CHAPTER 16

CONSOLIDATED FINANCIAL
STATEMENTS-SUBSEQUENT TO
DATE OF ACQUISITION
OVERVIEW

Consolidated financial statements are prepared when

an entity controls one or more other entities.
CONTROL

An investor, regardless of the nature of its

involvement with an entity (the investee).

An investor controls an investee when it is

exposed, or has rights, to variable returns from its
involvement with the investee and has the ability
to affect those returns through its power over the
investee.
An investor controls an investee if and only if the investor
has all the ff:

1. Power over the investee

2. exposure, or rights, to variable returns from its

investment with the investee; and

3. the ability to use its power over the investee to affect

the amount of the investor's returns.
ACCOUNTING PROCEDURES

Consolidated financial statements are prepared using the

following basic accounting procedures:

A. Combine like items of assets, liabilities, equity, income,

expenses, and cash flows of the parent with those of its
subsidiaries.
B. Eliminate the carrying amount of the parent's investment
in each subsidiary and the parent's portion of equity of
each subsidiary (IFRS3 explains how to account for the
difference.
C. Eliminate in full intercompany assets and
liabilities, equity, income, expenses and
cash flows relating to transactions between
entities of the group (profits or losses resulting
from intercompany transactions that are
recognized in assets, such as inventory and fixed assets
are eliminated in full.
CONSOLIDATED COMPREHENSIVE INCOME

***Consolidated comprehensive income and retained

earnings, consolidated comprehensive income is
allocated to non-controlling interests and the controlling
interest (equity holders of the parent company).***

Two Approaches:

1. PARENT COMPANY APPROACH

2. ENTITY APPROACH
CONSOLIDATED COMPREHENSIVE INCOME

***Consolidated comprehensive income and retained

earnings, consolidated comprehensive income is
allocated to non-controlling interests and the controlling
interest (equity holders of the parent company).***

Two Approaches:

1. PARENT COMPANY APPROACH

2. ENTITY APPROACH
 PARENT COMPANY APPROACH

Consolidated comprehensive income 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.
 Example:

Assume that P Company owns 80% of the stock of S

Company, which was purchased at book value. During
2013, S company reports comprehensive income of
P50,000, while P company reports comprehensive income
of P120,000 including dividend income from S company of
P20,000.

Required: Consolidated comprehensive income for 2013.

 Solution:

P company comprehensive income P120,000

Dividend Income (20,000)
Comprehensive income from own operations 100,000
S company comprehensive income from
own operation 50,000
TOTAL 150,000
Less: NCI comprehensive income (50,000 x 20%) 10,000
Consolidated Comprehensive Income P140,000
 ENTITY APPROACH

Consolidated comprehensive income under the

entity approach equals total earnings of all
companies consolidated, less any income
recorded by the parent from the consolidating
companies.
 Same example:
Using the data in the illustration for P Corporation and S Company,
consolidated comprehensive income is computed and allocated
as follows:

P Company CI P120,000
Dividend Income (20,000)
CI from own operation P100,000
S company CI from own operation 50,000
Consolidated CI 150,000
Attributable to NCI ( 70,000 x 20%) 10,000
Attributable to Parent P140,000
 Two methods: Accounting for investments in a subsidiary

1. Cost method
- this method is used when the acquirer (parent) owns
directly or indirectly more than half of the voting power
of an entity (subsidiary),thereby exercising control
(IAS 27).

2. Equity Method
this method is used when the acquirer/investor owns
20% or more (less than 50%) of the voting power
of the investee /acquiree, thereby exercising
significant influence over the operations of the
investeees (IFRS 12).
Example:

On January 2, 2017, Madz Corporation acquired 60% of

the outstanding shares of Padz Company for 500,000.
In addition,Madz paid acquisition-related costs of
P40,000. The book and fair value of these shares was
P480,000. Any excess of the investment cost over
thebook value of interest acquired has a maximum life
of 20 years. For 2017 Padz reported CI of 200,000 and
paid dividends of P80,000. Under the COST AND
EQUITY METHODS the balance of the investment in
Padz Company stock account on Mad'z books at
December 31, 2017 is:
Answer:

Cost Method Equity Method

Investment Cost 500,000 500,000
Parent's share of
Subsidiary CI (200,000x60%) 120,000
Dividends Received
(80,000x60%) (48,000)
Amortization
(60,000/20) 3,000
TOTAL 500,000 569,000
 Consolidation: Wholly owned
subsidiary- Acquisition at Book Value

First Year after Acquisition

Assume that on January 2, 2013, Pete Corporation acquires all the
common stock of Sake Company for P300,000. At that time, Sake
Company has P200,000 of common stock outstanding and retained
earnings of P100,000. Analysis of the acquisition is as follows:

Price paid
P300,000
Less book value of interest acquired (100%)
Common Stock P200,000
Retained Earnings 100,000 300,000
Excess P 0
On December 31, 2013, Sake Company reported the following results of
its operations:
Net Income P50,000
Dividends Paid 30,000

PARENT COMPANY ENTRIES

Using the Cost Method,Pete Corporation would make the following
entries during 2013:
Jan. 2 Investment in Sake Company 300,000
Cash 300,000
To record the purchase of Sake Company stock.
Dec.31 Cash 30,000
Dividend Income 30,000
To record 100% of Dividend from Sake Company.
 Working Elimination Entries

1. Dividend Income 30,000

Dividends declared-Sake Company 30,000
To eliminate inter-company dividends
2. Common stock-Sake Company 200,000
Retained earnings-Sake Company 100,000
Investment in Sake Company 300,000
To eliminate investment and equity accounts at date of
acquisition
 Pete Corporation and Subsidiary
Working Paper for Consolidated Financial Statements
Year Ended December 31, 2013- First Year

Pete Sake Eliminations Consolidated

Corporaton Corporation Debit Credit

Statement of CI

Sales 400,000 200,000 600,000

Dividend
Income 30,000 _________ (1) 30,000 _________

Total 430,000 600,000

revenue 200,000

Cost of goods 170,000 115,000 285,000

sold

Operating 50,000 20,000 70,000

Expenses

Other
Expenses 40,000 15,000 55,000

Total cost & 260,000 150,000 410,000

expenses
 Pete Sake Company Eliminations Consolidated
Corporation Debit Credit

Statement of
Retained
Earnings

RE, Jan.:

Pete Corp 300,000 300,000

Sake Comp 100,000 (2)100,000

CI from above 170,000 50,000 190,000

_________ _________ _________

TOTAL 470,000 150,000 490,000

Dividends
Declared

Pete Corp 60,000 60,000

Sake Comp _________ 30,000__ (1) 30,000 __________

 Pete Sake Company Eliminations Consolidated
Corporation Debit Credit

Statement of
Financial
Position

Cash 210,000 75,000 285,000

Accounts 75,000 50,000 125,000

Receivable

Inventory 100,000 75,000 175,000

Property and 525,000 320,000 845,000

Equipment

Investment in 300,000 (2) 300,000

Sake Com ________ _________ _________

TOTAL ASSETS 1,210,000 520,000 1,430,000

Accounts 100,000 100,000 200,000

Payable

Bonds Payable 200,000 100,000 300,000

Common Stock:
Consolidated CI:
Pete Corporation CI P170,000
Sake Company CI 50,000
Dividend Income (30,000)
Consolidated CI P190,000

Consolidated Retained Earnings:

Retained of Pete Corporation, Dec. 31 P410,000
Add: Pete's share of net increase in Sake's retained
Earnings [(P50,000-P30,000)x100%] 20,000
Consolidated Retained Earnings P430,000
Consolidated Financial Statements
 Pete Corporation and Subsidiary
Consolidated Statement of Comprehensive Income and Retained
earnings
Year ended December 31, 2013
Sales P600,000
Cost and Expenses:
Cost of goods sold P285,000
Operating expenses 70,000
Other expenses 55,000 410,000
Consolidated CI 190,000
Retained Earnings, Jan 1- Pete Corporation 300,000
Total 490,000
Dividends paid- Pete Corporation 60,000
Consolidated Retained Earnings, Dec. 31 P430,000
 Pete Corporation and Subsidiary
Consolidated Statement of Financial Position
December 31, 2013
Assets
Current Assets
Cash P285,000

Accounts receivable 125,000

Inventory 175,000

Total Current assets 585,000

Property and equipment (net) 845,000

Total assets P1,430,000

Liabilities and Stockholders Equity

Liabilities
Accounts Payable P200,000
Bonds Payable 300,000
Total Liabilities 500,000
Stockholder's Equity

Common Stock P500,000

Retained Earnings 430,000 930,000

Total Liabilities and Stockholder's equity P1,430,000

Second and Subsequent years after Acquisition
Consolidation two years after combination is illustrated by
continuing the Example of Pete Corporation and Sake
Company. On December 31,2014, Sake Company reports net
income of P75,000 and pays Dividends of P40,000.
Parent Company Entries
Cash 40,000
Dividend Income 40,000
To record dividends received from Sake (100%)
On December 31,2014, the balances of the investment in Sake
Company account and Dividend income account are:
___________________________________________________
Investment in Sake Company (at original cost) P300,000
Dividend Income 40,000
____________________________________________________
Working Elimination Entries

E (1) Dividend Income 40,000

Dividends declared-Sake Company 40,000
To eliminate intercompany dividends
E (2) Common stock-Sake Company 200,000
Retained earnings- Sake Company 100,000
Investment in Sake Company 300,000
To eliminate investment and subsidiary's Equity accounts at
date of acquisition
 CONSOLIDATION WORKING PAPER-
SECOND YEAR
 Pete Corporation and Subsidiary
Working Paper for Consolidated Financial Statements
Year Ended December 31, 2014- Second Year

Pete Sake Eliminations

Corporation Company Debit Credit Consolidate
d

Statement of
CI

Sales 450,000 300,000 750,000

Dividend 40,000 (1) 40,000

Income __________ ________ _________

Total 490,000 300,000 750,000

revenue _________ _________ ________

Cost of 180,000 160,000 340,000

goods sold

Operating 50,000 20,000 70,000

Expenses

Other 60,000 45,000 105,000

Expenses __________ _________ _________
 Pete Sake Eliminations Consolidate
Corporation Company Debit Credit d

STATEMENT
OF
RETAINED
EARNINGS

RE,Jan, 1:

Pete Corp 430,000 430,000

Sake Comp 120,000 (2) 100,000 20,000

CI from 200,000 75,000 235,000

above _________ _________ _________

630,000 195,000 685,000

Dividends
Declared

Pete Corp 60,000 60,000

 Pete Sake Eliminations
Corporation Company Debit Credit Consolidate
d

Statement of
FP

Cash 265,000 85,000 350,000

Accounts 150,000 80.000 230,000

Receivable

Inventory 180,000 90,000 270,000

Property and
Equipment (net) 475,000 300,000 775,000

Investment in 300,000 (1) 300,000

Sake Company
_________ ________ _________

Total Assets 1,370,000 555,000 1,625,000

Accounts
Payable
100,000 100,000 200,000

Bonds Payable 200,000 100,000 300,000

ANOTHER EXAMPLE
Required: Prepare a consolidation workpaper in
good form as of December 31,2013, and
prepare a consolidated statement of CI, retained
earnings statement, and Statement of Financial
position.
 JOURNAL ENTRY:
Parent Company entries
1. Investment in Sebo Company 220,000
Cash 220,000
To record the purchase of Sake Company
Elimination Entries:
1. Investment Income 19,000
Dividends declared-Sebo 10,000
Investment in Sebo Company 9,000

2. Retained Earnings,Jan.1 50,000

Common Stock-Sebo 150,000
Investment in Sebo Company 200,000

3. Goodwill 20,000
Investment in Sebo 20,000
Goodwill:

Fair Value of Subsidiary 220,000

Less: BV of net assets acquired:
Common stock- Sebo 150,000
RE- Sebo 50,000 200,000
Goodwill 20,000
Consolidation: Partially owned
subsidiary- Acquisition at Book
Value
 Consolidation: Partially owned subsidiary- Acquisition at
Book Value
FIRST YEAR AFTER ACQUISITION
Total Parent price NCI@FV
(80%) (20%)

Fair value of subsidiary P300,000 P240,000 P60,000

Less book value of interest acquired:
Common Stock-S Company P200,000
Retained Earnings-S company 100,000
Total P300,000 P300,000 P300,000
Interest Acquired 80% 20%
Book Value P240,000 P60,000
Excess P -0- P -0- P -0-
During 2013, Pete Corp. would make the ff: entries to record its
investment in Sake Company stock, and receipt of dividends from
Sake Company as follows:
2013
Jan.1 Investment in SakeCompany 240,000
Cash 240,000
To record purchase of SakeCompany stock
De.31 Cash 24,000
Dividend Income 24,000
To record share in dividends paid by Sake
(P30,000 x 80%).
Working Paper Elimination Entries
1.) Dividend Income (80%) 24,000
NCI (20%) 6,000
Dividend Declared-Sake Company 30,000
To eliminate intercompany dividends and to establish minority interest share
2.) Common Stock- Sake Company 200,000
Retained Earnings- Sake Company 100,000
Investment in Sake Company 240,000
NCI 60,000
To eliminate inter-company investment and equity accounts of subsidiary on
date of acquisition, and to establish minority interest in net assets of
subsidiary.
3.) NCI in CI of subsidiary 10,000
NCI 10,000
To recognize NCI in subsidiary's net income for the year 2013 (P50,000 x 20%)
 Illustration 16-3
Pete Corporation and Subsidiary
Working paper for Consolidation Financial Statements
Year Ended December 31, 2013

Pete Corporation Sake Company Eliminations

Debit Credit Consolidated

Statement of CI

Sales 400,000 200,000 600,000

Dividend Income 24,000 (1) 24,000

__________ __________ _________

Total revenue 424,000 200,000 600,000

________ _______ ________

Cost of goods sold 170,000 115,000 285,000

Operating 50,000 20,000 70,000

Expenses

Other Expenses 40,000 15,000 55,000

________ ________ ________

Total cost & 260,000 150,000 410,000

Expenses ________ ________ ________

Net/Consolidated 164,000 50,000 190,000

income
 Pete Sake Company Eliminations
Corporation Debit Credit Consolidated

Statement of
Retained
Earnings

RE, Jan.1:

Pete Corp 300,000 300,000

Sake Comp 100,000 (2) 100,000

CI from above 164,000 50,000 180,000

Total 464,000 150,000 480,000

Dividends
Declared

Pete Corp 60,000 60,000

Sake Comp _________ 30,000 (1) 30,000 _________

RE, Dec,31 to 404,000 120,000 420,000

BS
 Pete Corporation Sake Company Eliminations
Debit Credit Consolidated

Statement of FP

Cash 264,000 75,000 339,000

Accounts 75,000 50,000 125,000

receivable

Inventory 100,000 75,000 175,000

Property and 525,000 320,000 845,000

equipment

Investment in 240,000 _________ (2) 240,000 _________

Sake Comp

Total Assets 1,204,000 520,000 1,484,000

Accounts 100,000 100,000 200,000

Payable

Bonds payable 200,000 100,000 300,000

Common stock:

Pete Corp 500,000 500,000

CONSOLIDATED FINANCIAL
STATEMENTS
Pete Corporation and Subsidiary
Consolidated Statement of CI and Retained Earnings
Year Ended December 31, 2013
Sales P600,000
Cost and Expenses:
Cost of goods sold P285,000
Operating Expenses 70,000
Other Expenses 55,000 410,000
Consolidated CI 190,000
NCI in CI of subsidiary 10,000
Attributable to parent company 180,000
Retained earnings at the beginning of year- Pete 300,000
Dividends paid- Pete (60,00)
Consolidated retained earnings, Dec.31,2013 P420,000
Pete Corporation and Subsidiary

Consolidated Statement of Financial Position

December 31, 2013

ASSETS

Current Assets

Cash P 390,000

Accounts Receivable 125,000

Inventory 175,000

Total Current Assets 639,000

Property and Equipment (net) 845,000

Total Assets P 1, 484,000

LIABILITIES & STOCKHOLDER'S EQUITY

Accounts Payable P200,000

Bonds Payable 300,000

Total Liabilities 500,000

Stockholder's Equity

Common Stock P500,000

Retained Earnings 420,000

Total controlling interest 920,000

Non-controlling interest 64,000 984,000

Total Liabilities and Equity P1,484,000

Consolidation: PartiallyOwned Subsidiary-
Acquisition at other than Book Value

FIRST YEAR AFTER COMBINATION- 2013

***Using the data in our previous example, assume that Pete Corporation
purchases 80% of the common stock of Sake Company on Jan.2,2013, for
P300,000. Assume further that on the date of the combination,all assets and
liabilities of Sake Company have Fair market values equal to their book
value, except for the ff:

Book value Fair Value (Under) Over-

valuation
Inventory P60,000 P65,000 P(5,000)
Property & equipment 300,000 360,000 (60,000)
P 360,000 P425,000 P(65,000)
The D & A Schedule resulting from the above ownership situation
is as follows:
Total Parent price NCI@FV
(80%) (20%)
Fair Value of Subsidiary P375,000 P300,000 P75,000
Less book value of net assets Acquired:
Common stock- S P 200,000
Retained Earnings- S 100,000

Total P300,000 P300,000 P300,000

Interest Acquired 80% 20%

Book value P240,000 P60,000

Excess P75,000 P60,000 P15,000

Allocations (adjustments)
Inventory P(5,000)
Property & equipment 60,000

Total P(65,000)

Goodwill P10,000
 Illustration 16-4
Pete Corporation & Subsidiary
Working Paper for Consolidated Financial Statements
Year Ended December 31, 2013
Pete Sake Compay Eliminations &
Corporation Adjustments Credit Consolidate
Debit d

Statement of
CI

Sales 400,000 200,000 600,000

Dividend 24,000 (1) 24,000

income __________ _________

Total 424,000 200,000 600,000

revenue

Cost of goods 170,000 115,000 (4) 5,000 290,000

sold

Operating 50,000 20,000 (4) 6,000 76,800

expenses

Other 40,000 15,000 55,000

expenses

Total costs & 260,000 150,000 421,000

expenses
 Pete Corp. Sake Co. E&A Credit Consolidate
Debit d

Statement of
Retained
Earnings

RE, Jan.1

Pete Corp. 300,000 300,000

Sake Co. 100,000 (2) 100,000

CI from 164,000 50,000 171,200

above __________ __________ __________

Total 464,000 150,000 471,200

Dividends
declared

Pete Corp. 60,000 60,000

Sake Co. 30,000

_________ _________ ________
 Pete Corp. Sake Co. E&A Credit Consolidated
Debit

Statement of FP

Cash 204,000 75,000 279,000

Accounts Receivable 75,000 50,000 125,000

100,000 75,000 (3) 5,000 (4) 5,000 175,000

Inventory

Property & 525,000 320,000 (3) 60,000 (4) 6,000 899,000

Equipment (net) (2) 240,000 } ----
(3) 60,000 } -----

Investment in Sake 300,000

Company

Goodwill (3) 10,000 10,000

TOTAL ASSETS
1,204,000 520,000 1,488,000

Accounts payable 100,000 100,000 200,000

(4)

Bonds payable 200,000 100,000 300,000

 Illustration 16-5
Pete Corporation and Subsidiary
Working Paper for Consolidated Financial Statements
Year Ended December 31, 2014-Second Year

Pete Corp. Sake Co. E&A Credit Consolidated

Debit

Statement of
CI

Sales 450,000 300,000 750,000

Dividend 32,000 (1) 32,000 _

Income __________ ________ _________

Total 482,000 300,000 750,000

Revenue _________ _________ _______

Cost of goods 180,000 160,000 340,000

sold

Operating 50,000 20,000 (6) 6,000 76,000

Expenses

Other 60,000 45,000 105,000

Expenses _________ _________ _________

Total cost & 290,000 225,000 521,000

Expenses _________ ________ __________

Net/Consolidat 192,000 75,000 229,000

 Pete Corp Sake Co. E&A Credit
Debit Consolidate
d

Statement of
RE

RE, Jan.1:

Pete Corp. 404,000 404,000

Sake Co. 120,000 (2) 100,000

(4) 1,800 7,200
(5) 11,000

CI from above 192,000 75,000

_________ _________ 215, 200
__________

total 596,000 195,000 626,400

Dividends
declared

Pete Corp. 60,000 60,000

 Pete Corp. Sake Co. E&A Consolidated
Debit Credit

Statement of
FP

Cash 231,000 85,000 316,000

Accounts 150,000 80,000 230,000

Receivable

Inventory 180,000 90,000 (3) 5,000 (5) 5,000 270,000

Property & 475,000 300,000 (3) 60,000 (5) 6,000 823,000

Equipment
(net)

Investment in 300,000 (2) 240,000} __

Sake Co. (3) 60,000}
stock

Goodwill __________ ___________ (3) 10,000 10,000

Total Assets 1,336,000 555,000 1,649,000

Accounts 100,000 100,000 200,000

Payable
 Illustration 16-6
Pete Corp & Subsidiary
Working Paper for Consolidated Financial Statements
Year Ended Dec. 31, 2013- First Year

Pete Corp. Sake Co. E &A

Debit Consolidated
Credit

Statement of
CI

Sales 400,000 200,000 600,000

Investment 31,200 (1) 31,200

Income __________ ________ ___________

Total Revenue 431,200 200,000 600,000

Cost of goods 170,000 115,000 (4) 5,000 290,000

sold

Operating 50,000 20,000 (4) 6,000 76,000

Expenses

Goodwill --- ---- (5) 2,500 2,500

impairment loss

Other Expenses 40,000 15,000 55,000

 Pete Sake Eliminations& Adjjustments Consolidated
Corporation Company Debit Credit

Statement of
Retained
Earnings

Retained
Earnings, 300,000 100,000 (2) 100,000 300,000
January 1

CI from above 171,200 50,000 168,700

__________ _________ ___________

Total 471,200 150,000 468,700

Dividends 60,000 30,000 (1) 30,000 60,000

Declared __________ __________ __________

Retained 411,200 120,000 408,700

Earnings,
Dec.31 to BS
 Pete Corp. Sake Co. E&A Credit Consolidated
Debit

Statement of FP

Cash 204,000 75,000 279,000

Accounts Receivable 75,000 50,000 125,000

100,000 75,000 (3) 5,000 (4) 5,000 175,000

Inventory

Property & 525,000 320,000 (3) 60,000 (4) 6,000 899,000

Equipment (net) (1) 7,200 }
(2) 240,000 } __
(3) 60,000 }

Investment in Sake 307,200

Company

Goodwill (3) 10,000 (5) 2,500 7,500

TOTAL ASSETS
1,211,200 520,000 1,485,500

Accounts payable 100,000 100,000 200,000

Bonds payable 200,000 100,000 300,000

Illustration 16-7
Pete Corp. & Subsidiary
Working Paper for Consolidated Financial Statements
Year Ended ecember 31,2014- Second Year

Pete Corp. Sake Co. Eliminations and Adjustments Consolidated

Debit Credit

Statement of
CI

Sales 450,000 300,000 750,000

Investment 55,200 (1) 55,200 __

Income __________ __________ __________

Total 505,200 300,000 750,000

revenue __________ __________ __________

Cost of 180,000 160,000 340,000

goods sold

Operating 50,000 20,000 (4) 6,000 76,000

Expenses

Other 60,000 45,000 105,000

Expenses __________ __________ __________

Total Cost & 290,000 225,000 521,000

Expenses __________ __________ __________

Net/consolid 215,200 75,000 229,000

ated CI
 Pete Sake Eliminations & Adjustments Consolidate
Corporation Company Debit Credit d

Statement of
Retained
Earnings

Retained 411,200 120,000 (2) 120,000 408,700

Earnings, (5) 2,500
January 1

CI from 215,200 75,000 215,200

above __________ __________ __________

Total 626,400 195,000 623,900

Dividends 60,000 40,000 (1) 40,000 60,000

Declared __________ __________ __________

Retained 566,000 155,000 563,900

Earnings,
December
31 to BS
 Pete Corp. Sake Co. E&A Credit Consolidated
Debit

Statement of FP

Cash 231,000 85,000 316,000

Accounts Receivable 150,000 80,000 230,000

180,000 90,000 270,000

Inventory

Property & Equipment 475,000 300,000 (3) 54,000 (4) 6,000 823,000
(net) (1) 23,200 }
(2) 256,000 } -----
(3) 51,200 }

Investment in Sake 330,400

Company

(3) 10,000 (5) 2,500 7,500

Goodwill ------------ ------------- --------------------------

TOTAL ASSETS 1,366,400 555,000 1,646,500

Accounts payable 100,000 100,000 200,000

Bonds payable 200,000 100,000 300,000

Common stock:
 Pete Corp. Sake Co. E & A debit Credit Consolidated

Statement of FP

Cash 231,000 85,000 316,000

Accounts Receivable 150,000 80,000 230,000

180,000 90,000 (4) 5,000 270,000

Inventory

Property & Equipment 475,000 300,000 (3) 54,000 (4) 6,000 823,000
(net) (1) 23,200
(2) 256,000 } ---
(3) 51,200 }

Investment in Sake 330,400

Company

Goodwill (3) 10,000 (5) 2,500 7,500

--------------- ---------------
TOTAL ASSETS 1,366,400 555,000 1,646,500

Accounts payable 100,000 100,000 200,000

Bonds payable 200,000 100,000 300,000

 Accounting for loss of Control

If a parent loses control of a subsidiary, the parent:

A. Derecognizes the assets and liabilities of the former subsidiary
from the consolidated statement of financial position.
B. Recognizes any investment retained in the former subsidiary at
its fair value when control is lost and subsequently accounts for
it and for any amounts owned by or to the former subsidiary in
accordance with relevant IFRS.
C. Recognizes the gain or loss associated with the loss of control
attributable to the former controlling interest.
 Sales of an interest resulting in Loss of control
(deconsolidated)

Example:
A parent sells an 85% interest in a wholly subsidiary as follows:
- after the sale of the parent accounts for its remaining 15% interest as
an available for sale of investments;
- the subsidiary did not recognize any amounts in other comprehensive
income
- net assets of the subsidiary before disposal is P500,000;
-cash proceeds from the sale of the 85% interests is P750,000 and;
-the fair value of the 15% interest retained by the parent is P130,000
The parent accounts for the disposal of an 85% interest is as
follows:

Available for sale of investment 130,000

Cash 750,000
Investment in Subsidiary (net assets) 500,000
Gain on disposal 380,000
Computation:
The gain recognized on the disposal of the subsidiary is calculated
as follows:
Cash proceeds from the sale of the 85% interest 750,000
Fair value of interest retained 130,000
Carrying amount of the NCI at the date of deconsolidation -0-**
Net assets of the subsidiary (500,000)
Gain on disposal 380,000
Sale of interest not resulting in loss of control

- A parent company may sell a portion of its investment in a

subsidiary but still have an interest that provides control
even after the sale.

There can be no income statement gains or losses

resulting from any stock issuances by the consolidated
entity.

- Gain on sale of investments in a subsidiary is recorded in

addition to APIC

- Loss of sale of investments treated as a reduction from

APIC.
THE END
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