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Consolidations –Consolidations –Subsequent to theSubsequent to the

Date of AcquisitionDate of Acquisition

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc !llrights reser"e#

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A business combination occurs when two or more separate businesses join into a single accounting entity. The main goal of business

combination to make profit but there are other reasons companies.

Horizontal integration _two companies or more in the same

Business sector – Phone _banking_ echange money. To support an!

"inancial positions# an! competitions.

$ertical integration_ two companies work in !ifferent sector like factory for juice an! factory make cans for %uices& to help both business success#

an! pro'i!e each other with pro!ucts. (B) *outs. An! +onglomeration

two !ifferent companies two !ifferent sector for eample bank an!

in!ustrial company _ !i'ersity their risk.

Merger A Purchase B _ assets an! liabilities transfer to A. B goneConsolidation _ establish new +ompany combine of A an! B with +

assets liabilities an! financial statement for both companies transfer to +

Acquisitions_ +ompany A purchases more that ,- Percent B _influence

controls the whole the company. Both companies still in business as

/eparate legal entity_ financial recor!s. 0e ha'e Hol!ing company or

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Acquisitions_ +ompany A purchases more that ,- Percent B influence controls the whole the company

Both companies still in business as /eparate legal

entity_ financial recor!s. 0e ha'e Hol!ing

company or parent company 1A2 an! subsi!iary 1B2

Consolidation of Financial Statements

A single set of financial statements is pro!uce!#

reporting the consoli!ate! assets# liabilities# e3uities# re'enues# an! epenses for the parent company an! all

controlle! subsi!iary companies.

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Business combination

4ne or more companies

become subsi!iaries of a

common parent corporation.

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Subsidiary

FinancialStatements _____ _____ _____ _____ _____ _____ _____ _____

SubsidiaryFinancialStatements _____ _____ _____ _____ _____ _____ _____ _____

ConsolidatedFinancialStatements _____ _____ _____ _____ _____ _____ _____ _____

ConsolidatedFinancialStatements _____ _____ _____ _____ _____ _____

_____ _____

Parent

FinancialStatements _____ _____ _____ _____ _____ _____ _____ _____

ParentFinancialStatements _____ _____ _____ _____ _____ _____ _____ _____

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Parent +ompany

/ubsi!iary A

6-5ownership

/ubsi!iary B

7-5ownership

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+onsoli!ate! financial statements pro'i!e

information that is not inclu!e! in the separate

statements of the parent corporation.

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A subsi!iary can be eclu!e! from consoli!ation in only two situations8

9

+ontrol is likely to be temporary. Because you buying this/tock price appreciation an! you not looking to hol!

theses stock for long perio! of time 1 less than :ear2. )ean

;o consoli!ate! financial statement an! we ha'e to reclassify

our in'estment in this company As a'ailable for /ale (n'estment .

<

+ontrol !oes not rest with the majority owner. )ean

0e ha'e less than ,-5 or the company become part

4f go'ernment assets as a result of li3ui!ation .

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+onsoli!ate! statements are prepare! for an!

as of the en! of the parent=s fiscal perio!.

(f the !ifference !oes not ecee! three months>

it is acceptable to use the subsi!iary=s

statements with !isclosure.

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Assets Penn /kelly +onsoli!ate!+urrent assets

+ash ?

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*iabilities Penn /kelly +onsoli!ate!+urrent liabilities Accounts payable ?

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Penn purchase! all the stock of /kelly for ?,-#---.

0hat is the consoli!ating 1eliminating2 entryE

/kelly stockhol!er=s e3uity is ?-#---.

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+apital /tock @-#---

Detaine! Farnings 9-#---

Goo!will 9-#---

(n'estment in /kelly ,-#---

To eliminate in'estment an! e3uityaccounts an! to assign the ecess of in'estment

cost o'er book 'alue ac3uire! to goo!will

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Assets Penn /kelly +onsoli!ate!+urrent assets +ash ? 9-#--- ?9-#--- ?

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)inority interest in subsi!iaries is generally

shown in a single amount in the liability section

of the consoli!ate! balance sheet.

The alternati'es are to inclu!e the minority interestin consoli!ate! stockhol!ers= e3uity or to place it

in a separate minority interest section.

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The interest of minoritystockhol!ers represents

e3uity in'estments in the

consoli!ate! net assets bystockhol!ers of the company

affiliate! with the parent.

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9. Penn ac3uire! a 6-5 interest in /kelly on

%anuary 9 for ?,-#--- when /kelly=s stockhol!ers= e3uity was ?-#---.

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0hat is the balance in the in'estment in

/kelly=s account at ecember @9E

4riginal in'estment %anuary 9 ?,-#---

I 6-5 of /kelly=s net income 97#--- – 6-5 of /kelly=s !i'i!en!s – 6#---

(n'estment account balance ?,6#---

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+apital /tock @-#---

Detaine! Farnings

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i'i!en!s Payable 6#---

i'i!en!s Decei'able 6#---

To eliminate reciprocal !i'i!en!s

recei'able an! payable

Accounts Payable ,#---

Accounts Decei'able ,#---

To eliminate intercompany recei'able

an! accounts payable

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The separate books of the affiliate!

companies !o not recor! costJbook

'alue !ifferentials in ac3uisitions that

create parent&subsi!iary relationships.

0orking paper proce!ures are use!

to a!just subsi!iary book 'alues toreflect the costJbook !ifferentials.

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Assets

+ash ?

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*iabilities

Accounts payable ? C-- ? C--

;otes payable 9#-- 9#@--+ommon stock #---

Pai!&in capital 9#---

Detaine! earnings 6--

Total liabilities an! stockhol!ers= e3uity ?7#---

/an! +orporation 1---2 Book $alue "air $alue

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(n'estment in /an! 9-#---

+ommon /tock 9#---

A!!itional Pai!&in +apital #---+ash ,#---

To recor! 6-5 ac3uisition of /an! +orporation

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(n'estment in /an! ?9-#

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(n'entories -- ,-- 6-

*an! 7-- -- 97-

Buil!ing net ,#--- #--- 6--F3uipment# net 9#C--

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Cas&'ecei(ables) net*n(entories+t&er current assets,andBuilding) net

#qui-ment) net*n(estment in Sand.ood/ill0namorti1ed e$cess

2otal assets

3)4 5 9 6 3)7 8)

5)3)7

79)9

7 4 : 6 :)

7)

8)

b 9

b 38b 9

b 4)9a :)89

b 75a 3)7

b :)89

3) 3) 3):9 3) 3)98 37)9

8)54

4)9

47)

Ad;ustments and Consolidated #liminations Balance

Account 2itle Pilot Sand

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Amorti1e t&e e$cess of t&e

in(estment cost o(er t&e book

(alue in -eriods subsequent

to t&e acquisition=

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i'i!en!s Pai!8

/an! ? @--#---

Pilot ?9#,--#---

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Amortization of ecess8

Ln!er'alue! in'entories sol! in

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Cas&'ecei(ables) net*n(entories+t&er current assets,andBuilding) net

#qui-ment) net*n(estment in Sand.ood/ill0namorti1ed e$cess

2otal assets

74= : 3)4 8 3)7 9)

8) 3):

47)95=

3 7 6 64)8

3)8

5)6

b 38b 88

b 4)9a :)5::

b 736a 3):

b :)5::

44= 5: 3)9 3)4 3)98 37)9

8)54

4)9

44)945=



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Accounts -ayable>otes -ayableCommon stock +t&er -aid?in ca-ital'etained earnings

Minority interest

2otal liabilities andstock&olders@ equity

7)4 :) 33) 8)9 )895=

47)95=

3)7

:)3)3):

5)6

a :)a 3)a 3):

a 6:

4) :) 33) 8)9 )895=

6:

44)945=



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Chap 003 SLIDE