ACCOUNTING FOR BUSINESS
COMBINATIONS
(ADVANCED ACCOUNTING)
CONSOLIDATED FINANCIAL STATMENTS
OVERVIEW ON THE TOPIC:
CHAPTER
4
TITLE
CONSOL. FS (PART 1)
SUB-TOPICS___
BASIC CONSOLIDATION
PROCEDURES
5 CONSOL. FS (PART 2)
INTERCOMPANY
TRANSACTIONS
6 CONSOL. FS (PART 3)
MISCELLANEOUS TOPICS
7 CONSOL. FS (PART 4)
COMPLEX GROUP STRUCTURE
RELATED STANDARD:
•
•
PFRS 10 CONSOLIDATED FINANCIAL STATEMENTS
PFRS 12 DISCLOSURE OF INTERESTS IN OTHER ENTITIES
CHAPTER 4 CONSOLIDATED FS (PART 1)
LEARNING OBJECTIVES
• STATE THE ELEMENTS OF CONTROL.
• PREPARE CONSOLIDATED FINANCIAL
STATEMENTS AT THE ACQUISITION
DATE.
• PREPARE CONSOLIDATED FINANCIAL
STATEMENTS AT A SUBSEQUENT DATE
DEFINITION OF TERMS (PFRS 10)
• PARENT – AN ENTITY THAT CONTROLS ONE OR MORE
ENTITIES.
• SUBSIDIARY – AN ENTITY THAT IS CONTROLLED BY
ANOTHER ENTITY.
• GROUP – A PARENT AND ITS SUBSIDIARIES.
• CONSOLIDATED FINANCIAL STATEMENTS – THE
FINANCIAL STATEMENTS OF A GROUP IN WHICH THE
ASSETS, LIABILITIES, EQUITY, INCOME, EXPENSES AND
CASH FLOWS OF THE PARENT AND ITS SUBSIDIARIES
ARE PRESENTED AS THOSE OF A SINGLE ECONOMIC
ENTITY.
PREPARATION OF CONSOLIDATED FS
• A parent entity is required to present consolidated
financial statements, except when all of the following
conditions are met:
a. The parent is a subsidiary of another entity and all its other
owners do not object to the parent not presenting
consolidated financial statements;
b. The parent’s debt or equity instruments are not traded in a
public market (or being processed for such purpose); and
c. The parent’s ultimate or any intermediate parent produces
consolidated financial statements that are available for
public use and comply with pfrss.
ELEMENTS OF CONTROL
• Control exists if the investor has all of the following:
1. Power over the investee;
2. Exposure, or rights, to variable returns from its
involvement with the investee; and
3. The ability to use its power over the investee to affect
the amount of the investor’s returns.
ELEMENTS OF CONTROL
ACCOUNTING REQUIREMENTS
• Consolidated financial statements shall be prepared using uniform
accounting policies.
• The financial statements of the parent and its subsidiaries used in
preparing consolidated financial statements shall have the same
reporting dates. (The maximum difference in reporting dates is 3
months.)
• Consolidation begins from the date the investor obtains control of
the investee and ceases when the investor loses control of the
investee.
MEASUREMENT
• Income and expenses of the subsidiary are based on the
amounts of the assets and liabilities recognized in the
consolidated financial statements at the acquisition date.
• Investments in subsidiaries are accounted for in the parent’s
separate financial statements either:
a. At cost;
b. In accordance with PFRS 9 financial instruments; or
c. Using the equity method.
NCI IN NET ASSETS OF THE SUBSIDIARY
• Non-controlling interests shall be presented in the consolidated
statement of financial position within equity, separately from
the equity of the owners of the parent.
• Non-controlling interest in the net assets consists of:
1. The amount determined at the acquisition date using PFRS 3; and
2. The nci’s share of changes in equity since the acquisition date.
NCI IN PROFIT OR LOSS AND
COMPREHENSIVE INCOME
• The profit or loss and each component of other
comprehensive income in the consolidated statement
of profit or loss and other comprehensive income
shall be attributed to the following:
1. Owners of the parent
2. Non-controlling interests
PREPARING THE CONSOLIDATED FINANCIAL
STATEMENTS
• Consolidated financial statements are prepared by
combining the financial statements of the parent and
its subsidiaries line by line by adding together
similar items of assets, liabilities, equity, income
and expenses.
CONSOLIDATION AT DATE OF ACQUISITION
1. Eliminate the “investment in subsidiary” account. This
requires:
a.
Measuring the identifiable assets acquired and liabilities
assumed in the business combination at their acquisitiondate fair values.
b.
Recognizing the goodwill from the business combination.
c.
Eliminating the subsidiary’s pre-combination equity accounts
and replacing them with the non-controlling interest.
2. Add, line by line, similar items of assets and liabilities of the
combining constituents.
SUBSEQUENT TO DATE OF ACQUISITION
• When consolidating, the method used by the parent
on its separate FS must be noted, which may be: cost
method or equity method.
• Regardless of the method used above, the concept of
consolidation process remains the same.
• Items must be noted as follows:

Undervaluation/overvaluation (Fair Value adjustments)

Gain on Bargain Purchase

Impairment of Goodwill

Intercompany Dividends
CONSOLIDATED NET INCOME
CNI-P
CNI-NCI
CNI
Parent’s Net Income
xx
xx
Dividend from subsidiary
(xx)
(xx)
Income from own operations
xx
Xx
Share in Net Income of Subsidiary
xx
xx
Xx
xx/(xx)
xx/(xx)
xx/(xx)
Fair Value Adjustments
Gain on Bargain Purchase
xx
Impairment of Goodwill
(xx)
Total
xx
(xx)
(xx)
CONSOLIDATION SUBSEQUENT TO DATE OF
ACQUISITION
STEP 1: ANALYSIS OF EFFECTS OF INTERCOMPANY
TRANSACTION
STEP 2: ANALYSIS OF NET ASSETS
STEP 3: GOODWILL COMPUTATION
STEP 4: NCI IN NET ASSETS COMPUTATION
STEP 5: CONSOLIDATED RETAINED EARNINGS
COMPUTATION
STEP 6: CONSOLIDATED PROFIT OR LOSS COMPUTATION
STEP 7: COMPUTATION FOR PROFIT OR LOSS
ATTRIBUTABLE TO THE
OWNERS OF THE PARENT AND TO NCI
STEP 1: ANALYSIS OF EFFECTS OF INTERCOMPANY
TRANSACTION
• THIS IS RELEVANT WHEN THE PARENT AND
SUBSIDIARY HAD INTERCOMPANY
TRANSACTIONS DURING THE PERIOD OR IN
THE PREVIOUS PERIODS. THIS IS DISCUSSED IN
THE NEXT CHAPTER.
STEP 2: ANALYSIS OF NET ASSETS
(a) This amount is used for computing goodwill in ‘Step 3’.
(b) This amount is used for computing NCI in net assets in ‘Step 4’.
(c) This is used for computing consolidated retained earnings in ‘Step 5’.
STEP 3: GOODWILL COMPUTATION
FORMULA #1: NCI IS MEASURED AT NCI’S
PROPORTIONATE SHARE
STEP 3: GOODWILL COMPUTATION
(CONTINUATION)
FORMULA #2: NCI IS MEASURED AT FAIR VALUE
ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)
STEP 4: NON-CONTROLLING INTEREST IN NET
ASSETS
*This amount is zero if NCI is measured at proportionate share. Goodwill is attributed to
NCI only if NCI is measured at fair value.
STEP 5: CONSOLIDATED RETAINED
EARNINGS
STEP 6: CONSOLIDATED PROFIT OR LOSS
STEP 7: PROFIT OR LOSS ATTRIBUTABLE TO
OWNERS OF PARENT AND NCI
*FVA is fair value adjustments.
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
Consolidated total assets
Consolidated total liabilities
ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)
Consolidated total equity
APPLICATION OF
CONCEPTS
END