. .. .. . . .. . . . .. .. .. ..
Allocate ts and liabilities: 1,500,000 (75%)
valuation of asse .. .. .. .
less: Over/under ,000 ,00 0) x 75% .. ·. . . .. .. .. .. .. P 1.500.000 75%
(PB,000,000- P6 ..
. . .. . .. . . . . . . . ..
ex cess : G oo dw ill ortiol . . .. . ..
Positive

l & ProadurotApp
,o«b
;,-A. "comptWllflliw: CtJnapluo
IA«ountl,
AdvanadFl,;;,«itJ
126 CH AP TE R 2

• Non-co_!!~olllng lnter_!st_ _ _ _
_- - - ~ -F P~6lx.OCJJi iOCJJ
,DC~-l
Bo~k Volue of slockholders' equily of subs
idiary . . • •· · · · · · · · · · ·
Ad1ustrnen1sto reflect foir value (over/underva
luation of assets
_and liabililies) : (PB.000.000 - P6,000.000l .
.. .. . ....... ·· · ·· ~
Fair value of stockt1olders' equity of subsidiary p 8,0CJJ,OCIJ
.. ... . • • · · · · · · · ·
Multiplied by: Non-controlling interesl perc
enlage .. . . • • · · · · · ·
2~
Non -controlling interest (partial) . . .. .. ..
. .. . . . .... ... . . . • •· · · I"2~aoo
fai Value Basis (Full-goodwlll Approach)
• full- oodwlll
Fair value of subsidiary .... .. ... ... . . . . p 9.700.CfJJ (100%)
. . . . . . . . . . . .... . . .
Less: Book value of stockholders' equity (net
assets) -
Sore Company: P6,000,000 x 100%. . .... .. ~.WJ}:t:fj (100%)
. .. . .. . . • ,.. .
Allocated Excess . . . . ... . . . . . . .... .... ... p 3,700.000 (100%)
. .. .. .. .. . .. . .
Less: Over/undervaluation of mselsand liabil
ities:
(PB,000,000- P6,000,000) x 100% . .. . .. . . .. 2,000/.[f)_ (100%)
.... . · ....... .
Positive excess: Goodwill full ... . .. ... .
. . . .. . . . .. .. ......... · :i LZ00..000 100%

The full - goodwill of P1,700,000 con sistsof

two parts:
Full-goodwill . . . .. .... . .. . .. .. ... .. . . .. P 1.700,(fjj
............
Less: Con trolling interest on full-goodwill or
Partial-goodwill . ..... . . .. . . . . .. . . . ..... 1,500,000
.........
NCI on full- oodwill .. . . . . ... . . . . . .. .
. . .. . .......... p_ .200~QCQ
• Non-controllin Interest
Non-conlrolling interest (partial) .... . .. . .
.. . P 2,000,000
Add: Non-controlling interest on full-goodw
ill (Pl .700.000-
Pl ,500,000 partial-goodwill). . . ... .... . . .
. ... ... . .... .... . . 200,000
Non-controllin interest full .. .... . ... . .
. . .. . .. . ... . ..... .. . __LllOO.OOO
Control Achieved In Two or More Transact
ions-Step Acquisition (Business Combination
Achieved In Stages) s

In the previous illustrations, the acquirer

acquired all issued shares of the acquire
one transaction. An alternative situation e in
could occur where the acquirer obtained
controlling interest in the acquirer by acq its
uiring further shares and thereby adding
previously held equity intwest, see Illustrati to its
on 1-4.
A business combination occurs when the
acquirer obtains control of the acquiree.
at that date of the second acquisition of It is
shores that the business combination occ
this is referred to as a business combina urs;
tion achieved in stages - sometimes call
step acquisition. Obviously, there may be ed a
a number of step purchases in the acquire
prior to the obtaining control. e

PFRS 3 requires that ff the acquirer hold

s a non-controlling equity investment in
acquiree immediately before obtaining the
control, the acquirer. An equity investment
one of the fallowing categories is increas in
ed to become a controlling interest: a fina
asset under PFRS9, an associate under PAS ncial
28 or a jointly under PfRS 11.
The principles to be applied are:
.
• a business combination occurs only 1n
respect of the transaction that gives one
entity control of another;
SIPARAft CIINI CONSOUDAllD an.au..,.. ..
- DA11 OF lCOUISfflON "nRff loUU. STATIMINTS
m
• the identifi bl
the ta e n~~ _ assets of the acquiree are remeasured to their fair value on
• nondate of ?cqu1s1tion (i.e. the date that control passes);
...
-controlltng interests are measured on the date of acquisition und r one of
e .
~e .two options Permitted by PFRS 3 [fair value basis !Option 1l or proportiona
as1s (option 2 above)]; te
2
Table -1: Control Achieved In Two or More Transactions- SoUJce:
Deloitte
---
[ PFRs 9 ] ~ AS28/PFRS11 l \ PAS27 / PFRS 10]

I
I
I
I
I
I
I 75%
12°"

_J
I 15°"
Passive
Signlllcant lnlluence/ Ccri'ol
Joint Control
-- -- -- -- --- - - - - - -
lllustraflon 2-4: Step Acqulsfflon: Fair value of Non-contro
llng Interest of the
acqulree/subsldlary) and Fair value of any previously held equity
acquiee/subsldlary Interest In the

Pares Company acquires 15 percent of Serap Company's comm

on stock for P500.0CO
cash and carries the investment as n FVTOCI investment. A few
months later, Pares
purchases another 60 percent of Serap Company's stock for P2,160
,0CO. At that date,
Serap Company reports identifiable assets with a book value of
P3.900,000 and a fair
value of P5, 100,000, and it has liabilities with a book value and fair
value of Pl ,900.0CO.
The fair value of the 25% non-controlling interest in Serap Comp
any is P900.0CO. The
fallowing computations for goodwill and non-controlling interest
under two options are
as follows:
Proportionate lasls (Partlal-goodwlH Approach)
• Partial- oodwlll
Fair value of subsidiary 175%):
Consideration transferred: Cash ... . . . ... ... . . . . . P 2,160,000 (60%)
Fair value of previously held equity interest in
acquire P2,160.C1YJ/60% =P3,600,000 x 15% .... .
Fair value of Subsidiary . . . .. ... .. . ... . . ...... ... . . .. .
540,000 om
P 2.700.000 175%)
Less: Book value of stockholders' equity lnet assets)
- Serap Company: IP3,900,000 - Pl .900,000) x 75% l/:IYJ,000 175%)
Allocated excess .... .. .. ..... .. . . .. . ...... ...... . . .. P 1,200,000 (75%)
Less: Over/undervaluation of assets and liabilities:
[(PS.100,000- Pl ,900,000) -
IP3.900,000 - Pl ,900,000)] x75% . . . ...... . · · · · · · . · . 900,000 (75%)
Positive excess: Goodwill jpartial) .. .. .... . ...... .. .... . p 300CXX) (75%)
 - ·- _,,.. ae::CL.M WA4"- -".-•- --- -

128

--------------- CH AP TE R 2

• Non-contronln Interest
Bo~k Value of stockholders ' equity of subsidiary . . . • p 2,000 .000
•· · · · · · · · · · ·
AdJustrnen~ to reflect fair value (over/undervaluation
of assets 1,200,000
_and liabilities): (P3.200,000 _P2,000,000) . . .... .. . . .
Fair value of stockholders ' equity of subsidiary ..... ..
. .. . . • · · · p3,200,ooo
•· · · · · · · · ·
Multiplied by: Non-controlling interest percentage . .. 2~
. ••· · · · · · ·
Non-controlling interest (partial) . . . .... . .. . ... . .. .
. .... . . • · · ·
Lfioo.OOO
fair Value Basis (full-goodwill Approach)
• full- oodwlll
Fair value of subsidiary (100%):
Consideration transferred : Cash . ..... ..... .... . • p 2,160,000 (60%)
Fair value of previously held equity interest in
Acqu ire P2,l 60JJ.XJ/60% = P3,600 ,000 x 15%.. .. . . 540,000 (1 5%)
Fair value of NCI (given)· .... .. . ... . ..... . ... .. • 900,000 (25%)
Fair value of subsidiary . . .... . ..... . . ... . ..... .. . . P 3,600,000 (100%)
....
Less: Book value of stockholders" equity (net assets) -
Serop Company: P2,000,000 x 100% .. . .. . . . ..... . . 2,000,Q00 (100%)
Allocated Excess . . . . .. . . . . .. .... ... .. . . ..... . . ..... P 1,600,000 (100%)
.
Less: Over /undervaluation of assetsand liabilities:
(P3,200,000- P2,000,000) x 100% ... ... ... ..... ... . 1,200,000 (1 00%)
Positive excess: Goodwill full .. ..... . .. . .. . ..... . .
~ ... f..___A.QQ.OOQ 100%
The full - oodwill of P400,000 consisl-5 of two arts:
Full-goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P 400.000
Less: Controlling interest on lull-goodwill or
Partial-goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
300,000
NCI on full- oodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
•This amount should not be lower compared to fair f.'_l_QQ,000
value of NCI of Stockholders ' equity of subsidiary r.e.,
PJ.200,000 x 25%= PB00,000/. Otherwise, the higher amoun
t should be used.
• Non-controllin interest
Non-controlling interest (partial) .... . . ... ... ... .. . ....
. ... . P 800.000
Add: Non-c ontrolling interest on lull-goodwill (P 400.00
0-
p 300,000 partial-goodwill) ... . .. ... .. .. . .... . . .... .. ....
. 100,000
Non-controllin interest full ...... .... . ... .... . ..... .
.... . . . _f__.9..00.000
In general, a change in ownership leading to a change
in the nature of an investment is
reported as a deemed sale of the existing investmen
t at fair value , and as a deemed
purchase of the new investment, again at fair value .
Further the new investment is reported using the appr
opriate reporting method - fair
value, equity, or consolidation. However, differences
in practice exist when accounting
for a change in the nature of an investment from
passive to an investment in an
associate, joint venture (or joint control) or control.
These differences in practice exist because PAS
28 is silent on the appropriate
accounting method for step acquisition. One valid prac
tice is to follow the deemed
sale/purchase at fair value approach applicable to
other types of changes in the
nature of the investment. ·
Rule as a Financial Asset
, an equity interest previously held by the acquiree whic
h qualified as a financial
instrument under PFRS 9 is treated as if it were disposed
of and reacquired at fair

h
IEPARATI and CONSOLIDATED
• DATl OF ACQUISITION FINANCIAL STATIMENTS
-- -- -- -- --- 129

value ~n the acquisition date depending on whether the Investment (flnanclol

asset) Is a: ·

• Fair value through Other Comprehensive Income (FVTOC_ I}. The

~erneasur_ernent to its acquisition-date fair value and any resulting gain or loss
is recognized oth
• F Ir er comprehensive income. its
0
~ ~~~ue throug~ Profit and Loss (FVTPL).
The re'.11easure~ent_ 10 fit
quisition-date fair value and any resulting gain or loss Is recognized ,n pro
or loss.

Incidentally. illustration 2-4 is an example in which an equity interest previou~ly

held .and
..
quaI·t·
1ied as FVTOCI investment and . · remeas ured to its
0 Is being
cqu1s1hon ?ate fair value and any difference Is recognized In Other
Comprehensrve Income. The gain on deemed sole - OCI is computed as
follows:
Fair value on prev· 1 h . . . .
1ous Y eld equity interest 1n ocquiree
Les .p~ 160:000 / 60% = P3.600,000 X 15% ...... . .... . .. . ....... . p 540,000
s. oriying I book value at the point control is
achieved
OCI - Gain on re~~~~~~~~~~i' t~ i~i; ~~I~~- · -~i~-~~ ·d~~~~d·s~I~·

Because the new purchased changed the nature of the investment from Fair
Value to control, the acqulree company (Serap) has to act as if there is a
deemed sale of its existing investment in the acquirer (Pares) and a deemed
purchase of its now 75% Interest In Serap. Incidentally, the entry isas follows:

Investment in Pores Company (Controlled Entity - Subsidiary) 2.700.000 I

Investment in Pores Company (FVTOCI). . . . . ....... . . . 500.000
Cash
2.16J,000
Othe; c~~ ·r~h~~~i~~ -1~~~~~-. -~in. ~~-d~~~~d ~~i~ ·.·:: 40,COO
On the other hand, if the Investment is classified as FVTPL investment, the
difference which is the remeasurement gain is recognized in profft and loss
account to be included in the determination of net income.

As mentioned earlier of this chapter, the fair value gains and losses of MOCI
investment can never be transferred from their separate component of equity to
net income. However, the company can move the accumulated gains and
losses within stockholders' equity. That means that the company can transfer the
gains and losses directly to retained earnings at any time. but not via the profit
and loss section of the statement of comprehensive income.
Associate
, an equity interest previously held in the acquiree which qualified as an associate
under PAS 28 or a joint venture under PFRS 11 is similarly treated as if it were
disposed of and reacquired at fair value on the acquisition date.

Accordingly, it is remeasured to its acquisition date fair value. and any resulting
gain or loss compared to its carrying amount under PAS 28 or Pf RS 11 is
recognized in profit or loss.

Adwlnt«I Flnandol AfflHRll/nf-A Comp,., ,,lw: Conttptuol It Proaduto/ Ap;,ood,

130 CH AP TE R 2

llustratton 2-5: Bargain Purchase Gain

p r1 c
a or ompany acquires 75 percent of Saloon Com , mon stock for P225.0CX)
pany scom
cash. At that date, the non-controlling inlen..::)I lue of P52
i11 ~u 1uu1 1 has O bo?k vo
and a fair value of P82.000. Also on that date , Salo t 'th500
on reports ide~tlfi~-~le as~t~ sWlbooa
book value of P400.000 and a fair value of PSI0
.000 . and il has hab1ht1es w1 a k
value and fair value of p190,000.
Proportionate Iasis (Parttal Goodwlll Approach)
• Partial- oodwUI
Fair value of subsidiary (75%) :
Consideration transferred: Cash ... . . . . . .. ... .. ... p 225,000 175%)
.
Less: Book value of stockholders' equity
(net assets) - Saloon Company:
(P400,COO-Pl90.COO) x75% .. . ... ... . . ..... .... 157,500 (75%)
.
Allocated excess ..... . . . . .. .. . ... . . ..... .. . . .. P 67,;JJJ (75%)
.. . ... .
Less: Over/undervaluation of assets and liabilities:
[(PSlO,COO - P190,COO) - (P400,COO- Pl90,COO) x
Negative excess: Bargain purchase gain (to controlling
75% 82,500 (75%)

interest or attributable to arent onl . ..... . .. . . 75%

.
• full- oodwlll
Fair value of subsidiary 1100%):
Consideration transferred: Cash . .. ..... . .. . . .... P 225.COO
.. (75%)
Fair value of non-controlling interest (given )• . ... . ..
. 82,000 (25%)
Fair value of subsidiary ... .... ... ..... ..... . .....
.. .. . . P 307.000 (100%)
Less: Book value of stockholders' equity
(net assets) - Saloon Company:
(P400.COO- Pl 90,COO) x 100% . . .. .. . . . •. . . . ... 210,00)
.. . (1 00%)
Allocated excess .. . . ... .. . .. . ... . .. .. .. ..... .
. .. . . ... . P 97,000 (1 00%)
Less: Over/undervaluation of assets and fiabilities:
[(PSI0,000- P190,000)- (P400,000- Pl90.000) x
100% 110,000 (100%)
Negative excess: Bargain purchase gain (to controlling
interest or attributable to arent on . . . . . . . . . . . .
*This amount should not be lower compared to 100%
fair value·of NCI of Stockholders ' equity of subsid
(i.e., /P510,000-Pl90.000 = P320.000} x 25% = PB0,00 iary
0). Otherwise. the higher amount should be used.
Several assump#ons went into the above calcu
lation for fair value basis:
• Fair value of subsidiary - this is now the
sum of the price paid by the parent plus the
newly estimated fair value of the NCI.
• Fair value of stockholders' equity (or net
assets) of subsidiary excluding goodwill. Th~
amount composed of the book value and over
/undervaluati on of identifiable assets and
liabilities reflecting fair values of the subsidiary
accounts.
• Goodwill - there can be no goodwill when
the price paid isless than the fair value of the
parent's share of the fair value of net identifiab
le assets.
• The NCI (full) can never be less than the
NCI percentage of the fair value of the
stockholders' equity of subsidiary [or net asset
s, in this case, it cannot be less than 25% x
(P510,000- P190,000) = P80,000]
• Bargain purchase gain (gain on acquisition
) - the only gain recognized is that applicable
to the controlling interests whether under the
proportionate basis (option 2) or fair value
(option 1).
• How Is the NCI affected by the existence of a
bargain purchase gain?

Atlf,otatJ Flnondttl Mtllllllllnl-A e«,,pH/tlnllW:

CMtlpluol I Prot«lutol App,ood, =
 SIPARATI and CONSOLIDATED FINANCIAL STATIMINTS 131
- DATl OP ACQUISITION

th0
• PFRS 3 stat th 0 gnized by
. . ~s at a gain on a bargain purchase can only L>e rec ill can be
acqu,r~r. This implies that only the parent's share of the negative goodw
recognized.
• In the rar ·n has no effect
e case that a bargain purchase gain may arise. such a go, the fair
O1
on th e calculation of the NCI share or equity. The NCI receives a shore .
• ~al~e ~f th ~ subsidiary, and hos no involvement with the bargain purchase ~~ ~he
1
fair
a so implies that non-controlling /nter•st must bt measured at Its shore thod
value of the ldenffffoblt net assets. In effect, the parent company extension me
must be ustd for valuing the NCI.
• The s~bsidiary goodwill of the subsidiary may be determined by calculating th0 ~~o:t~~
O
acq~i~ed by the par~nt entity and then grossing this up to determine the goo~will ss is
subsidia~ (as shown 1n the full-gr ..)dwill approach of Illustration 2· 1 to 2-4).This proc; in
not applicable for _ the bargain i:~:chase gain. The gain is made by the p~re~~ _P Yn~
th
less t~an e net fair value of the ocquirer's share of the identifiable assets. habihties a
contingent liabilities of the subsidiary.

The stand ard setters adopt the view that most business combinations are an exchange
?f equal amounts given markets in which the parties to the business combinations are0
informed and willing participants in the transaction. Therefore. the existence of
bargain purchase is expected to be an unusual or rare event.

Paragraph 36 of IFRS3 requires that before a gain Is recognized. the acquire, must
reassess ff:
• !t has correctly identified all the assets acquired and liabilities assumed: . . ..
• it has correctly measured at fair value all the assets acquired and habihhes
assumed;
• there is non-controlling interest in the acquiree (subsidiary). if any;
• it is for a business combination achieved in stages. the acquirer's (parent)
previously-held equity interest in the acquiree; and
• it has correctly measured the consideration transferred.

The objective here is to ensure that all the measurements at acquisition date reflect all
information that are available at that date.
Note that one effect of recognizing a bargain purchase is that there is no recognition of
goodwill. A gain on bargain purchase and goodwlll cannot be recognized in the same
busineu combination.

Nature and Presentation of the Non-Controlling Interest (NCI)

Ownership interests In a subsidiary other than the parent are referred to as the non-
controlling interest. Non-controlling Interest is the equity in a subsidiary not attributable.
directly or indirectly. to a parent.

NCI is to be Identified and presented within equity. separately from the parent
stockholders' equity. It is regarded as an equity contributor to the group (a parent and
all its subsidiaries) rather than a liabffity. This is because the NCI does not meet the
definition of a liability as contained in the Framework, because the group has no
present obligation to provide economic outflows to the NCI.