-Date of Acquisition

*Consolidated Statement of Financial Position

The Company whose assets were

acquired is dissolved

Consolidation of the two Companies are

AUTOMATIC because all subsequent

transactions are recorded in a single set of books of the

Acquirer.

Acquisition of Control

Net asset acquisition

Stock Acquisition

Parent controlling Interest

SubsidiaryControlle

d Company

% of Voting Stock

Over 50% voting stock

Remaining interest

Non-Controlling

Interest (formerly called as Minority Interest)

Statutory ConsolidationA comp.+ B= C company

Statutory MergerA comp. + B = A

companyRetains its legal identity and continues to

prepare its own financial

statements.

*Consolidated Statement

NatureConsolidated statements- presents the financial statements of the parent and its subsidiary as those of a single economic entity.

Consolidation working papers- are prepared to facilitate the consolidation of the separate statements of the parent and its subsidiary(s) into a single set of consolidated statements.

ConditionsStatements are to be consolidated when a parent company owns over 50% of the voting common stock of another company thereby having a controlling interest.

Techniques of Consolidation

Basic Procedure

To eliminate the Investment account on the parent company’s statement of financial position against the stockholder’s equity accounts in the statement of financial position of the subsidiary company.

Elimination entries appear only on the consolidation working papers, they are not recorded on the books of either the

parent or subsidiary company.

Two Types of Stock Acquisition

100% stock Acquisition

Less than 100% stock

Produce the same consolidated statement

of financial position after acquisition with an asset acquisition

Differ from asset acquisition

because there will be a non-controlling

interest in the consolidated statement of

financial position.

Part 2

Journal Entry on P Company to record Acquisition of S company’s net assets.

Accounts receivable 32,000Inventory 20,000Equipment 158,000

Accounts payable110,000

Cash 100,000

Part 3P CompanyStatement of Financial Position Subsequent to Asset AcquisitionDecember 1,2011

Assets Current AssetsCash 130,000Accounts receivable 72,000Inventory 70,000Total Current assets 272,000

Noncurrent AssetsEquipment 338,000TOTAL 610,000

Liabilities and Equity Current LiabilitiesAccounts payable 390,000 Stockholders EquityCommon Stock 100,000Additional Paid In Capital 80,000Retained Earnings 40,000 220,000Total liabilities and equity 610,000

Stock Acquisition

Entry of P company on the date of Acquisition:

Investment in S company 100,000Cash 100,000

*Acquisition of Wholly Owned Subsidiary

-100% InterestCase 1: Acquisition at Book Value

P company acquires all of S company’s outstanding common stock for P100,000 cash.

Consideration given (price paid)100,000Less: BV of Interest acquired (100%): Common stock, S company P50,000 APIC-S company 30,000 Retained Earnings- S comp. 20,000 100,000Excess P -0-

Note: In Financial Position of P company, only the statement of financial position has changed to reflect the P100,000 reduction in cash and the recording of the Investment in S company Account

for the same amount.

P Company and S CompanyStatement of Financial PositionDecember 1, 2011

P Company S Company

AssetsCash P130,000 P -0-Accounts receivable 40,000 32,000Inventory 50,000 20,000Equipment-net 180,000158,000Investment In S company stock 100,000

Total Assets P500,000 210,000

Liabilities and Stockholder’s EquityAccounts Payable 280,000

110,000Common Stock 100,00050,000Additional Paid in Capital 80,00030,000Retained Earnings 40,00020,000 Total Liabilities and SHE P500,000210,000

Working Paper Elimination Entry

E(1) Common Stock- S Company 50,000 Additional paid-in capital- S comp. 30,000 Retained Earnings- S company 20,000

Investment in S Company100,000

Consolidation Working Paper

P Compan

y

S Compan

y

EliminationsConsolidate

dDebit Credit

AssetsCashAccounts receivableInventoryEquipment-netInvestment In S company stock

P130,00040,00050,000

180,000

100,000

P-0-32,00020,000

158,000

(1)100,000

130,00072,00070,000

338,000

--

Total Assets 500,000 210,000 610,000

Liabilities and Equity

Accounts payableCommon stock:

P companyS company

APIC:P companyS company

Retained Earnings:P companyS company

280,000

100,000

80,000

40,000

110,000

50,000

30,000

20,000

(1) 50,000

(1) 30,000

(2) 20,000

390,000

100,000

80,000

40,000

Total Liabilities and Equity

P500,000 P210,000 P100,000 P100,000 P610,000

P Company and SubsidiaryConsolidated Statement of Financial PositionDecember 1,2011

AssetsCurrent AssetsCash 130,000Accounts receivable 72,000Inventory 70,000Total Current assets 272,000

Noncurrent AssetsEquipment 338,000TOTAL 610,000

Liabilities and EquityCurrent LiabilitiesAccounts payable 390,000Stockholders EquityCommon Stock 100,000Additional Paid In Capital 80,000Retained Earnings 40,000 220,000Total liabilities and equity 610,000

Case 2: Acquisition at More than Book Value

When the book values of the net assets of the subsidiary are equal to their fair values, and the consideration given (price paid) is more than the book value of interest acquired from the subsidiary, the excess is treated as GOODWILL

Illustration: Assume that P Company acquires 100% of S company’s outstanding common stock for P110,000 in cash on

December 1,2011.

Entry on the date of acquisition in P company:

Investment in S Company 110,000 Cash 110,000

Computation of excess of the consideration over the BV of Interest Acquired:

Consideration given (price paid)110,000Less: BV of Interest acquired (100%): Common stock, S company P50,000 APIC-S company 30,000 Retained Earnings- S comp. 20,000 100,000 Goodwill P10,000

Two factors that results an excess in Consideration given over BV of Interest:

1. A difference between the book value of the subsidiary’s asset and/or liabilities and their fair values.

2. The existence of goodwill in the subsidiary company.

Working Paper Elimination Entries

E(1) Common Stock- S Company 50,000 Additional paid-in capital- S comp. 30,000 Retained Earnings- S company 20,000 Goodwill 10,000

Investment in S Company 110,000

Consolidation Working Paper

P Compan

y

S Compan

y

EliminationsConsolidate

dDebit Credit

AssetsCashAccounts receivableInventoryEquipment-netGoodwillInvestment In S company stock

P120,00040,00050,000

180,000

110,000

P-0-32,00020,000

158,000

(1) 10,000(1)110,00

0

120,00072,00070,000

338,00010,000 --

Total Assets 500,000 210,000 610,000

Liabilities and Equity

Accounts payableCommon stock:

P companyS company

APIC:P companyS company

Retained Earnings:P companyS company

280,000

100,000

80,000

40,000

110,000

50,000

30,000

20,000

(1) 50,000

(1) 30,000

(2) 20,000

390,000

100,000

80,000

40,000

Total Liabilities and Equity

P500,000 P210,000 P110,000 P110,000 P610,000

P Company and SubsidiaryConsolidated Statement of Financial PositionDecember 1,2011

Assets Current AssetsCash 120,000Accounts receivable 72,000Inventory 70,000Total Current assets 262,000

Noncurrent AssetsEquipment 338,000Goodwill 10,000TOTAL 610,000

Liabilities and Equity Current LiabilitiesAccounts payable390,000 Stockholders EquityCommon Stock 100,000Additional Paid In Capital 80,000Retained Earnings 40,000220,000Total liabilities and equity610,000

Case 3: Acquisition at less than Book Value-Bargain Purchase

A Bargain purchase exist when the price paid is Less than the fair value of the subsidiary’s net identifiable assets. The excess

is treated as gain on Acquisition.

Illustration: Assume that P Company paid only P80,000 for the 100% interest in the stockholders’ equity of S company.

Entry of P company to record the acquisition:

Investment in S Company 80,000Cash 80,000

Computation:

Consideration given (price paid) 80,000Less: BV of Interest acquired (100%): Common stock, S company P50,000 APIC-S company 30,000 Retained Earnings- S comp. 20,000 100,000 Gain on acquisition P(20,000)

E(1) Common Stock- S Company 50,000 Additional paid-in capital- S comp. 30,000 Retained Earnings- S company 20,000

Investment in S Company 80,000

Retained Earnings-P comp. (gain) 20,000

Working paper elimination entry:

Consolidation Working Paper

P Compan

y

S Compan

y

EliminationsConsolidate

dDebit Credit

AssetsCashAccounts receivableInventoryEquipment-netInvestment In S company stock

P150,00040,00050,000

180,000

80,000

P-0-32,00020,000

158,000

(1)80,000

150,00072,00070,000

338,000

--

Total Assets 500,000 210,000 630,000

Liabilities and Equity

Accounts payableCommon stock:

P companyS company

APIC:P companyS company

Retained Earnings:P companyS company

280,000

100,000

80,000

40,000

110,000

50,000

30,000

20,000

(1) 50,000

(1) 30,000

(2) 20,000(1) 20,000

390,000

100,000

80,000

60,000

Total Liabilities and Equity

P500,000 P210,000 P100,000 P100,000 P630,000

*Acquisition of Partially Owned Subsidiary (less than 100%

interest)Non-controlling Interest

-It is a term applied to the rights of stockholders other than the parent company(controlling interest) to the net income or loss and net assets of the subsidiary.

The non-controlling interest in the net income of the subsidiary is presented in the consolidated statement of comprehensive income and the non-controlling interest in the subsidiary’s net asset is shown in the consolidated statement of financial position in total and is not broken into common stock, additional paid-in capital, and retained earnings. It must be shown as a component of stockholders’ equity.

Measurement of Non-controlling Interest

IFRS 3 (2008) provides two options of measuring non-controlling interest in acquiree:

at fair value, or At the non-controlling interest’s proportionate share of the

acquiree’s identifiable net assets.