CONSOLIDATED FINANCIAL ACCOUNTING

Formula for computing the Non-Controlling Interest (NCI) at Proportionate Share

Fair value of the Assets P xx
Less: Liability xx
Net Assets P xx
Multiply by: percentage share of the subsidiary x%
Non-controlling Interest P xx

Goodwill Computation:
Consideration Given P xx
Add: Computed NCI @ proportionate share xx
Total P xx
Fair value of the Net Assets of subsidiary ( xx)
Goodwill P xx

Eliminating Entry
Increase in Assets P xx
Share Capital of the Subsidiary xx
Retained earnings of Subsidiary xx
Goodwill xx
Investment in Subsidiary (parent) P xx
Non-controlling Interest xx
Accumulated Depreciation (if any) xx

Formula for computing the Non-Controlling Interest at Fair Value

Consideration Transferred P xx
Divided by: percentage share of parent x%
Total P xx
Multiply by: percentage share of the subsidiary x%
Non-controlling Interest P xx

Goodwill Computation:
Consideration Given P xx
Add: Computed NCI @ proportionate share xx
Total P xx
Fair value of the Net Assets of subsidiary ( xx)
Goodwill P xx

Eliminating Entry
Increase in Assets P xx
Share Capital of the Subsidiary xx
Retained earnings of Subsidiary xx
Goodwill xx
Investment in Subsidiary (parent) P xx
Non-controlling Interest xx
Accumulated Depreciation (if any) xx
Consolidated Profit or Loss
Parent Subsidiary Consolidated
Profits before adjustments P xx P xx P xx
Consolidated adjustments:
Unrealized Profit (xx) (xx) (xx)
Dividend income from subsidiary (xx) N/A (xx)
Gain/loss on extinguishment of bonds (xx) (xx) (xx)
Net Consolidated Adjustments (xx) (xx) (xx)
Profits before fair value adjustments xx xx xx
Depreciation of Fair value adjustments (xx) (xx) (xx)
Impairment loss on goodwill (xx) (xx) (xx)
Consolidated Profit or loss xx xx xx

INTERCOMPANY TRANSACTIONS
Example: Papa Bear buys a pair of sandals for P100 from Goldilocks, an unrelated party. The sandals don’t fit Papa Bear’s
enormous feet so Papa Bear sells them to Mama Bear for P150.

Question: From the point of view of the Bear Family, how much household income is realized?

Answer: None. The family can’t get rich even if the Papa and the Mama sells to each other all day long.
When the Bear Family’s consolidated financial statements are prepared, the intercompany transaction between
PAPA and MAMA shall be eliminated. It is as if the intercompany transaction never occurred.
In such case, the consolidated sales and cost of sales should be zero while the consolidated inventory should be
measured at its original cost of P100.

Books of Papa Bear Books of Mama Bear

Inventory P 100,000
Cash P100,000
Cash P150,000 Inventory 150,000
Sales 150,000 Cash 150,000

COGS 100,000
Inventory 100,000
To eliminate the Intercompany sales the consolidated journal entry is:
Sales 150,000
COGS 150,000
Note:
 Both sales and COGS are eliminated at the sale price even though Papa Bear debited COGS at
cost.
 After this entry, COGS would need to be adjusted again, this time for the unrealized profit.
To eliminate the unrealized profit in ending inventory and to adjust the ending inventory to its original cost:
COGS 50,000
Inventory 50,000

Other way to solve for the unrealized gross profit:

Sales price of intercompany sale P xx
Cost of intercompany sale (xx)
Profit from intercompany P xx
Multiply by: Unsold portion of inventory x%
Unrealized Gross Profit in Ending inventory P xx
DOWNSTREAM TRANSACTION – INTERCOMPANY SALE OF INVENTORY