Consolidated Statement of Financial Position
The formal consolidated statement of financial position resulting from the 100% acquisition of S
Company taken from the consolidated column of the consolidation working paper is presented below:
Illustration 15-6
P Company Subsidiary
Consolidated Statement of Financial Position
December 1,2013
Assets
Current Assets
Cash
Accounts receivable
Inventory
Total Current Assets
Non-Current Assets
Equipment
Goodwill
Total Non-current Assets
P120,000
72,000
70,000
262,000
338,000
10,000
348,000
Total Assets
P610,000
Liabilities and Equity
Liabilities
Accounts Payable
P390,000
Stockholder's Equity
Common stock
Additional paid in capital
Retained earnings
Total stockholder's equity
100,000
80,000
40,000
220,000
Total Liabilities and Equity
P610,000
Case 3 : Acquisition at Less than Book Value - Bargain Purchase
A bargain purchase exists 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 stockholders' equity of S Company.
P Company would make the following entry to record the acquisition:
Investment in S Company
80,000
Cash
80,000
After posting the above entry recording the investment in S Company, the separate statement of
financial position of P Company will show the following balances of the affected accounts :
Cash
150,000
Investment in S Company
80,000
Before the preparation of working paper elimination entry, the difference(excess) between the
consideration given and the book value of the interest acquired is computed as follows:
Consideration given (price paid)
P80,000
Less book value of interest acquired (100%)
Common stock –S Company
P50,000
Additional paid-in capital – S Company
30,000
Retained earnings – S Company
20,000
Gain on Acquisition
100,000
(P20,000)
Working Paper Elimination Entry
After computing the income from acquisition, working paper elimination entry can now be prepared as
follows :
E(1)
Common stock – S Company
50,000
Additional paid-in capital – S Company
30,000
Retained earnings – S Company
20,000
Investment in S Company
80,000
Retained earnings –P Company (Gain)
20,000
Take note that since only a statement of financial position is being prepared, the gain on acquisition is
closed directly to the parent's retained earnings..
Consolidation Working Paper
The working paper showing the elimination entries and the consolidated amounts to be presented in
the consolidated statement of financial position is shown below :
Illustration 15-6
P Company and Subsidiary
Consolidation Working Paper
December 1,2013
Assets
Cash
Accounts receivable
Inventory
Equipment
Investment in S Company
Total Assets
Liabilities and Equity
Accounts payable
Common stock
P Company
S Company
Additional paid-in capital
P Company
S Company
Retained Earnings
P Company
S Company
Total Liabilities and Equity
Elimination
DEBIT
CREDIT
CONSOLIDATED
P COMPANY
S COMPANY
P150,000
40,000
50,000
180,000
80,000
P500,000
0
32,000
20,000
158,000
210,000
P630,000
280,000
110,000
390,000
(1) 80,000
100,000
100,000
50,000
(1) 50,000
30,000
(1) 30,000
80,000
80,000
40,000
P500,000
P150,000
72,000
70,000
338,000
20,000
(1) 20,000
P210,000
P100,000
(1) 20,000
60,000
P100,000
P630,000
Take note that the income from acquisition is not presented in the above working paper, because it is
closed directly to the retained earnings of P Company (P40,000+P20,000)
Consolidated Statement of Financial Position
From the consolidated column, a formal consolidated statement of financial position can now be
prepared.
Acquisition of Partially Owned Subsidiary ( Less than 100% interest)
The consolidation of a parent company and its partially owned subsidiary differs from the consolidation
of a wholly owned subsidiary in one major respect – the recognition of non-controlling interest
( formerly called minority interest).Non-controlling interest (NCI) 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 (to be discussed on Chapter 16) and the non-controlling interest in
the subsidiary's net assets 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. The NCI must be shown as
a component of stockholders' equity.
Measurement of Non-controlling Interest
IFRS 3 provides two options of measuring non-controlling interest in an acquiree:
1. at fair value, or
2. at the non-controlling interest's proportionate share of the acquiree's identifiable net assets.
Under option 1, any goodwill that arises at the time of acquisition is allocated between the parent and
the non-controlling interest (NCI)
Under option 1, any goodwill that arises at the time of acquisition is assigned only to the parent.
There is no requirement within IFRS 3 to measure non-controlling interest on a consistent basis for
similar types of business combinations and therefore, an entity has a free choice between the two
options for each transaction undertaken. The option to value NCI at fair value will be used throughout
(unless stated)
For the purpose of measuring non-controlling interest at a fair value, it may be possible to determine
the acquisiotion-date fair value on the basis of active market prices of the equity shares not held by the
acquirer. When a market price is not available, the acquirer ahould measure the fair value of the noncontrolling interest using other valuation techniques (IFRS 3) .
For a detailed illustration of the consolidation procedures for a partially owned subsidiary, the
statement of fiancial position of P Companu (Illustration 15-7) and tbe statement of finacial position
amounts and the fair values of the assets and liabilities of S Company in tge next page (Illustration 15-8)
before acquisition will be used.
ILLUSTRATION 15-7
P Company
Statement of Financial Position
Decmber 1, 2013
ASSETS
Current Assets
Cash
Accounts Receivabes
LIABILITIES AND EQUITY
P218,000
144,000
LIABILITIES
Accounts Payable
Bonds Payable
P160,000
400,000
Inventory
160,000
Total Liabilities
560,000
TOTAL
522,000
400,000
Non-Current Assets
Land
200,000
STOCKHOLDER'S EQUITY
Common Stock, P10 par value
Building
840,000
APIC
500,000
Equipment (NET)
400,000
Retaines earnings
502,000
TOTAL
TOTAL ASSETS
1,440,000
P1,962,000
TOTAL EQUITY
1,402,000
TOTAL LIABILITIES AND EQUITY
1,962,000
ILLUSTRATION 15-8
S Company
Statement of Financial Position
Decmber 1, 2013
ASSETS
Accounts Receivable
Inventory
Land
Buildings(net)
Equipment(net)
TOTAL ASSETS
BOOK VALUE
P40,000
100,000
80,000
30,000
80,000
P600,000
FAIR VALUE
P40,000
110,000
130,000
500,000
120,000
P900,000
LIABILITIES
Accounts Payable
Bonds Payable
TOTAL LIABILITIES
P80,000
200,000
P280,000
P80,000
200,000
P280,000
STOCKHOLDER'S EQUITY
Common Stock, P1 par value
APIC
Retaines earnings
TOTAL EQUITY
P20,000
180,000
120,000
P320,000
NET ASSETS
P320,000
LIABILITIES AND EQUITY
P620,000
Case 4: Acquisition at More than Fair Value with Adjustment of Subsidiary accounts.
Illustration :
Assume that instead of paying cash, P Company issued 16,000 shares of its P10 par value common stock
for 80% (16,000 shares) of the outstanding shares of S Company . The fair value of P Company's stock is
P50 and yhe fair value of the 20% NCI is assessed to be P170,000. P Company also pays P50,000 in
professional fees to accomplish acquisition.
P Company would make the following entries :
(1) To record the acquisition of S Company stock
Investment in S Company (16,000 shares X P50)
800,000
Common stock (16,000 shares X P10)
160,000
Additional paid-in capital
640,000
(2) To record acquisition-related costs:
Retained earnings - P Company (acquisition expense)
50,000
Cash
50,000
Acquisition expense is to be closed directly to retained earnings of P Company since only the
statement of financial positions are being consolidated.
The consolidation procedures for this case are as follows :
1. Compute goodwill. In accordance with IFRS 3 good will is the excess of:
 The aggregate of :
(i) the acquisition date fair value of the consideration transferred,
(ii) the amount of NCI , and
(iii) the fair value of the parent's previously– held interest in the subsidiary ; over
 The acquisition-date fair value of the net assets acquired.
Using the above, goodwill is computed as follows :
Price paid
Non-controlling interest
Total
Less fair value of net assets acquired
Goodwill
P800,000
170,000
970,000
620,000
P350,000
The following assumptions should be noted in the computation of goodwill:
 Non-controlling interest is measured at fair value (170,000). If the fair value of the noncontrolling interest is not given, its fair value may be estimated by making an assumption. It
may assumed that idf the parent would pay P800,000 for an 80% interest, then it may be
implied that the entire subsidiary company is worth P1,000,000 (P800,000/80%). Assuming this
is true, the NCI is worth P200,000 (P1,000,000 X 20%) the goodwill the would be P380,000
[ (P800,000 + P124,000) - P620,000 ].
 Non-controlling interest may also be measured on the basis of its proportionate interest in the
acquiree's identifiable net assets. Under this option, NCI is equal to P124,000 (P620,000 x 20%).
The goodwill then would be P304,000 [ (P800,000 + P124,000) - P620,000 ].
2. Prepare a Determination and Allocation of excess Schedule, the D and A schedule that follows revalue
the entire entity, including NCI.
Fair value of Subsidiary
Less book value of interest acquired
Common stock
APIC
Retained Earnings
TOTAL EQUITY
Interest acquired
Book value
Excess
FAIR
VALUE
P970,000
P20,000
180,000
120,000
P320,000
P650,000
Adjustments of identifiable accounts
Inventory (P110,000 FV- P100,000 BV)
Land (P130,000 FV - P80,000 BV)
Buildings (P500,000 FV - P300,000 BV)
Equipment (P120,000 FV - P80,000 BV)
TOTAL
P(10,000)
P(50,000)
P(200,000)
P(40,000)
P(300,000)
GOODWILL
P350,000
PARENT
(80%)
P800,000
NCI
(20%)
P170,000
P320,000
80%
P256,000
P544,000
P320,000
20%
P64,000
P106,000
Note the following features of the D & A of excess schedule for a less than 100% parent ownership
interests.

The " fair value of subsidiary" line contains the fair value of the entire company, the price
paid by the parent, and the fair value of the NCI.

The total stockholders' equity of the subsidiary (book value of net assets) is allocated 80% to
controlling interest (P256,000) and 20% to NCI (P64,000)

The entire adjustments of subsidiary net assets (P650,000) will be allocated P544,000 to
controlling interest and P106,000 to NCI.

When the fair value of an asset exceeds the book value,the difference reduces the excess.
Conversely, when an asset's book value is higher than its fair value, the difference increases
the said excess.