Batangas State University Lipa
The National Engineering University
LEARNING MODULE
IN
ACC 311
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
CONSOLIDATED FINANCIAL
STATEMENTS
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
OBJECTIVES
1. State the elements of control
2. Prepare consolidated financial statements at the
acquisition date.
3. Prepare consolidated financial statements at a subsequent
date
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
INTRODUCTION
PFRS 3 (acquisition date) PFRS 10 (subsequent date)
Parent – an entity that controls one or more entities.
Subsidiary – an entity that is controlled by another entity.
Group – a parent and its subsidiaries
Consolidated financial statements – the financial statements of a group in
which the assets, liabilities, equity, income, expenses and cash flows of the
parent and its subsidiaries are presented as those of a single economic entity.
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
PARENT
- A parent entity is required to present consolidated financial statements except when all of the
following conditions are met:
a. The parent is a subsidiary of another entity and all its other owners do not object to the parent not
presenting consolidated financial statements;
b. The parent’s debt or equity instruments are not traded in a public market (or being processed for
each purpose); and
c. The parent’s ultimate or any intermediate parent produces consolidated financial statements that
are available for public use and comply with PFRSs.
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
CONTROL
Control exists if the investor has all of the following
1. Power over the investee;
2. Exposure, or rights, to variable returns from its involvement with the investee; and
3. The ability to use its power over the investee to affect the amount of the investor’s returns.
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Accounting Requirements
- Consolidated FS shall be prepared using uniform accounting policies.
- The fs of the parents and its subsidiaries used in prepared consolidated
fs shall have the same reporting dates. (The maximum difference in
reporting dates is 3 months)
- Consolidation begins from the date the investor obtains control of the
investee and ceases when the investor loses control of the investee.
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Accounting Requirements
Measurement
INCOME AND EXPENSES
-Income and Expenses
Income and expenses of the subsidiary are based on the amounts of the assets and liabilities
recognized in the consolidated FS statements at the acquisition date.
INVESTMENT IN SUBSIDIARY
Investments in subsidiaries are accounted for in the parent’s separate FS either;
a. At cost
b. In accordance with PFRS 9 Financial Instruments; or
c. Using the equity method.
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Accounting Requirements
Non-Controlling Interest (NCI)
Non-controlling interest shall be presented in the consolidated statement of financial position
within the equity, separate from the equity of the owners of the parent.
Non-Controlling interest in the net assets consists of:
1. The amount determined at the acquisition date using PFRS 3 and
2. The NCI’s share of changes in equity since the acquisition date.
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Accounting Requirements
NCI in profit or loss and comprehensive income
-The profits or loss and each component of other comprehensive income in the
consolidated statement of profit or loss and other comprehensive income shall be
attributed to the following:
1. Owners of the parent
2. Non-controlling interests
Total Comprehensive Income is attributed to the owners of the patent and to the NCI
even if this results in the NCI having a deficit balances.
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Preparation of Consolidated FS
Consolidated FS are prepared by combining the FS of the
parent and its subsidiaries line by line by adding together
similar items of assets, liabilities, equity, income and
expenses.
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Consolidation at date of acquisition
1. Eliminate the “Investment in subsidiary” account. This requires:
a. Measuring the identifiable assets acquired and liabilities assumed in the business
combination at their acquisition date fair values.
b. Recognizing the goodwill from the business combination
c. Eliminating the subsidiary’s pre-combination equity accounts and replacing them
with non-controlling interest.
2. Add, line by line, similar items of assets and liabilities of the combining constituents.
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Consolidation subsequent to date of
acquisition
1. Analysis effects of intercompany transactions
This is relevant when the parent and subsidiary had intercompany transactions during the period or in the
previous periods.
2. Analysis of net assets
Acquisition date Consolidation Date Net Change
Share capital xx xx
Retained earnings xx xx
Other components of equity xx xx
Total carrying amounts xx xx
FV adjustments at acquisition date xx xx
Subsequent depreciation of
FV adjustments (xx)
Unrealized profits (xx)
Net assets at FV xx(a) xx(b) xx(c)
(a) This amount is used for computing goodwill in Step 3
(b) This amount is used for computing NCI in net assets in Step 4
(c) This is used in computing consolidate retained earnings in Step 5
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Consolidation subsequent to date of
acquisition
Step 3. Goodwill computation
Formula 1: NCI is measured at NCI’s proportionate share
Consideration transferred xx
Non-controlling interest in the acquiree xx
Previously held equity interest in the acquiree xx
Total xx
FVNA (xx)
Goodwill at acquisition date xx
Accumulated impairments losses since acquisition date (xx)
Goodwill, net-current year xx
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Consolidation subsequent to date of
acquisition
Step 3. Goodwill computation
Formula 2: NCI is measured at fair value
Consideration transferred xx
Previously held equity in the acquiree xx
Total
Less: Parent’s proportionate share in the net assets of subsidiary (xx)
Goodwill attributable to owners of parent-acquisition date xx
Less: Parent’ s share in goodwill impairment (xx)
Goodwill attributable to owners of parent-current year (a) xx
Fair value of NCI xx
Less: NCI’s proportionate share in the net assets of subsidiary (xx)
Goodwill attributable to NCI – acquisition date xx
Less: NCI’s share in goodwill impairment (xx)
Goodwill attributable to NCI-current year xx
Goodwill, net – current year xx
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Consolidation subsequent to date of
acquisition
Step 4: Non-controlling interest in net assets
Subsidiary’s net assets at fair value – current year xx
Multiply by NCI percentage x%
Total xx
Add: Goodwill to NCI net of accumulated impairment losses (xx)*
Non-controlling interest in net assets – current year xx
*This amount is zero if NCI is measured at proportionate share. Goodwill is attributed
to NCI only if NCI is measured at fair value.
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Consolidation subsequent to date of
acquisition
Step 5: Consolidated retained earnings
Parent’s retained earnings in current year xx
Consolidation adjustments:
Parents’ share in the net change in subsidiary’s net assets xx
Unrealized profits ( Downstream only) (xx)
Gain or loss on extinguishment of bonds (xx)
Impairment loss on goodwill attributable to parent (xx)
Net consolidation adjustments xx
Consolidated retained earnings xx
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Consolidation subsequent to date of
acquisition
Step 6: Consolidated profit or loss
Parent Subsidiary Consolidated
Profits before adjustments xx xx xx
Consolidation adjustments
Unrealized profits (xx) (xx) (xx)
Dividend income from subsidiary (xx) (xx) (xx)
Gain or loss on extinguishments
Of bonds (xx) (xx) (xx)
Net consideration adjustments (xx) (xx) (xx)
Profits before FV adjustments xx xx xx
Depreciation of FV adjustments (xx) (xx) (xx)
Impairment loss on goodwill (xx) (xx) (xx)
Consolidated profit or loss xx xx xx
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Consolidation subsequent to date of
acquisition
Step 6: Profit or loss attributable to owners of parent and NCI
Owners of parent NCIConsolidated
Parent’s profit before FV adj. xx N/A xx
Share in the subsidiary’s profit b4 FVA xx xx xx
Depreciation of FVA (xx) (xx) (xx)
Share in impairment loss on goodwill (xx) (xx) (xx)
Totals xx xx xx
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Consolidated Statement of Financial
Position
Parent Subsidiary Consolidated
ASSETS
Investment in subsidiary-eliminated xx
Other assets (Parent + Sub + FVA, net) xx xx xx
Goodwill (step 3) xx
TOTAL ASSETS xx xx xx
LIABILITIES & EQUITY xx xx xx
Liabilities (Parent + Sub + FVA, net) xx xx xx
Share Capital (Parent Only) xx xx xx
Retained Earnings (step 5) xx xx xx
Equity attributable to owners of the parent xx
NCI in assets (Step 4) xx
Total Equity xx xx xx
TOTAL LIABILITIES AND EQUITY xx xx xx
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
CONSOLIDATED TOTAL ASSETS
Total assets of parent xx
Total assets of subsidiary xx
Investment in subsidiary (xx)
FV adjustments – net xx
Goodwill – net xx
Effect of intercompany transactions xx
Consolidated total assets xx
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
CONSOLIDATED TOTAL EQUITY
Share capital of parent xx
Share premium of parent xx
Consolidated retained earnings xx
Equity attributable to owners of the parent xx
NCI xx
Consolidated total equity xx
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
Open Forum
Leading Innovations, Transforming Lives
Batangas State University Lipa
The National Engineering University
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Leading Innovations, Transforming Lives
