Consolidated Statement of Financial Position at Acquisition Date

Acquisition of Net Assets and Stock Acquisition Comparison In an asset acquisition, the entity whose assets were acquired is dissolved. The assets acquired are recorded in the books of the acquirer and consolidation of statement of financial position is automatic. Under stock acquisition, the acquired company (subsidiary) remains as separate legal entity with its own financial statements. A 100% stock acquisition and an asset acquisition produce the same consolidated statement of financial position after acquisition. A difference is when stock acquisition is less than 100%. There will be a non-controlling interest in the consolidated statement of financial position which is not possible under asset acquisition. Stock Acquisition Consolidated Financial Statements are required. Conditions: When the acquirer obtains control over the voting common stock of another company. If there is no control, the need for consolidated financial statements is not applicable. Accounting on the part of the acquirer (Parent) The entry to record the acquisition of common stock of the subsidiary Investment in subsidiary xx xx

Asset/Liability/Equity Interest

Acquisition related costs are treated the same as in the case of asset acquisition. Preparation of Consolidated Statement of Financial Position Using consolidation working paper, eliminate Investment in subsidiary account on the parents statement of financial position against the stockholders equity accounts in the statement of financial position of the subsidiary. Adjust the assets and liabilities of the subsidiary to their fair values. Consideration Given Fair Value of NCI Recognize Goodwill or Gain on acquisition. Total Eliminate the remaining balance of Investment in subsidiary account. FV of N/A acquired Recognize any non controlling interest (measured at fair value). Goodwill (Gain) Prepare a consolidated statement of financial position. Note: The above steps are only done in the consolidation working paper and therefore, they are not recorded of either the parent or subsidiary company.

xx xx xx (xx) xx

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Problems Use this information in cases 1-3. Statement of Financial Position December 31, 2012 Parent Company Assets Cash Account receivable Inventory Equipment (net) Total Liabilities and Equity Account payable Ordinary share capital Share premium Retained earnings Total P230, 000 40, 000 50, 000 180, 000 P500, 000 Subsidiary Company P 0 32, 000 20, 000 158, 000 P210, 000

P280, 000 100, 000 80, 000 40, 000 P500, 000

P110, 000 50, 000 30, 000 20, 000 P210, 000

Requirements: 1. Prepare journal entries on the books of Parent. 2. Prepare working elimination entries. 3. Prepare a consolidated statement of financial position at the time of acquisition.

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Case 1: Parent company acquires all of Subsidiary Companys outstanding shares for P100, 000 cash.

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Case 2: Parent company acquires all of Subsidiary Companys outstanding shares for P110, 000 cash.

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Case 3: Parent company acquires all of Subsidiary Companys outstanding shares for P80, 000 cash.

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Use this information in case 4-6 Statement of Financial Position December 31, 2012 Parent Company Assets Cash Account receivable Inventory Land Building (net) Equipment (net) Total Liabilities and Equity Account payable Bonds Payable Ordinary share capital Share premium Retained earnings Total Subsidiary Company BV FV P 0 40, 000 100, 000 80, 000 300, 000 80, 000 P600, 000

218, 000 144, 000 160, 000 200, 000 840, 000 400, 000 P 1, 962, 000 P 160, 000 400, 000 400, 000 500, 000 502, 000 P1, 962, 000

40, 000 110, 000 130, 000 500, 000 120, 000

P 80, 000 80, 000 200, 000 200, 000 20, 000 180, 000 120, 000 P600, 000

Requirements: 1. Prepare journal entries on the books of Parent. 2. Prepare working elimination entries. 3. Prepare a consolidated statement of financial position at the time of acquisition.

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Case 4: Parent Company issued 16, 000 shares of its P10 par value ordinary shares for 80% of the outstanding shares of Subsidiary company. The fair value of the Parents stock is P50 and the fair value of the non controlling interest (NCI) is assed to be P170, 000. Parent also pays P50, 000 in professional fees to accomplish the acquisition.

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Case 5: Parent Company issued 8, 000 shares of its P10 par value ordinary shares for 80% of the outstanding shares of Subsidiary company. The fair value of the Parents stock is P50 and the fair value of the non controlling interest (NCI) is assed to be P170, 000. Parent also pays P50, 000 in professional fees to accomplish the acquisition.

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Case 6: Parent Company issued 16, 000 shares of its P10 par value ordinary shares for 80% of the outstanding shares of Subsidiary company. The fair value of the Parents stock is P50 and the fair value of the non controlling interest (NCI) is assed to be P170, 000. Parent also pays P50, 000 in professional fees to accomplish the acquisition. Assume that Subsidiary company has a goodwill of P50, 000 and the retained earnings balance is P170, 000.

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Case 7: Parent company owns a 30% interest (20, 000 shares) in Subsidiary Company that Parent purchased at a prior date for P40 per share. At a later date, Parent acquires another 100, 000 (50% interest) for P60 per share. Requirement: Prepare journal entries on the date of acquisition.

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Case 8: Using the information in Case 4 except that the company uses push down accounting to account for business combination, prepare 1. Journal entries to record the acquisition and 2. Working paper elimination entries

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