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Step 2: Analysis of Net Assets

Subsidiary Aqcuisition date Consolidation Date Net Change


Share Capital (&Share Premium) xx xx
Retained Earnings xx xx
Other Components of equity xx xx
Totals at carrying amounts xx xx
Fair value adjustments
at acquisition date xx xx
Subsequent Depreciation
at Fair Value Adjustments NIL (xx)
Unrealized Profits (Upstream Only) NIL (xx)
Net Assets at Fair Value xx xx xx

STEP 3: Goodwill Computation

FORMULA #1
Consideration Transferred xx
NCI in the Acquiree xx
Previously held equity interest in the acquiree xx
Total xx
FV of Net Identifiable Assets Acquired (xx)
Goodwill at acquisition date xx
Accumulated impairment losses since acquisition date (xx)
Goodwill, net - current year xx

FORMULA #2
Consideration Transferred xx
Previously held equity interest in the acquiree xx
Total xx
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 xx

Fair Value of NCI xx


Less: NCI's proportionate share in 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

STEP 4: NCI 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

STEP 5: Consolidated Retained Earnings


Parent's retained earnings in current year-end xx
Consolidation adjustments:
Parent's share in the net change in subsidiary's net asset xx
Unrealized Profits (Downstream only) (xx)
Gain or loss on extinguishment of bonds (xx)
Impairment loss on goodwill attributable to Parent (xx)
Net Consolidated adjustments xx
Consolidated Retained Earnings xx

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) N/A (xx)
Gain or Loss on extinguishment of bonds (xx) (xx) (xx)
Net consolidation adjustment (xx) (xx) (xx)
Profit 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

STEP 7: Profit or Loss attributable to owners of parent and NCI


Owners of Parent NCI Consolidated
Parent's profit before FVA xx N/A xx
Share in the subsidiary's profit before FVA xx xx xx
Depreciation of Fair Value Adjustments (xx) (xx) (xx)
Share in impairment loss on goodwill (xx) (xx) (xx)
Totals xx xx xx
Step 2: Analysis of Net Assets

Subsidiary
Share Capital (&Share Premium)
Retained Earnings
Other Components of equity
Totals at carrying amounts
Fair value adjustments
at acquisition date
Subsequent Depreciation
at Fair Value Adjustments
Unrealized Profits (Upstream Only)
Net Assets at Fair Value

STEP 3: Goodwill Computation

FORMULA #1
Consideration Transferred
NCI in the Acquiree
Previously held equity interest in the acquiree
Total
FV of Net Identifiable Assets Acquired
Goodwill at acquisition date
Accumulated impairment losses since acquisition date
Goodwill, net - current year
i
i
i

FORMULA #2
Consideration Transferred
Previously held equity interest in the acquiree
Total
Less: Parent's proportionate share in the net assets of subs
Goodwill attributable to owners of parent - acquisition dat
Less: Parent's share in goodwill impairment
Goodwill attributable to owners of parent - Current ye
Fair Value of NCI
Less: NCI's proportionate share in net assets of subsidiary
Goodwill attributable to NCI - acquisition date
Less: NCI's share in goodwill impairment
Goodwill attributable to NCI - current year
Goodwill, net - current year

STEP 4: NCI in Net Assets

Subsidiary's net assets at fair value - current year


Multiply by: NCI Percentage
Total
Add: Goodwill to NCI net of accumulated impairment loss
Non-controlling interest in net assets - current year

STEP 5: Consolidated Retained Earnings


Parent's retained earnings in current year-end
Consolidation adjustments:
Parent's share in the net change in subsidiary's net asset
Unrealized Profits (Downstream only)
Gain or loss on extinguishment of bonds
Impairment loss on goodwill attributable to Parent
Net Consolidated adjustments
Consolidated Retained Earnings
i
STEP 6: Consolidated Profit or Loss

Profits before adjustments


Consolidation adjustments:
Unrealized Profits
Dividend Income from Subsidiary
Gain or Loss on extinguishment of bon
Net consolidation adjustment
Profit before fair value adjustments
Depreciation of fair value adjustments
Impairment loss on goodwill
Consolidated profit or loss

STEP 7: Profit or Loss attributable to owners of paren

Parent's profit before FVA


Share in the subsidiary's profit before FVA
Depreciation of Fair Value Adjustments
Share in impairment loss on goodwill
Totals
Aqcuisition date Consolidation DateNet Change
xx xx
xx xx
xx xx
xx xx

xx xx

NIL (xx)
NIL (xx)
xx xx xx

xx
xx
est in the acquiree xx
xx
s Acquired (xx)
xx
osses since acquisition date (xx)
xx

xx
est in the acquiree xx
xx
share in the net assets of subsidiary (xx)
ners of parent - acquisition date xx
will impairment (xx)
wners of parent - Current year xx
xx
are in net assets of subsidiary (xx)
I - acquisition date xx
ll impairment (xx)
CI - current year xx
xx

r value - current year xx


x%
xx
f accumulated impairment losses (xx)
net assets - current year xx

ained Earnings
current year-end xx

nge in subsidiary's net asset xx


(xx)
ent of bonds (xx)
l attributable to Parent (xx)
xx
xx
Parent Subsidiary Consolidated
xx xx xx

(xx) (xx) (xx)


(xx) N/A (xx)
(xx) (xx) (xx)
(xx) (xx) (xx)
xx xx xx
(xx) (xx) (xx)
(xx) (xx) (xx)
xx xx xx

ributable to owners of parent and NCI


Owners of Parent NCI Consolidated
xx N/A xx
fit before FVA xx xx xx
Adjustments (xx) (xx) (xx)
(xx) (xx) (xx)
xx xx xx
Illustration 1: Consolidation - Subsequent to date of Acquisition
On January 1, 20x1, ABC Co. acquired 80% interest in XYZ, Inc. by i
with fair value of P15 per share and par value of P10 per share. On acq
ABC Co. elected to measure non-controlling interest at the NCI's prop
in XYZ, Inc.'s net identifiable assets.

XYZ's shareholders' equity as of January 1, 20x1 comprises the follow


(at carrying amounts)
Share capital 50,000
Retained Earnings 24,000
Total equity 74,000

The fair values of XYZ's assets and liabilities on January 1, 20x1 are a
XYZ, Inc. Carrying Amounts
Cash 5,000
Accounts Receivable 12,000
Inventory 23,000
Equipment 50,000
Accumulated Depreciation -20,000
Accounts Payable -6,000
Net Assets 74,000
The remaining useful life of the equipment is 4 years.

During 20x1, no dividends were declared by either ABC or XYZ. Ther


no intercompany transactions. The group determined that there is no g

ABC's and XYZ's individual financial statements at year-end are show

Statements of Financial Position


As at December 31, 20x1

ASSETS ABC Co.


Cash 23,000
Accounts Receivable 75,000
Inventory 105,000
Investment in Subsidiary (at cost) 75,000
Equipment 200,000
Accumulated Depreciation -60,000
TOTAL ASSETS 418,000

LIABILTIES AND EQUITY


Accounts Payable 43,000
Bonds Payable 30,000
Total Liabilities 73,000
Share Capital 170,000
Share Premium 65,000
Retained Earnings 110,000
Total Equity 345,000
TOTAL LIABILITIES AND EQUITY 418,000

Statement of Profit or Loss


For the year ended December 31, 20x1

ABC Co. XYZ, Inc.


Sales 300,000 120,000
Cost of Goods Sold -165,000 -72,000
Gross Profit 135,000 48,000
Depreciation Expense -40,000 -10,000
Distribution Costs -32,000 -18,000
Interest Expense -3,000 -
Profit for the Year 60,000 20,000

SOLUTION:

Step 2:
XYZ, Inc. Aqcuisition date
Share Capital 50,000
Retained Earnings 24,000
Other Components of equity -
Totals at carrying amounts 74,000
Fair value adjustments
at acquisition date 16,000
Subsequent Depreciation
at Fair Value Adjustments NIL
Unrealized Profits (Upstream Only) NIL
Net Assets at Fair Value 90,000

Subsequent Depreciation of FVA

FVA Divided by Subsequent


Useful Life Depreciation
Inventory 8,000 N/A 8,000
Equipment 10,000
Accum. Dep. -2,000
Equipment - net 8,000 4 2,000
Totals 16,000 10,000

STEP 3:
FORMULA #1
Consideration Transferred (5,000 sh. x P15)
NCI in the Acquiree (90Kx20%)
Previously held equity interest in the acquiree
Total
FV of Net Identifiable Assets Acquired
Goodwill at acquisition date
Accumulated impairment losses since acquisition date
Goodwill, net - current year

STEP 4:

XYZ's net assets at fair value - Dec. 31, 20x1


Multiply by: NCI Percentage (100%-80%)
Total
Add: Goodwill to NCI net of accumulated impairment losses
Non-controlling interest in net assets - current year

STEP 5:
ABC's retained earnings in Dec. 31, 20x1
Consolidation adjustments:
ABC's share in the net change in XYZ's net asset
Unrealized Profits (Downstream only)
Gain or loss on extinguishment of bonds
Impairment loss on goodwill attributable to Parent
Net Consolidated adjustments
Consolidated Retained Earnings
ABC's share in the net change in XYZ's net assets is computed as follows:
Net change in XYZ's net assets
Multiply by: ABC's interest in XYZ
ABC's share in the net change in XYZ's net assets

STEP 6:

ABC XYZ
Profits before adjustments 60,000 20,000
Consolidation adjustments:
Unrealized Profits - -
Dividend Income from Subsidiary - N/A
Gain or Loss on extinguishment of bonds - -
Net consolidation adjustment - -
Profit before fair value adjustments 60,000 20,000
Depreciation of fair value adjustments -8,000 -2,000
Impairment loss on goodwill - -
Consolidated profit or loss 52,000 18,000

The shares in the depreciation of FVA are computed as follows:


Total Subsequent depreciation of Fair Values
Allocation:
ABC's share in depreciation of fair value (10,000 x 80%)
XYZ's share in depreciation of fair value (10,000 x 20%)
As Allocated

STEP 7

ABC's profit before FVA


Share in the XYZ's profit before FVA
Depreciation of Fair Value Adjustments
Share in impairment loss on goodwill
Totals

The shares in XYZ's profit before FVA are computed as follows:


Profit of XYZ before FVA 20,000
Allocation:
ABC's share (20,000x80%) 16,000
NCI's Share (20,000x20%) 4,000
As allocated: 20,000
to date of Acquisition
interest in XYZ, Inc. by issuing 5,000 shares
e of P10 per share. On acquisition date,
interest at the NCI's proportionate share

20x1 comprises the following:

s on January 1, 20x1 are as follows:


FV FVA
5,000 -
12,000 -
31,000 8,000
60,000 10,000
-12,000 -2,000
-6,000 -
90,000 16,000

either ABC or XYZ. There were also


ermined that there is no goodwill impairment.

ents at year-end are shown below:

XYZ, Inc.
57,000
22,000
15,000

50,000
-20,000
124,000

30,000
-
30,000
50,000
-
44,000
94,000
124,000

Aqcuisition date Consolidation Date Net Change


50,000
44,000
-
94,000

16,000

-10,000
-
100,000 10,000

Depreciation
75,000
18,000
-
93,000
-90,000
3,000
quisition date -
3,000

100,000
20%
20,000
-
20,000

110,000

8,000
-
-
-
8,000
118,000
mputed as follows:
10,000
80%
8,000

Consolidated
80,000

-
-
-
-
80,000
-10,000
-
70,000

10,000

8,000
2,000
10,000

Owners of Parent NCI Consolidated


60,000 N/A 60,000
16,000 4,000 20,000
-8,000 -2,000 -10,000
- - -
68,000 2,000 70,000

e computed as follows: