ADVANCED By:

ACCOUNTING 2 Assistant Laboratory of

Accounting Team
M O D U L E 4 - C H A P T E R 4 : C O N S O L I D AT I O N © 2020
TECHNIQUES AND PROCEDURES
THE REPORTING ENTITY

Parent
Single reporting entity

Subsidiary
CONSOLIDATED FINANCIAL
STATEMENTS
At
Acquisition
Consolidatio Date
n Subsequent
to
Acquisition
CONSOLIDATED FINANCIAL
STATEMENTS:
AT ACQUISITION DATE

1 Jan 2020 31 Des 2020 31 Des 2021

• Date of • Subsequen • Subsequen

Acquisitio t Year 1 t Year 2
n
ACCOUNTING STEPS ON
ACQUISITION:
1. Compare the Purchase Price and Implied Value Console with the Book
Value of subsidiary’s equity on the acquisition date.
2. If the Implied Value = Book Value of subsidiary’s equity, then the difference
between the implied value and the book value is zero (0).
3. If the Implied Value > Book Value of subsidiary’s equity, then the difference
between the implied value and the book value will be:
 Goodwill, if the fair value = book value
 Adjustment on fair value, if the fair value ≠ book value
4. If the Implied Value < Book Value of subsidiary’s equity, then the difference
between implied value and the book value will be:
 Gain on bargain purchase, if the fair value = book value
 Adjustment on fair value, if the fair value ≠ book value
ACCOUNTING STEPS ON
ACQUISITION:
THE DIAGRAM
Consolidatio
n

= 100% < 100%

(no NCI) (with NCI)

BV = FV BV > or < FV BV = FV BV > or < FV

Cost > FV = Cost > FV = goodwill

goodwill Cost = FV
Cost < FV = bargain purchase
AFFILIATION STRUCTURE
(EXAMPLE)

other
s
P Others
(NCI)
P Others
(NCI)
P
100% 80% 70%
0% 20% 30%

S S S
GOODWILL VS BARGAIN
PURCHASE
Background  all items should be recognized in fair value, so there will be
difference between Purchase Cost and Fair Value.
Purchase Cost Fair Value

> GOODW
ILL
GOODWILL VS BARGAIN
PURCHASE
Background  all items should be recognized in fair value, so there will be
difference between Purchase Cost and Fair Value.
Purchase Cost Fair Value

< BARGAIN
PURCHASE
EXAMPLES: 100% OWNERSHIP
(1)
Pool acquired 100% of Sal for $530, when Sal’s equity consisted of $250
common stock and $190 retained earnings. The difference between fair value
of Sal and the equity acquired was due to a $60 undervaluation of plant assets
(with 4 years remaining useful life) and a $5 undervaluation of liabilities (due
in 5 years).
EXAMPLES: 100% OWNERSHIP
(2)
Sal’s balance sheet on the
acquisition date was as follows:
 EXAMPLES: 100% OWNERSHIP
(3)
1. Schedule of Allocation (calculation of Goodwill/Bargain Purchase
Investment cost (100%) $ 530
Implied value (530/100%) $ 530
(-) BV of Sal acquired   $ 440 ($250 CS + $190 RE)

Excess FV over BV $ 90
Allocate excess to:
> UV plant assets (4-year) $ 60
> UV liabilities (5-year) $ (5) $ (55)
Goodwill   $ 35
 EXAMPLES: 100% OWNERSHIP
(4)
1. Schedule of Allocation (calculation of Goodwill/Bargain Purchase
Investment cost (100%) $ 530

Implied value (530/100%) $ 530

($250 CS +
(-) BV of Sal acquired   $ 440
$190 RE)
2. Journal Elimination

Excess FV over BV $ 90 Pool’s elimination worksheet entry:

Capital stock $250
Allocate excess to:
Retained earnings $190
> UV plant assets (4-year) $ 60 Plant assets $ 60
Goodwill $ 35
> UV liabilities (5-year) $ (5) $ (55)
Liabilities $ 5
Goodwill   $ 35 Investment in Sal $530
EXAMPLES: BETWEEN 50% TO
100% OWNERSHIP (1)
Pip acquires 80% of Sip for $400 when Sip had capital
stock of $200 and retained earnings of $175. Sip’s assets
and liabilities equaled their fair values except for
buildings which are undervalued by $50. The undervalued
buildings have a 10-year remaining useful life.
EXAMPLES: BETWEEN 50% TO
100% OWNERSHIP (2)
1. Schedule of Allocation (calculation of Goodwill/Bargain Purchase

Investment cost (80%) $ 400

Implied value (400/80%) $ 500

(-) BV of Sal acquired   $ 375 (250+190)

Excess FV over BV $ 125

Allocate excess to:
> UV buildings (10-year) $ 50 $ (50)

Goodwill   $ 75
EXAMPLES: BETWEEN 50% TO
100% OWNERSHIP (2)
1. Schedule of Allocation (calculation of Goodwill/Bargain Purchase

Investment cost (80%) $ 400

Implied value (400/80%) $ 500

(-) BV of Sal acquired   $ 375 (250+190)

2. Journal Elimination
Excess FV over BV $ 125 Pip’s elimination worksheet entry:
Capital stock $ 200
Allocate excess to:
Retained earnings $ 175
> UV buildings (10-year) $ 50 $ (50) Buildings $ 50
Goodwill $ 75
Goodwill   $ 75
Investment in S $ 400
Non-controlling interest $ 100
CONSOLIDATED FINANCIAL
STATEMENTS:
SUBSEQUENT TO ACQUISITION

1 Jan 2020 31 Des 2020 31 Des 2021

• Date of • Subsequen • Subsequen

Acquisitio t Year 1 t Year 2
n
CONSOLIDATED FINANCIAL
STATEMENTS:
SUBSEQUENT TO
ACQUISITION
Consolidation Under the Equity Method:
In preparing a consolidated balance sheet:
1. Eliminate the parent’s Investment in Subsidiary, to beginning of year balance.
2. Eliminate the subsidiary’s equity accounts (common stock, retained earnings, etc.)
3. Adjust the asset and liability accounts for any unamortized excess balance
4. Record Goodwill, if any
5. Record Non-Controlling Interest, if any
1. Eliminate the parent’s Investment in Subsidiary, to beginning of year balance.
Income from S* xxx (parent’s book)
Investment in S xxx
Dividend in S xxx (% parent)

INCOME FROM S
Net income (anak) xxx*% ownership
(+/-) Amortisation xxx*% ownership (the opposite of excess allocation)
Income from S xxx
2. Eliminate the subsidiary’s equity accounts (common stock, retained earnings, etc.)
Common Stock-S xxx
Retained Earnings-S xxx
UV assets xxx
OV liabilities xxx
Goodwill xxx
OV assets xxx
UV liabilities xxx
Investment in S xxx (beginning balance)
NCI xxx (beginning balance)

NOTE:
1. Hanya mengakui equity parent, jadi equity anak dihapus (ditutup)!!
2. Merah: alokasi positif, hijau: alokasi negatif
3. Total Debit – Kredit  sisanya kali % parent untuk parent, % sisanya untuk NCI.
 JOURNAL EXCESS IN DETAILS
3. Adjust the asset and liability accounts for any unamortized excess balance

Amortisasation of excess (full amount)

UV assets (ex: patent)
Expenses xxx
Patent xxx
OV assets (ex: patent)
Patent xxx
Expenses xxx
UV assets (ex: inventory)
Cost of goods sold xxx
Inventory xxx
UV assets (ex: equipment)
5. Record Non-Controlling Interest, if any
NCI Share xxx
Dividends xxx (% NCI)
NCI xxx (selisih NCI-S dan dividend)

NOTE:
1. Income bagi kepemilikan minoritas (Non-controlling interest)
2. NCI Share = (Net Income S*%NCI) +/- (amortized excess*%NCI)
3. Dividend = %NCI
Additional: Eliminate payable-receivable (account reciprocal*)
Accounts payable xxx
Accounts receivable xxx
Dividend payable xxx (%kepemilikan parent)
Dividend receivable xxx

NOTE:
Account reciprocal  SHOULD BE ELIMINATED, because it is perceived as a transaction to the
same body.
FORMULA
Income from S =
 Net income S x % ownership pada S
 + amortisasi OV assets, UV liabilities x % ownership pada S
 - amortisasi UV assets, OV liabilities x % ownership pada S

NCI Share =
 Net income S x % NCI
 + amortisasi OV assets, UV liabilities x % NCI
 - amortisasi UV assets, OV liabilities x % NCI

Investment in S (ending) =
 Investment in S (beginning)
 + Income from S
 - Dividend (sesuai % ownership pada S)
 THE END OF By:
Assistant Laboratory of
INTRODUCTION Accounting Team
© 2020
MODUL E 1 - CHAPTER 1: BUSINESS COMBINATIONS