Chapter 4
Consolidated Consolidated Financial Statements (Part 1) PROBLEM 1: MULTIPLE CHOICE - THEORY 1.
A
6.
B
2.
D
7.
D
3.
C
8.
A
4.
A
9.
C
5.
B
10.
C
11.
A
PROBLEM 2: FOR CLASSROOM DISCUSSION 1.
Solutions:
R eq equir uirem emen entt (a): (a): Goodwill is computed as follows: Consideration transferred (380K – 80K) 80K) x 40% NCI in the acquiree (380K – Previously held equity interest in the acquire Total Fair value of net identifiable assets acquired
300,000 120,000 420,000 (300,000)
Goodwill
120,000
CJE #1: To eliminate investment in subsidiary and recognize goodwill Jan. 1, Land (250K – (250K – 200K) 200K) 50,000 20x1 Share capital – capital – Rainy Rainy 250,000 Ret. earnings – earnings – Rainy Rainy (Carrying amt.) 40,000
Goodwill
120,000
Inventory (120K – (120K – 80K) 80K) Investment in subsidiary
Non-controlling interest to adjust the subsidiary’s assets to acquisition-date fair values, to eliminate the investment in subsidiary and subsidiary’s pre-combination pre-combination equity, and to recognize goodwill and non-controlling interest in the consolidated financial statements
1
40,000 300,000 120,000
Sunny Group Consolidation Worksheet
Sunny Co. ASSETS Cash Inventory Investment in subsidiary Land Goodwill
TOTAL ASSE TS LIABILITIES AND EQUITY Accounts payable Share capital Retained earnings Non-controlling interest Total equity
TOTAL LIAB ILITES & E QUITY
80,000 400,000 300,000 600,000 1,380,000
50,000 120,000 200,000 370,000
200,000
80,000
1,000,000 180,000 1,180,000 1,380,000
250,000 40,000 290,000 370,000
Consolidation adjustments Dr.
CJE ref. #
Rainy Co.
CJ E ref. # Cr.
40,000
1
300,000 1 1
Consolidated
1
50,000 120,000
130,000 480,000 850,000 120,000
1,580,000 280,000 1 1
250,000 40,000 120,000
1
1,000,000 180,000 120,000
1,300,000 460,000
2
460,000
1,580,000
2.
Solutions:
S tep 1: Analysis of effects of intercompany transaction There were no intercompany transactions during the period.
S tep 2: Analysis of net assets A cqui s ition Consolidation Net date date change
A xion, Inc. Share capital Retained earnings Totals at carrying amounts Fair value adjustments at acq’n. date Subsequent depreciation of FVA Unrealized profits (Upstream only)
250,000 40,000 290,000 10,000 NIL NIL
250,000 60,000 310,000 10,000 30,000* -
S ubs idiary's net as s ets at fair value
300,000
350,000
50,000
*The subsequent depreciation of fair value adjustments (FVA) is determined as follows:
Fair value adjustments Inventory Building – net
Totals
(40,000) 50,000 10,000
Divide by us eful life
S ubs equent depreciation
N/A 5
40,000 (10,000)
30,000
S tep 3: Goodwill computation Formula #1: NCI is measured at NCI’s proportionate share Consideration transferred 300,000 Non-controlling interest in the acquiree (300K x 40%) – (Step 2) 120,000 Previously held equity interest in the acquiree Total 420,000 Fair value of net identifiable assets acquired (Step 2) (300,000) Goodwill at acquisition date 120,000 Accumulated impairment losses since acquisition date G oodwill, net – current year 120,000
S tep 4: Non-controlling interest in net assets Axion's net assets at fair value – Dec. 31, 20x1 (Step 2) Multiply by: NCI percentage Total Add: Goodwill to NCI net of accumulated impairment losses Non-controlling interes t in net as s ets – Dec. 31, 20x1
350,000 40% 140,000 -*
140,000
*No goodwill is attributed to NCI because NCI is measured at proportionate share. Goodwill is attributed to NCI only if NCI is measured at fair value.
3
S tep 5: Consolidated retained earnings Joy's retained earnings – Dec. 31, 20x1 Consolidation adjustments: Joy's share in the net chang e in Axion's net assets (a) Unrealized profits (Downstream only) Gain or loss on extinguishment of bonds Impairment loss on goodwill attributable to Parent Net consolidation adjustments C ons olidated retained earni ng s – Dec. 31, 20x1
243,000 30,000 30,000
273,000
(a)
Net change in Axion’s net assets (Step 2) Multiply by: Joy’s interest in Axion J oy ’s share in the net change in A xion ’s net assets
50,000 60% 30,000
S tep 6: Consolidated profit or loss Parent Subsidiary Consolidated Profits before adjustments Consolidation adjustments: Unrealized profits Dividend income from subsidiary Gain or loss on extinguishment of bonds
Net consolidation adjustments
Profits before FVA Depreciation of FVA (b) Impairment loss on goodwill
C ons olidated profit
63,000
20,000
83,000
( (
(
( (
- ) - )
( - ) ( - ) 63,000 18,000 ( - ) 81,000
- ) N/A
( - ) ( - ) 20,000 12,000 ( - ) 32,000
- ) - )
( - ) ( - ) 83,000 30,000 ( - )
113,000
(b)
The shares in the depreciation of fair value adjustments (FVA) are computed as follows: Total subsequent depreciation of fair value (Step 2) 30,000 Allocation: 18,000 Parent’s share in depreciation of fair value (30,000 x 60%) 12,000 NCI’s share in depreciation of fair value (30,000 x 40%) As allocated 30,000
S tep 7: Profit or loss attributable to owners of parent and NCI Owners Consoliof parent NC I dated Joy's profit before FVA (Step 6) Depreciation of FVA (Step 6)
63,000 12,000 18,000
N/A 8,000 12,000
Share in impairment loss on goodwill
(
(
Totals
93,000
Share in Axion’s profit before FVA
(c)
4
- )
- )
20,000
63,000 20,000 30,000 (
-
)
113,000
(c)
The shares in Axion’s profit before FVA are computed as follows:
Profit of Axion before fair value adjustments (Step 6 ) Allocation: Joy’s share (20,000 x 60%) NCI’s share (20,000 x 40%) As allocated:
20,000
12,000 8,000 20,000
Joy Group Consolidated statement of financial position As of December 31, 20x1 ASSETS Cash (143,000 + 60,000) Inventory (440,000 + 160,000 – 40K FVA + 40K depn) Building – net (560K + 160K + 50K FVA – 10K depn) Goodwill (Step 3)
TOTA L A S S E TS
203,000 600,000 760,000 120,000
1,683,000
LIABILITIES AND EQUITY Accounts payable (200,000 + 70,000) Share capital (Parent only) Retained earnings (Step 5)
270,000
Total equity
1,000,000 273,000 1,273,000 140,000 1,413,000
TOTA L LIA B ILITIE S A ND E QUITY
1,683,000
Owners of parent Non-controlling interes t (Step 4)
Joy Group Statement of profit or loss For the year ended December 31, 20x1 Sales (300,000 + 120,000) Cost of goods sold (165,000 + 72,000 – 40K depn of FVAa ) Gross profit Depreciation expense (40,000 + 10,000 + 10K depn of FVA) Distribution costs (32,000 + 18,000)
Profi t for the year
420,000 (197,000) 223,000 (60,000) (50,000)
113,000
Profit attributable to: Owners of the parent (Step 7) Non-controlling interests (Step 7)
93,000 20,000
113,000 5
a
This represents the depreciation of the fair value adjustment to the inventory. PROBLEM 3: EXERCISES 1.
Solutions:
R equirement (a): Goodwill is computed as follows: Consideration transferred NCI in the acquiree Previously held equity interest in the acquire Total Fair value of net identifiable assets acquired
360,000 240,000 600,000 (310,000)
Goodwill
290,000
CJE #1: To eliminate investment in subsidiary and recognize goodwill Jan. 1, Land (250K – 240K) 10,000 20x1 Share capital – Taxi 300,000 Ret. earnings – Taxi (Carrying amt.) 48,000
Goodwill
290,000
Inventory (144K – 96K) Investment in subsidiary
Non-controlling interest to adjust the subsidiary’s assets to acquisition-date fair values, to eliminate the investment in subsidiary and subsidiary’s pre-combination equity, and to recognize goodwill and non-controlling interest in the consolidated financial statements
6
48,000 360,000 240,000
Jeep Group Consolidation Worksheet Sunny Co. ASSETS Cash Inventory Investment in subsidiary Land Goodwill
TOTAL ASSE TS LIABILITIES AND EQUITY Accounts payable Share capital Retained earnings Non-controlling interest Total equity
TOTAL LIAB ILITES & E QUITY
96,000 480,000 360,000 720,000 1,656,000
60,000 144,000 240,000 444,000
240,000 1,200,000 216,000 1,416,000 1,656,000
96,000 300,000 48,000 348,000 444,000
Consolidation adjustments Dr.
CJE ref. #
Rainy Co.
CJ E ref. # Cr.
48,000 360,000 1 1
Consolidated
1 1
10,000 290,000
156,000 576,000 970,000 290,000
1,992,000
336,000 1 1
300,000 48,000 240,000
1
1,200,000 216,000 240,000
1,656,000 648,000
7
648,000
1,992,000
2.
Solutions:
S tep 1: Analysis of effects of intercompany transaction There were no intercompany transactions during the period.
S tep 2: Analysis of net assets A cqui s ition Consolidation Net date date change
Pirated, Inc. Share capital Retained earnings Totals at carrying amounts Fair value adjustments at acq’n. date Subsequent depreciation of FVA Unrealized profits (Upstream only)
300,000 48,000 348,000 (38,000) NIL NIL
300,000 118,000 418,000 (38,000) 46,750* -
S ubs idiary's net as s ets at fair value
310,000
426,750
116,750
*The subsequent depreciation of fair value adjustments (FVA) is determined as follows:
Fair value adjustments Inventory Building – net
(48,000) 10,000
Totals
(38,000)
Divide by us eful life N/A 8
S ubs equent depreciation 48,000 (1,250)
46,750
S tep 3: Goodwill computation Formula #2: NC I i s meas ured at Fair V alue Consideration transferred (see given) 360,000 Previously held equity interest in the acquiree Total 360,000 Less: Parent's proportionate share in the net assets of subsidiary (₱310,000 acquisition-date fair value x 60%) (186,000) Goodwill attributable to owners of parent – Jan. 1, 20x1 174,000 Less: Parent’s share in goodwill impairment G oodwill attributable to owners of parent – Dec. 31, 20x1 174,000 Fair value of NCI (see given) Less: NCI's proportionate share in the net assets of subsidiary (₱310,000 acquisition-date fair value x 40%) Goodwill attributable to NCI – Jan. 1, 20x1 Less: NCI’s share goodwill impairment G oodwill attri butable to NC I – Dec. 31, 20x1
G oodwill, net – Dec. 31, 20x1
240,000 (124,000) 116,000 -
116,000 290,000
8
S tep 4: Non-controlling interest in net assets Pirated's net assets at fair value – Dec. 31, 20x1 (Step 2) Multiply by: NCI percentage Total Add: Goodwill to NCI net of accumulated impairment losses Non-controlling interes t in net as s ets – Dec. 31, 20x1
426,750 40% 170,700 116,000
286,700
S tep 5: Consolidated retained earnings Original's retained earnings – Dec. 31, 20x1 Consolidation adjustments: Original's share in the net chang e in Pirated's net assets (a) Unrealized profits (Downstream only) Gain or loss on extinguishment of bonds Impairment loss on goodwill attributable to Parent Net consolidation adjustments C ons olidated retained earni ng s – Dec. 31, 20x1
316,000
70,050 70,050
386,050
(a)
Net change in Pirated’s net assets (Step 2) Multiply by: Original’s interest in Pirated Original’s sh. in the net chang e in P irated ’s net assets
116,750 60% 70,050
S tep 6: Consolidated profit or loss Parent Subsidiary Consolidated Profits before adjustments Consolidation adjustments: Unrealized profits Dividend income from subsidiary Gain or loss on extinguishment of bonds
Net consolidation adjustments
Profits before FVA Depreciation of FVA (b) Impairment loss on goodwill
C ons olidated profit
100,000 ( (
- ) - )
( - ) ( - ) 100,000 28,050 ( - ) 128,050
(b)
70,000 (
- ) N/A
( - ) ( - ) 70,000 18,700 ( - ) 88,700
170,000 ( (
- ) - )
( - ) ( - ) 170,000 46,750 ( - )
216,750
The shares in the depreciation of fair value adjustments (FVA) are computed as follows: Total subsequent depreciation of fair value (Step 2) 46,750 Allocation: 28,050 Parent’s share in depreciation of fair value (46,750 x 60%) 18,700 NCI’s share in depreciation of fair value (46,750 x 40%) 9
As allocated
46,750
S tep 7: Profit or loss attributable to owners of parent and NCI Owners Consoliof parent NC I dated Original's profit before FVA (Step 6) Sh. in Pirated’s profit before FVA (c) Depreciation of FVA (Step 6) Share in impairment loss on goodwill Totals (c)
100,000 42,000 28,050 (
- )
170,050
N/A 28,000 18,700
100,000 70,000 46,750
(
(
- )
46,700
-
)
216,750
The shares in Pirated’s profit before FVA are computed as follows:
Profit of Pirated before fair value adjustments (Step 6 ) Allocation: Original’s share (70,000 x 60%) NCI’s share (70,000 x 40%) As allocated:
70,000
42,000 28,000 70,000
Original Group Consolidated statement of financial position As of December 31, 20x1 ASSETS Cash (120,000 + 160,000) Inventory (440,000 + 180,000 – 48K FVA + 48K depn) Building – net (630K + 210K + 10K FVA – 1,250 depn) Goodwill (Step 3)
TOTA L A S S E TS
280,000 620,000 848,750 290,000
2,038,750
LIABILITIES AND EQUITY Accounts payable (34,000 + 132,000) Share capital (Parent only) Retained earnings (Step 5)
166,000
Total equity
1,200,000 386,050 1,586,050 286,700 1,872,750
TOTA L LIA B ILITIE S A ND E QUITY
2,038,750
Owners of parent Non-controlling interes t (Step 4)
10
Original Group Statement of profit or loss For the year ended December 31, 20x1 Sales (300,000 + 120,000) Cost of goods sold (165,000 + 72,000 – 40K depn of FVAa ) Gross profit Depreciation expense (40,000 + 10,000 + 10K depn of FVA) Distribution costs (32,000 + 18,000)
Profi t for the year
420,000 (197,000) 223,000 (60,000) (50,000)
113,000
Profit attributable to: Owners of the parent (Step 7) Non-controlling interests (Step 7)
93,000 20,000
113,000 a
This represents the depreciation of the fair value adjustment to the inventory. PROBLEM 4: MULTIPLE CHOICE: COMPUTATIONAL 1. A Solution:
Consideration transferred (cost of investment) NCI in the acquiree (400,000 x 20%) Previously held equity interest in the acquire Total Fair value of net identifiable assets acquired
Goodwill
430,000 80,000 510,000 (400,000)*
110,000
* (310,000 + 40,000 + 50,000 fair value adjustment ) = 400,000
2. B Solution:
Total assets of parent Total assets of subsidiary Investment in subsidiary Fair value adjustments - net Goodwill – net (See preceding question) Effect of intercompany transactions
2,000,000 750,000 (430,000) 50,000
C ons olidated total as s ets
2,480,000
3. A Solution:
11
110,000 -
Share capital of parent Retained earnings or parent
1,000,000 250,000
E quity attributable to owners of the parent
1,250,000
Non-controlling interests (400,000 x 20%)
80,000 1,330,000
C ons olidated total equity 4.
C (See solution in preceding question)
5. A Solution:
Consideration transferred NCI in the acquiree Previously held equity interest in the acquire Total Fair value of net identifiable assets acquired
Goodwill
430,000 430,000 (400,000)*
30,000
* (310,000 + 40,000 + 50,000 fair value adjustment ) = 400,000
6. D Solution:
Total assets of parent Total assets of subsidiary Investment in subsidiary Fair value adjustments - net Goodwill – net (See preceding question) Effect of intercompany transactions
2,000,000 750,000 (430,000) 50,000
C ons olidated total as s ets
2,400,000
30,000 -
7. C Solution:
Total liabilities of parent Total liabilities of subsidiary Fair value adjustments - net Effect of intercompany transactions
C ons olidated total liabilities
750,000 400,000 -
1,150,000
8. D Solution:
Share capital of parent Retained earnings or parent Equity attributable to owners of the parent 12
1,000,000 250,000 1,250,000
1,250,000
Non-controlling interests
C ons olidated total equity 9. A Solution:
Consideration transferred (investment in subsidiary) Non-controlling interest in the acquiree (360K x 20%) Previously held equity interest in the acquire Total Fair value of net identifiable assets acquired
Goodwill
300,000 72,000 372,000 (360,000) 12,000
10. C Solution:
Total assets of parent Total assets of subsidiary Investment in subsidiary Fair value adjustments – net* Goodwill – net** Effect of intercompany transactions
1,672,000 496,000 (300,000) 24,000 12,000 -
C ons olidated total as s ets
1,904,000
* The FVA, net is computed as follows: Inventory (₱124,000 FV - ₱92,000 CA) = 32,000 excess fair value;
Equipment (₱192,000 FV - ₱160,000) = 32,000 excess fair value Total FVA at acquisition date = 64,000 64,000 – (32,000 dep’n. on inventory + (32,000 ÷ 4 yrs., dep’n. on equipment) = 64,000 – (32,000 + 8,000) = 64,000 – 40,000 = 24,000
11. B Solution:
A nalys is of net ass ets S ubs idiary
A cquis ition date
Net assets at carrying amts. FVA at acquisition Subsequent depn. of FVA Unrealized profits (Upstream only)
296,000 64,000
Net as s ets at fair value
360,000
NIL NIL
NC I in net as s ets 13
Consolidation date
376,000 64,000 (40,000) 400,000
Net change
40,000
Circle's net assets at fair value – Dec. 31, 20x1 Multiply by: NCI percentage Total Add: Goodwill to NCI net of accumulated impairment losses Non-controlling interes t in net as s ets – Dec. 31, 20x1
400,000 20% 80,000 -
80,000
12. C
Solution:
C ons olidated retained earni ng s Square's retained earnings – Dec. 31, 20x1 Consolidation adjustments: Square's share in the net chang e in Circle's net assets (a) Unrealized profits (Downstream only) Gain or loss on extinguishment of bonds Impairment loss on goodwill attributable to parent Net consolidation adjustments C onsolidated ret. earning s – Dec. 31, 20x1 (a)
440,000
32,000 32,000
472,000
(40,000 net change in net assets x 80%) = 32,000
13. D
Solution: Share capital of parent Consolidated retained earnings – (see above) Equity attributable to owners of the parent Non-controlling interests - (see above)
940,000 472,000 1,412,000 80,000
C ons olidated total equity
1,492,000
14. B Solution:
Parent Subsidiary Consolidated Profits before adjustments Consolidation adjustments: Unrealized profits Dividend income from subsidiary Gain or loss on extinguishment of bonds
Net consolidation adjustments
Profits before FVA Depreciation of FVA*
400,000 ( (
- ) - )
( - ) ( - ) 400,000 (18,200)
14
80,000 (
- ) N/A
( - ) ( - ) 80,000 (7,800)
480,000 ( (
- ) - )
( - ) ( - ) 480,000 (26,000)
Impairment loss on goodwill
C ons olidated profit
( - ) 381,800
( - ) 72,200
(
- )
454,000
*The subsequent depreciation of fair value adjustments (FVA) is determined as follows: Inventory = ₱10,000 excess fair value;
Building (₱80,000 FV ÷ 5 years) = 16,000 Total FVA depreciation = 10,000 + 16,000 = 26,000 Share of parent = 26,0000 x 70% = 18,200 Share of NCI = 26,000 x 30% = 7,800
15. C Solution:
Owners of parent Parent's profit before FVA Sh. in Sub.’s profit before FVA (c) Depreciation of FVA Share in impairment loss on goodwill Totals
400,000 56,000 (18,200) (
- )
437,800
NC I N/A 24,000 (7,800) (
- )
16,200
Consolidated 400,000 80,000 (26,000) (
-
)
454,000
(c)
The shares in Subsidiary’s profit before FVA are computed as follows: Profit of Subsidiary before fair value adjustments Allocation: Original’s share (80,000 x 70%) NCI’s share (80,000 x 30%) As allocated: 16. B (See solution in previous question)
17. A – same as the parent
15
80,000
56,000 24,000 80,000
