LUCERO, KESSA THEA G.
OCTOBER 13, 2020
BSA - 3A TTH 10:30-12:00
CONSOLIDATED COMPREHENSIVE INCOME
- Consolidation subsequent to a subsidiary’s acquisition involves changes that takes place
over time, it rest heavily on the concept of this financial statement.
- Allocated to non-controlling interest and the controlling interest (equity holders of the
parent company)
Computed using TWO approaches:
Parent Company Approach
Consolidated comprehensive income is part of the total enterprise’s
income that is assigned to the parent company’s stockholders.
Under consolidated comprehensive income
Wholly owned subsidiary – all income of the parent and its
subsidiaries accrue to the parent company
Partially owned subsidiary – a portion of its income accrues to its
non-controlling shareholders and is excluded from consolidated net
income.
It equals the total earnings for all companies consolidated, less any income
recorded by the parent from the consolidating companies and any income
assigned to NCI
Entity Approach
Under consolidated comprehensive income
Wholly owned subsidiary – it is computed similarly as that of the
parent company approach
Partially owned subsidiary – the portion of its income accruing to
NCI is included to the consolidated comprehensive income
It equals total earnings of all companies consolidated, less any income
recorded by the parent from the consolidating companies
- Consolidated comprehensive income under parent company approach is the same as the
income allocated to parent company stockholders under entity approach.
- The difference between parent company and entity approaches lie solely in the manner of
consolidating parent operations in consolidated financial statements.
ACCOUNTING FOR INVESTIMENT IN A SUBSIDIARY
- IAS 27 provides that in the separate financial statements of an entity who have
investment in subsidiaries, joint ventures and associates it may elect to account for its
investments either:
Cost Method
It is used when the acquirer owns directly or indirectly more than half of
the voting power of the acquiree (exercise control)
Investment in subsidiary account is retained at its original cost of
acquisition balance.
Income on the investment is limited to dividends received from the
subsidiary
Fair Value Method in accordancewith IFRS 9, financial instrument
IRS 10, IFRS 12 and IAS 27 require a parent that is an investment entity
to measure its investments in particular subsidiaries at fair value through
profit or loss in accordance with IFRS 9 instead of consolidating those
subsidiaries in its consolidated and separate financial statements
Investment entity is defined as an entity that:
Obtains funds from one or more investors
Commits to its investor that its business purpose is to invest funds
solely for returns
Measures and evaluates the performance of substantially all of its
investments on a fair value basis
*a parent of an investment entity has to consolidate all entities that is control*
Equity Method
Used when an investor/acquirer owns 20% (less than 50%) of voting
power of the investee/acquiree. It exercise significant influence over the
operations of the investee.
Applied to investment in associates and joint ventures.
WORKING PAPER ELIMINATION ENTRIES
Consolidation: Wholly Owned Subsidiary - Acquisition at Book Value
FIRST YEAR AFTER ACQUISITION
Eliminate Dividend Income account against the Dividend Declared by the
Subsidiary
Eliminate the parent’s equity in the subsidiary’s stockholders’ equity at
date of acquisition
SECOND AND SUBSEQUENT YEARS AFTER ACQUISITION
The consolidation procedures are basically the same as those used at the
end of the first year
in essence, each year’s consolidation procedures begin as if there had never
been a previous consolidation
Consolidation: Partially Owned Subsidiary - Acquisition at Book Value
FIRST YEAR AFTER ACQUISITION
Eliminate Dividend Income account against the Dividend Declared by the
Subsidiary
Eliminate the parent’s equity in the subsidiary’s stockholders’ equity at
date of acquisition
The difference in the previous one is that it recognizes the NCI and Non-
controlling Interest in Comprehensive Income of Subsidiary
Consolidation: Partially Owned Subsidiary - Acquisition at Other Than Book Value
- when the investment is not equal to its book value
FIRST YEAR AFTER COMBINATION
Eliminate inter-company dividends and recognize NCI share of
subsidiary’s dividends declared.
Eliminate equity accounts of subsidiary at date of acquisition against
investment account and NCI
Allocate excess to the specific assets and liabilities of the subsidiary.
Amortize the allocated excess except goodwill in accordance with
accounting for the asset to which it is assigned
Assign the income subsidiary to NCI.
SECOND YEAR AFTER COMBINATION
Eliminate inter-company dividends and recognize NCI share of
subsidiary’s dividends declared.
Eliminate equity accounts of subsidiary at date of acquisition against
investment account and NCI
Allocate excess to the specific assets and liabilities of the subsidiary.
Assign the non-controlling stockholders the share of the increase in the
subsidiary’s adjusted undistributed earnings that occurred between the
acquisition date and the beginning of the current period
Amortize the allocated excess except goodwill in accordance with
accounting for the asset to which it is assigned
Assign the income subsidiary to NCI.
Pro-forma elimination entries for:
a. First Year
Consolidation: Wholly Owned Subsidiary – Acquisition at Book Value
Dividend Income xx
Dividends declared – Acquired Company xx
To eliminate inter-company dividends.
Common Stocks – Acquired Company xx
Retained Earnings – Acquired Company xx
Investment in Acquired Company xx
To eliminate investment and subsidiary’s Equity accounts at date of
acquisition.
Consolidation: Partially Owned Subsidiary – Acquisition at Book Value
Dividend Income xx
Non-Controlling Interest xx
Dividend declared – Acquired Company xx
To eliminate intercompany dividends and to establish minority interest shares.
Common Stock – Acquired Company xx
Retained Earnings – Acquired Company xx
Investment in Acquired Company xx
To eliminate inter-company investment and equity accounts of subsidiary on
date of acquisition, and to establish minority interest in net assets of
subsidiary.
NCI in CI of Subsidiary xx
Non-Controlling Interest xx
To recognize NCI in subsidiary’s net income for the year.
Consolidation: Partially Owned Subsidiary – Acquisition at Other Than
Book Value
Dividend Income xx
Non-Controlling Interest xx
Dividends declared – Acquired Company xx
To eliminate inter-company dividends and minority Interest share of
dividends.
Common Stocks – Acquired Company xx
Retained Earnings – Acquired Company xx
Investment in Acquired Company xx
Non-Controlling Interest xx
To eliminate equity accounts of subsidiary and the investment account for the
parent’s share and recognize NCI on date of acquisition.
Inventory xx
Property and Equipment xx
Goodwill xx
Investment in Acquired Company xx
Non-Controlling Interest xx
To allocate excess between investment cost and the book value of identifiable
assets acquired with remainder to the goodwill.
Cost of Goods Sold xx
Operating Expenses xx
Inventory xx
Property and Equipment xx
To amortize allocated excess to identifiable assets.
NCI in CI of subsidiary xx
Non-Controlling Interest xx
To recognize NCI in subsidiary’s adjusted net income for the year.
b. Second and Subsequent Years
Consolidation: Wholly Owned Subsidiary – Acquisition at Book Value
Dividend Income xx
Dividends declared – Acquired Company xx
To eliminate inter-company dividends.
Common Stocks – Acquired Company xx
Retained Earnings – Acquired Company xx
Investment in Acquired Company xx
To eliminate investment and subsidiary’s Equity accounts at date of
acquisition.
Consolidation: Partially Owned Subsidiary – Acquisition at Other Than
Book Value
Dividend Income xx
Non-Controlling Interest xx
Dividends declared – Acquired Company xx
To eliminate inter-company dividends and minority share of dividends paid by
Acquired.
Common Stock – Acquired Company xx
Retained Earnings – Acquired Company xx
Investment in Acquired Company stocks xx
Non-Controlling Interest xx
To eliminate equity accounts of Acquired and investment account against the
parent’s interest and NCI.
Inventory xx
Property and Equipment xx
Goodwill xx
Investment in Acquired Company stocks xx
Non-Controlling Interest xx
To allocate excess.
Retained Earnings – Acquired, date xx
Non-Controlling Interest xx
To assign to the non-controlling stockholders their share of the increase in the
subsidiary’s adjusted undistributed earnings that occurred between the
acquisition date and the beginning of the current period.
Retained Earnings – Acquired Company xx
Operating Expenses xx
Inventory xx
Property and Equipment xx
To provide for years 20xx and 20xx amortization of the allocated excess.
NCI in CI of subsidiary xx
Non-Controlling Interest xx
To recognize NCI in Acquired Company’s adjusted Controlling Interest for
the current year.
