AFAR02 Accounting for Business Combinations

Introduction
Accounting for Business Combinations is perhaps the most advanced topic in Advanced Accounting.
Advanced… but not the most difficult. At the end of this module, you will realize that this topic is, at its core,
procedural and methodical in nature.

In law, business combinations are classified either as a merger (A + B = A or B) or a consolidation (A + B =

C). In accounting, business combinations are classified in a similar way. The focal point, however, is the
accounting treatment of the transaction/s rather than its legal structure.
a. Acquisition of net assets (Accounting merger) – there is an actual purchase of ALL (100%) the
assets and liabilities of the acquiree. To put it in another way, all the assets and liabilities of the
acquiree are closed in its separate books and transferred to the books of the acquirer. After the
acquisition, the acquiree is dissolved and only the acquirer continues in existence.
b. Acquisition of stock (Accounting consolidation) – control is obtained USUALLY by purchasing all
or majority of the voting shares of another company. The acquiree (or more appropriately referred
to as the subsidiary) and the acquirer (i.e. parent) continue their separate existence. However, at
the end of the accounting period, they are consolidated into one company. Normally, I would have
romanticized this, but I’ll leave that up to you.

The difference between the two primarily lies in the journal entries made in the books of the acquirer (or
parent), the acquiree (or subsidiary), and the consolidated books. Journalizing the transactions involved in
business combinations will be embedded in our classroom discussions, but to give you an overview of the
entries made, the following illustration is provided:

Acquisition of Net assets: Assume that A Corp. acquired all the assets and assumed all the liabilities of B
Corp. for P1,000,000 cash. The fair values, which is also equal to their book values, of B Corp.’s assets and
liabilities at the date of acquisition is P1,500,000 and P700,000, respectively. The combination is properly
accounted for as an acquisition of net assets. The ff. entries are made at the acquisition date:

Books of A Corp. (Acquirer) Books of B Corp. (Acquiree) Consolidated books

Assets of B Corp P1.5 M Liabilities P0.7 M The consolidated books is simply the
Goodwill 0.2 M Equity 0.8 M books of A Corp.
Cash (consideration) P1 M Assets P1.5 M
Liabilities of B Corp. 0.7 (to close the books of B Corp.)

Acquisition of Stock: Assume that C Corp. obtained control of D Corp. by acquiring 100% of the voting
shares of the latter for P1,000,000 cash. The fair values, which is also equal to their books values, of D Corp.’s
assets and liabilities at the date of acquisition is P1,500,000 and P700,000, respectively. The combination is
properly accounted for as an acquisition of stock. The ff. entries are made:

Books of C Corp. (Parent) Books of D Corp. (Subsidiary) Consolidated books

Investment in D Corp. P1 M No journal entry is made. The cash Equity – D Corp. P0.8 M
Cash (consideration) P1 M consideration is a personal Goodwill 0.2 M
transaction to the shareholders of D Investment in D Corp. P1
Corp. M

Notice that the goodwill recognized for both types of acquisitions is the same, but the journal entries to
recognize the business combination at the date of acquisition are different.

According to IFRS 3, the ACQUISITION METHOD is the only acceptable method in accounting for business
combinations. The acquisition method involves the following steps:
1. Identify the acquirer.
2. Determine the acquisition date – the acquisition date is the date control is obtained.
3. Recognize and measure the identifiable assets acquired, liabilities assumed, and any non-
controlling interest in the acquiree.
4. Recognize and measure goodwill or bargain purchase gain.
Business Combination – Date of Acquisition

Focus notes:
 The MAIN CONCERN of accounting problems for business combinations at the date of acquisition
is the computation of GOODWILL or BARGAIN PURCHASE GAIN (i.e. negative goodwill).
 The basic formula to compute goodwill (bargain purchase gain) is:
Cost of investment (COI) xxx
Fair value of the identifiable net assets of the acquiree/subsidiary (FVNA) _xxx_
Goodwill/(Bargain Purchase Gain) xxx

Question: Where is goodwill/bargain purchase gain recorded?

It depends on the type of acquisition. If it is an acquisition of net assets, goodwill is recorded in
the BOOKS OF THE ACQUIRER. If it is an acquisition of stock, goodwill is recorded in the
CONSOLIDATED BOOKS. In no case shall goodwill or gain arising from the combination be
recorded in the books of the acquiree/subsidiary or the parent.
 Cost of investment (COI) – the COI is essentially the consideration given by the acquirer (or parent) to
the acquiree (or subsidiary) to effect the business combination. The COI is the sum of the following
items, all of which are valued at FAIR VALUE:
1. Cash consideration given to acquire the acquiree or subsidiary
2. Nonmonetary assets given as consideration
3. Equity instruments issued as consideration
4. Liabilities assumed
5. Contingent consideration payable (CCP) – the CCP is a consideration payable when the
subsidiary satisfies a certain condition (e.g. a profit target or a sales quota).
6. Share-based payments
7. Non-controlling interest (NCI) – arises in acquisition of stock and less than 100% of the voting
shares are acquired by the parent.
8. Previously-held interest (PHI) – arises in step acquisitions. Accounting for step acquisitions is
discussed in the succeeding pages.

 Acquisition-related costs – these costs are NOT PART of the COI. They are expensed immediately.
However, if they relate to the issuance of equity securities, they are treated as a DEDUCTION to the
extent of the APIC arising from the issuance of such securities. Any EXCESS to the amount of the APIC
arising from the issuance is EXPENSED. Examples of share issuance costs are SEC registration fees and
printing costs.
Illustration: Assume that A Corp. acquired B. Corp. by issuing 10,000 shares with a par of P2 and fair
value of P5 per share. The following acquisition-related costs were incurred and paid: legal fees P10,000,
SEC registration fees P20,000, printing of stock certificates P20,000. The legal fees are expensed
immediately. The SEC registration fees and printing of stock certificates should be deducted or offset
against the APIC. But since the APIC arising from the issuance is just P30,000 (10,000 shares x [P5 –
P2]), P10,000 of the cost of issuing shares is expensed. All these are summarized in the journal entry
below:

Acquisition-related expenses (P10,000 finders fee + P10,000 excess) P20,000

Additional paid-in capital (APIC) 30,000
Cash P50,000

When debt securities (such as bonds) are issued as consideration, any issuance costs are treated as a
deduction to the carrying amount of the security. A new effective rate is computed to amortize the
liability. However, accounting problems on business combinations rarely involve debt securities as a
consideration. Rarely… but not never.

 Fair value of the identifiable net assets of the acquiree/subsidiary (FVNA) – the FVNA is simply the
difference of the identifiable assets and the identifiable liabilities of the subsidiary/acquiree at fair value.

FVNA = Identifiable assets @ FV – Identifiable Liabilities @ FV

The label “identifiable” is very important. IDENTIFIABLE does not necessarily mean that it is
RECORDED (and vice versa) in the books of the subsidiary/acquiree. Some assets and liabilities
may not be recorded in the books of the acquiree/subsidiary but are identifiable at the point of
 acquisition. The fair value of these assets and liabilities should be included in the computation of the
FVNA. Examples are unrecorded intangibles in the books of the acquiree/subsidiary but have existing
fair values per appraisal. Similarly, some recorded assets and liabilities are not identifiable and should
be excluded in the computation of the FVNA. An example would be receivables that are fully
uncollectible. GOODWILL in the BOOKS OF THE ACQUIREE/SUBSIDIARY is NOT IDENTIFIABLE and
should be EXCLUDED from the computation of the FVNA.

Another tricky rule in computing the FVNA is in the treatment of CONTINGENT ASSETS and
LIABILITIES. Normally, contingent assets are neither disclosed nor recognized, while contingent
liabilities are disclosed when their existence is possible and recognized as provisions when they are
probable. In business combinations, contingent assets are considered identifiable when their
level of existence is probable, while contingent liabilities are considered identifiable when they
are either possible or probable. In other words, the level of recognition of the subsidiary’s contingent
assets and liabilities at the date of acquisition is “one step higher” than the usual accounting. The table
below summarizes this rule:

Accounting for Business

Normal Accounting
Combinations
NEVER RECOGNIZED or Recognized when they are
Contingent assets
DISCLOSED PROBABLE
Recognized when they are Recognized when they are
Contingent liabilities
PROBABLE POSSIBLE or PROBABLE

 Valuation of NCI – NCI is valued using the following HIERARCHY:

1. Explicit fair value (1st level) – the given fair value of the NCI in the problem.

2. Assumed fair value (2nd level) – if the fair value is not explicitly given, it is is obtained by grossing
up the consideration given by the parent to the subsidiary and multiplying the ownership
percentage of the NCI. To illustrate, assume that A Corp. acquired 80% of B Corp. for P800,000 cash.
The assumed FV of the NCI is P200,000 (P800,000 ÷ 80% x 20%).
Control premium – when control premium is part of the purchase price, it should be deducted from
the price before grossing up the consideration to obtain the assumed FV of the NCI. Illustration:
Assume that A Corp. acquired 70% of B Corp. for P710,000 cash. The purchase price includes
control premium of P10,000. The assumed FV of the NCI is P300,000 ([P710,000 – 10,000] ÷ 70% x
30%).
3. Proportionate share in the subsidiary’s FVNA (3 rd level) – obtained by multiplying the
ownership percentage of the NCI by the FVNA. Illustration: Assume that the fair value of the net
assets of B Corp, the subsidiary, is P1,200,000. If the parent owns 70% of the voting stock of the
subsidiary, then the proportionate share of the NCI in the subsidiary’s FVNA is P360,000
(P1,200,000 x 30%).

 NCI valuation rule - the value of the NCI at the date of acquisition CANNOT GO BELOW its value
when computed using the proportionate share in the subsidiary’s FVNA. The reason behind this
rule is to avoid the recognition of NEGATIVE GOODWILL (i.e. bargain purchase gain) that is attributed to
the NCI. Illustration: if the assumed fair value is P300,000, but the NCI’s fair value using the
proportionate method is P360,000, the P360,000 will be used to compute COI even if the proportionate
method is the third level of the valuation hierarchy. This valuation rule should always be remembered
when solving since it is one of the many tricks that your examiner (including me) can use to mislead
your computation of the NCI and the resulting goodwill or bargain purchase gain.
The following table can be used to facilitate your solution and to double-check whether the valuation
rule is violated or not:
TOTAL PARENT (%) NCI (%)
3 2
COI XXX XXX XXX1
FVNA _(XXX)_ _(XXX)_ _(XXX)_
Goodwill (BP gain) XXX XXX XXX4
1
the acquisition-date value of NCI using the valuation hierarchy.
2
the consideration given by the parent to obtain control over the subsidiary (e.g. cash, shares,
nonmonetary assets, liabilities assumed, CCP, etc.)
3
the total of (1) and (2).
4
this should never be negative, otherwise the valuation rule is violated.
 Measurement period – when the fair values of the acquiree or subsidiary’s net assets are provisional
(i.e. tentative), a measurement period of ONE (1) YEAR from the DATE OF ACQUISITION is given to allow
any changes in the fair values recognized to compute goodwill or bargain purchase gain. Changes in the
fair value after the measurement period are disregarded and no longer accounted for as adjustments to
the goodwill or bargain purchase gain initially recognized.

 Step acquisition (Business combination achieved in stages) – this happens when the acquirer
initially has no control over the subsidiary but subsequently obtains control by purchasing additional
interest. In accounting, our primary concern in step acquisitions is the valuation of the previously-held
interest (PHI) to be included in the COI to compute goodwill or bargain purchase gain. The fair value of
the PHI is computed by grossing up the consideration given by the parent to acquire the additional
interest and multiplying the percentage of the PHI in relation to the total voting shares of the subsidiary.

Illustration: Assume that A Corp. initially owns 20% of B Corp. This investment is accounted for using
the equity method and has a book value of P150,000 at the end of the year. At that time, A Corp. acquired
an additional 60% of B’s voting shares for P600,000, bringing its total ownership to 80%. The fair value
of the previously-held interest of 20% at the date of acquisition is P200,000 (600,000 ÷ 60% x 20%). A
remeasurement gain of P50,000 is recognized in the books of A Corp.

Practice problems (Business Combination – Date of Acquisition):

Problem 1: The following Statements of Financial Position were prepared for POTATO Corp. and SALAD
Corp. on January 1, 2015, just before they entered into a business combination.
Potato Corp. Salad Corp.
Cash P84,000 P2,000
Accounts receivable 30,000 8,000
Inventory 80,000 20,000
PPE (net) 120,000 30,000
Goodwill ___-___ 20,000
Total assets P314,000 P80,000

Accounts payable P50,000 P28,000

Bonds payable 80,000 12,000
Common stock 84,000 20,000
Additional paid-in capital 20,000 4,000
Retained earnings 80,000 16,000
Total liabilities and equity P314,000 P80,000

On that date, the fair market value of POTATO’s property, plant and equipment amounts to P150,000, while
its bonds payable has a fair value of P65,000. The fair market value of SALAD’s inventories and PPE were
P31,200 and P49,600, respectively, while its bonds payable has a fair value of P16,800. The fair market
value of all other assets and liabilities of POTATO and SALAD (except for goodwill) were equal to their book
values.

On January 2, 2015, POTATO Corp acquired the net assets of SALAD Corp by issuing 2,500 shares of its P12
par value common stock (current fair value P14.40 per share). Cash amounting to P12,800 was also given
by POTATO to SALAD. A contingent consideration amounting to P1,000 will be given by POTATO in the
event that the acquisition will result to a 10% increase in SALAD’s revenue. The contingent consideration is
probable and determinable, and it has been ascertained that the fair value of this liability is P800.
Additional cash payments made by POTATO Corp in completing the acquisition were the following: legal
fees for contract of business combination, P3,200; Accounting and legal fees for SEC registration, P4,400;
Printing costs of stock certificates, P2,400; Finder’s fee, P2,800; Indirect cost, P2,000.

Compute for the following amounts at the date of acquisition:

a. Goodwill or bargain purchase gain
b. Consolidated assets
c. Consolidated liabilities
d. Consolidated equity
Problem 2: ABC Company acquired all of JKL Corporation's assets and liabilities on October 1, 2015. JKL
reported assets with a book value of P998,400 and liabilities of P569,600.
 ABC noted that JKL included the amount of P64,000 pertaining to the cost of obsolete merchandise
in its recorded assets. The merchandise are no longer saleable.
 ABC also determined that an old delivery van previously used by JKL had a fair value of P192,000
but is fully depreciated in its books.
 Except for machinery and equipment, ABC determined the fair value of all other assets and
liabilities reported by JKL approximated their recorded values.
 In recording the transfer of assets and liabilities in its books, ABC recorded gain on acquisition of
P148,800. ABC paid P327,200 to acquire JKL's assets and liabilities.
(1) If the book value of JKL's machinery and equipment was P345,600, what was their fair value?
(2) Using the same information above, but with the following changes in assumption: ABC recorded
goodwill of P402,000 and ABC paid P1,037,000 to acquire JKL's assets and liabilities. If the book value
of JKL's machinery and equipment was P516,500, what was their fair value?
A. P264,800; P438,300 C. P264,800; P594,700
B. P426,400; P438,300 D. P426,400; P594,700

Problem 3: On September 18, 2015, DG Co. acquired all the AX Inc.'s P2,150,000 identifiable assets and
P530,000 liabilities. Book values of the AX's assets and liabilities equal to their fair values except for the
overvalued furniture and fixtures. As a consideration, DG issued its own shares of stock with a market value
of PI,715,000 and cash amounting to P375,000. Contingent consideration that was probable and reasonably
estimated on the date of acquisition amount to P148,000. The merger resulted into P647,000 goodwill. DG
Co. had P4,890,000 total assets and P2,731,000 total liabilities prior to the combination and no additional
cash payments were made. Expenses were incurred for acquisition-related cost amounting to P28,000.
(1) After the merger, how much is the combined total assets in the books of the acquirer?
(2) After the merger, how much is the increase in liabilities in the books of the acquirer?
A. P7,283,000; P706,000 C. P7,658,000; P706,000
B. P7,128,000; P678,000 D. P7,255,000; P678,000

Problem 4: On August 1, 2015, the Polo Company acquired the net assets of Sport Company for a
consideration transferred of P17,450,000 cash. In addition to the cash consideration, an extra P1,015,000
cash shall be transferred nine months after the acquisition date if a specified profit target was met. At the
acquisition date there was only a low probability of the profit target being met, so the fair value of the
additional consideration liability was determined to be P468,000.
 At the acquisition date, the carrying amount of Sport's net assets was P11,925,000 and a temporary
appraisal of fair value amounting to P12,385,000 was given.
 On December 31, 2015, an new provisional fair value of P16,815,000 was attributed to the net
assets. Also, at year end the estimated amount of the contingent consideration payable is
determined to decrease by P72,000 from the original estimate.
 On March 31, 2016 the estimated amount of the contingent consideration payable is determined to
be probable at P284,000
 On July 1, 2016 the temporary appraisal decreased by P940,000 from the latest valuation.
 The provisional fair value was finalized on August 31, 2016 with an amount that is higher by
P1,070,000 from the temporary appraisal as of July 1, 2016.
 As a subsequent event, the profit target was met and the P1,015,000 cash was transferred.

What amount of goodwill is presented in the separate statement of financial position of the acquirer
company as of December 31, 2016?
A. P1,859,000 B. P2,625,000 C. P789,000 D. P1,555,000

Problem 5: On January 1, 2015, the Statement of Financial Position of Body and Shop Company prior to the
combination are:
Body Co. Shop Co.
Cash P675,000 P22,500
Inventories 450,000 45,000
Property and equipment (net) 1,125,000 157,500
Total Assets P2,250,000 P225,000

Current liabilities P135,000 P22,500

Ordinary shares, P100 par 225,000 22,500
Share premium 675,000 45,000
 Retained earnings 1,215,000 135,000
Total Liabilities and Stockholder’s Equity P2,250,000 P225,000

The fair value of Shop Company’s equipment is P229,500.

Assume the following independent cases:

1. Assume that Body Company acquired all of the outstanding stock of Shop Company resulting to a
goodwill of P99,000. Contingent consideration is P54,000. How much is the price paid to Shop
Company's stock?
A. P373,500 B. P472,500 C. P319,500 D. P427,500

2. Assuming Body Company acquired 70% of the outstanding common stock of Shop Company for
P157,500. Non-controlling interest is measured at fair value of P91,500. How much is the goodwill
or bargain purchase gain?
A. P(25,500) B. P25,500 C. P34,650 D. P(34,650)

3. Assuming Body Company acquired 80% of the outstanding common stock of Shop Company for
P205,200. Non-controlling interest is measured at its proportionate share in Shop Company's
identifiable net assets. How much is the consolidated stockholder's equity on the date of
acquisition?
A. P2,115,000 B. P2,129,400 C. P2,169,900 D. P2,184,300

4. Assuming Body Company acquired 90% of the outstanding common stock of Shop Company for
P364,500. Non-controlling interest is measured at fair value. How much is the total consolidated
assets on the date of acquisition?
A. P2,313,000 B. P2,677,500 C. P2,605,500 D. P2,241,000

Problem 6: Acquirer Company acquires 25% of Acquired Company’s common stock for P190,000 cash and
carries the investment using the cost method. After three months, Parent purchases another 60% of
Subsidiary’s common stock for P540,000. On this date, Acquired Company reports identifiable net assets
with carrying value of P720,000 and fair value of P920,000. The liabilities of the acquired company has a
book value and fair value of P280,000. The fair value of the 15% non-controlling interest is P125,000.

How much is the goodwill or bargain purchase gain?

A. P(17,000) B. P250,000 C. P(30,000) D. P263,000

Problem 7: Blue Co. merged into Soda Corp. on June 30, 2015. In exchange for the net assets at fair market
value of Blue Co. amounting to P2,785,800 , Soda issued 68,000 common shares at P36 par value, then
going at a market price of P41 per share. Relevant data on stockholders' equity immediately before the
combination show;
Soda Blue
Common stock P8,790,000 P2,030,000
APIC 3,834,000 782,000
Retained earnings/(deficit) (1,516,000) 495,000

Out of pocket costs of the combination were as follows:

Legal fees for the contract of business combination P174,700

Audit fee for SEC registration of stock issue 198,400
Printing costs of stock certificates 144,900
Broker's fee 135,000
Accountant's fee for pre-acquisition audit 161,000
Other direct cost of acquisition 90,400
General and allocated expenses 115,300
Listing fees in issuing new-shares 172,000

What is the amount to be expensed at the date of acquisition?

A. P676,400 B. P851,700 C. P765,400 D. P940,700
Problem 8: On July 1, 2015, Giordano, Inc. acquired most of the outstanding common stock of Esprit
Company for cash. The incomplete working paper elimination entries on that date for the consolidated
statement of financial position of Giordano, Inc. and its subsidiary are shown below:
(1) Stockholders’ equity – Esprit 2,437,500
Investment in Esprit 1,584,375
Non-controlling interest 853,125
(2) Inventories 62,500
Equipment 312,500
Patent 61,250
Goodwill ?
Investment in Esprit 468,750
Non-controlling interest ?

Included in the purchase price is a control premium of P68,750.

The amount of goodwill to be reported in the consolidated statement of financial position on July 1, 2015
(1) assuming non-controlling interest is measured at fair value, (2) assuming non-controlling interest is
measured at the proportionate or relevant share, and (3) assuming non-controlling interest is measured at
fair value. The fair value of the non controlling interest is P1,150,000.
A. P179,135; P185,188; P260,625
B. P284,904; P253,938; P398,125
C. P247,885; P185,188; P329,375
D. P185,188; P284,904; P260,625

Business Combination (Stock Acquisition) – Subsequent to Date of Acquisition

Focus notes:

 MAIN CONCERN: Computation of the consolidated net income and breaking it down into the share of
the parent and the share of the NCI.
 Notice that this topic is exclusively for business combinations through stock acquisition. This is because
in ACQUISITION OF NET ASSETS, consolidation does not recur after the date of acquisition. The
moment the assets and liabilities of the acquiree are acquired and transferred to the books of the
acquirer, the acquiree ceases to operate. The acquirer and acquiree will and will always be ONE
COMPANY with ONE SET OF BOOKS at ANY GIVEN POINT IN TIME.
 However, for STOCK ACQUISITIONS, it’s a different story. Although the parent already controls the
subsidiary, the two continue to operate separately. They are considered to be distinct accounting
entities with separate sets of financial statements. At the end of the accounting period, the two books are
then consolidated for external reporting purposes. In other words, consolidation is done every
accounting period.
 How is consolidation done? By instinct, one might think that the process of consolidation is simply adding
the balances in the books of the parent and the subsidiary. Well, it’s a little bit more complicated than
that. Similar to accounting for home office and branches, there are certain amounts that we need
to eliminate/recognize to conform to financial reporting standards.
 The process (or the ‘how’ aspect) of consolidation becomes easier and more digestible when its ‘why’
aspect is understood. Why do we need to consolidate? The following KEY CONCEPTS are CRUCIAL for
you to understand the reason behind the computations for consolidation:
1. In the separate books, the income/loss of the parent and the subsidiary are closed to their
respective retained earnings account. In the consolidated books, the income/loss of the parent
and the subsidiary should be allocated to the parent (as the owner of the subsidiary) and the
NCI (as the minority shareholders of the subsidiary).
2. In the separate books, NCI, as an equity account, is not recognized. NCI only arises upon
consolidation.
3. Goodwill is not recorded in the separate books. Goodwill only arises when the consolidated books
are prepared. Consequently, any goodwill impairment loss will only be recognized upon
consolidation.
4. Since the “Investment in Subsidiary” account in the separate books of the parent is usually carried
using the cost method, dividends given by the subsidiary to the parent are recorded by the parent
as “Dividends Income” in its separate books. Upon consolidation, it would be improper for such
 dividends to be classified as income in the consolidated income statement since it
constitutes a mere intercompany transfer of cash.
5. The assets and liabilities of the subsidiary at the date of acquisition are still recorded at book value
in its separate books. These assets and liabilities are only adjusted to their fair values when
consolidation is made to comply with IFRS 3 requirements.
6. Depreciable assets of the subsidiary at the DATE OF ACQUISITION are being depreciated at their
book value in the separate books. In the consolidated books, these assets are revalued to fair value.
This means that there is either unrecognized depreciation (if FV > BV) or excess depreciation
(if BV > FV) to be recognized or eliminated in the consolidated books, as the case may be.
7. The inventory of the subsidiary at the DATE OF ACQUISITION will become cost of goods sold at
book value at the point of sale in the separate books (following a FIFO assumption). In the
consolidated books, the cost of goods sold should be the fair value of the inventory sold. This means
that there is either unrecognized COGS (if FV > BV) or excess COGS (if BV > FV) to be recognized
or to be eliminated in the consolidated books, as the case may be.

 So, why do we need to consolidate? It is for us to recognize certain accounts (such as goodwill and NCI)
that are absent in the separate books and eliminate amounts (such as intercompany income) that should
not be present in the consolidated financial statements. Ultimately, the goal is to present the parent and
all its subsidiaries as a SINGLE COMPANY based on financial reporting standards.

 In computing consolidated net income, the logic is to get the sum of the parent’s and the subsidiary’s net
incomes (losses) and eliminate or recognize any item of income or expense to comply with generally
accepted accounting principles “as if” the parent and the subsidiary are one company ever since control
is obtained by the parent. To facilitate this process, the following table is useful:

Parent’s share in the NCI in the net

Consolidated Net income of the Explanation
Income (CNI-P) subsidiary (NCINIS)

Net income (loss) of The NCI has no share

the parent in its XXX - in the parent’s net
separate books (NI-P) income (loss).
The NI-S is allocated
Net income (loss) of
to the parent and the
the subsidiary in its XXX XXX
NCI using their
separate books (NI-S)
ownership ratios.
To eliminate dividend
Dividends received by income recognized by
the parent from the (XXX) - the parent in its books
subsidiary (DIV-S) that came from its
own subsidiary.
To allocate any excess
or insufficient
Amortization of fair depreciation or
value-book value amortization of
XXX/(XXX) XXX/(XXX)
differences depreciable assets to
(FV-BV AMORT) the parent and the
NCI using their
ownership ratios.
To allocate any
impairment loss to the
Goodwill impairment
(XXX) (XXX) parent and the NCI
loss (IMP LOSS)
using their
GOODWILL ratios.*

TOTAL XXXX XXXX CNI-P + NCINIS = CNI

*The GOODWILL RATIO pertains to the ratio of goodwill attributed to parent equity and goodwill
attributed to NCI using the three-column goodwill table at the date of acquisition.
 1. PARTIAL GOODWILL – there is partial goodwill when only the parent has a share in the goodwill
that is presented in the consolidated balance sheet. This arises when the NCI is valued at its
proportionate share in the fair value of the subsidiary’s net assets (FVNA). When there is partial
goodwill, any goodwill impairment loss is fully allocated to CNI-P.
2. TOTAL/FULL GOODWILL – there is total goodwill when both the parent and the NCI have shares
in the goodwill amount. This arises when then the NCI is valued at assumed fair value (i.e. grossed-
up amount) or explicit fair value, and the amount is greater than the NCI’s share in the FVNA of the
subsidiary. When there is total goodwill, any goodwill impairment loss is allocated to CNI-P
and NCINIS using the goodwill ratios.

Take note that the sum of the parent’s share in the CNI and the NCI’s share is equal to the TOTAL
CONSOLIDATED NET INCOME. Notice also that intercompany sales transactions are not yet incorporated in
the CNI table above. A more comprehensive CNI table is presented in Module 5.4: Business Combination
– Intercompany Sales Transactions.

Practice problems (Business Combination – Subsequent Date):

Problem 1: On January 1, 2015, Perry Corporation purchased 80% of Sub Company's common stock for
P3,240,000. P150,000 of the excess is attributable to goodwill and the balance to an undervalued
depreciable asset with a remaining useful life of ten years. Non-controlling interest is measured at its fair
value on date of the acquisition. On the date of acquisition, stockholders' equity of the two companies are as
follows:
Perry Corporation Sub Company
Common stock P5,250,000 P 1,200,000
Retained earnings 7,800,000 2,100,000

On December 31, 2015, Sub Company reported net income of P525,000 and paid dividends of P225,000.
Perry reported net income of P1,605,000 and paid dividends of P690,000. Goodwill had been impaired and
should be reported at P30,000 on December 31, 2015.

Questions:

a. What is the non-controlling interest in net income of Sub Company (NCINIS)? P69,000
b. What is the consolidated net income attributable to parent shareholders (CNI-P)? P1,701,000
c. What is the consolidated net income (CNI) to be presented in the consolidated income statement at
year-end? P1,770,000
d. What is the consolidated retained earnings (CRE) to be presented in the consolidated statement of
financial position at year-end? P8,811,000
e. What is the non-controlling interest in the net assets of the subsidiary (NCINAS) to be presented in
the consolidated statement of financial position at year-end? P834,000

Problem 2: Periwinkle Corporation acquired 80% of the outstanding common stock of Strawberry
Company on June 1, 2015 for P2,345,000. At the date of acquisition, the fair value of the non-controlling
interest was P470,000.
 Strawberry Company's stockholder's equity components at December 31, 2015 are as follows:
Common stock 100 par, P1,000,000, APIC P450,000, Retained Earnings P890,000.
 All the assets of Strawberry were fairly valued except for inventories, which are overstated by
P44,000, and equipment, which was understated by P60,000. The equipment has a remaining
useful life of 4 years. The straight-line method for depreciation is used.
 Stockholder's equity of Periwinkle on June 1, 2015 is composed of Common stock P3,000,000, APIC
P700,000, Retained Earnings P2,100,000.
 Goodwill, if any, should be written down by 56,900 at year-end.
 Net income for the first year of parent and subsidiary are P300,000 and P170,000, respectively.
 The parent and the subsidiary declared and paid dividends amounting to P80,000 and P60,000,
respectively.
 During the year, there was no issuance of new ordinary shares for both companies.

What is the balance of the non-controlling interest in net assets of subsidiary on December 31, 2015?
A. P580,670 B. P508,970 C. P496,970 D. P487,670
What is the consolidated shareholder’s equity on December 31, 2015?
A. P6,081,380 B. P6,569,050 C. P6,569,050 D. P6,578,350

Problem 3: P Company purchased 75% of the capital stock of S Company on December 31, 2010 at
P126,000 more than the book value of its net assets. The excess was allocated to equipment in the amount
of P56,250 and to goodwill for the balance. The equipment has an estimated useful life of 10 years and
goodwill was not impaired. For four years, S Company reported cumulative earnings of P567,000 and paid
P163,800 in dividends. On January 1, 2015, non-controlling interest in net asset of S Company amounts to
P236,250. Assuming NCI is measured at estimated fair value, what is the price paid by P Company on the
date of acquisition?

A. P423,225 B. P420,525 C. P504,000 D. P532,350

Business Combination – Intercompany Sales Transactions

Focus notes:

 MAIN CONCERN: Eliminating the effects of intercompany transactions on consolidated net income.
 What are intercompany sales transactions? These are sales transactions between a parent and its
subsidiary. An intercompany sales transaction can either be:
1. Downstream – the parent sells an asset to the subsidiary
o (i.e. PARENT = SELLING AFFILIATE; SUBSIDIARY = BUYING AFFILIATE)
2. Upstream – the subsidiary sells an asset to the parent
o (i.e. SUBSIDIARY = SELLING AFFILIATE; PARENT = BUYING AFFILIATE)
 Why do I need to know if it is a downstream or upstream transaction? Identifying whether an
intercompany sales transaction is downstream or upstream is crucial in the allocation of the
intercompany income or loss to the CNI-P and the NCINIS.

Type of transaction Treatment

Any intercompany income/loss is allocated

DOWNSTREAM
entirely to the CNI-P.

Any intercompany income/loss is allocated

between the CNI-P and the NCINIS using
UPSTREAM
the ownership percentages of the parent and
the NCI.

 What is the effect of intercompany sales transactions on consolidation, specifically on consolidated net
income? The effect of an intercompany sales transaction will depend on the type of asset sold.

A. INTERCOMPANY SALE OF INVENTORY

Intercompany sales of inventory give rise to intercompany gross profit. In the separate books of the selling
affiliate, this gross profit may be valid for internal purposes. However, in the consolidated books (or for
external reporting), such gross profit is considered unrealized unless it is sold to an unrelated party. The
following consolidating items are incorporated in our CNI table:

1. Unrealized profit in ending inventory (UPEI) – gross profit that is considered unrealized in the
ending inventory of the buying affiliate since the inventory from intercompany sales is still unsold
to unrelated parties. There are multiple ways of computing UPEI, but the most common is:
Ending/Unsold inventory from intercompany sales x GP ratio of selling affiliate
Accounting treatment: UPEI is a DEDUCTION in the CNI table since it represents fictitious or
overstatement of gross profit that should be eliminated in consolidation.

2. Realized profit in beginning inventory (RPBI) – due to a FIFO cost flow assumption, the RPBI of
this year is simply equal to any UPEI last year.
Accounting treatment: RPBI is an ADDITION in the CNI table since it represents incremental gross
profit had the inventory been sold by its original owner to unrelated parties.
Illustration: Parent Corp. acquired 80% of Subsidiary Inc. at book value. No goodwill or bargain purchase
gain was recognized. During 2015, Parent Corp. sold goods costing P80,000 to Subsidiary Inc. for P100,000
(i.e. downstream sale), 40% of which remained unsold to unrelated parties at the end of the year. Also, on
the same year, an upstream sale of inventory for P120,000 occurred with a gross profit rate on sales of
25%, all of which was unsold at the end of 2015. At the end of 2015, the parent and the subsidiary reported
separate net incomes of P300,000 and P100,000, respectively. No dividends were declared by both
companies.
Question 1: What is the UPEI for 2015?
Solution: For the downstream sale, the UPEI is P8,000, computed using any of the two alternatives:
Alternative 1: Gross profit from intercompany sale x % unsold
P100,000 – P80,000 = P20,000 x 40% = P8,000
Alternative 2: Sales price x unsold inventory x GP ratio on sales
P100,000 x 40% x 20% = P8,000
Since it is a downstream sale, the P8,000 is allocated entirely to CNI-P in the CNI table as a deduction.
For the upstream sale, the UPEI is P30,000. Computed as follows: P120,000 x 25% x 100% unsold. Since it
is an upstream sale, the P30,000 is allocated to CNI-P and NCINIS using the ownership percentages. Total
UPEI for the year is P38,000.

Question 2: What is the RPBI for 2016?

Solution: The RPBI for next year is simply equal to the UPEI of last year. The rule of allocation for upstream
and downstream transactions still applies. Consequently, RPBI for 2015 is zero since the problem does not
mention of any intercompany sale of inventory during 2014.

Question 3: What is the CNI-P, NCINIS and CNI for 2015?

Solution:
CNI-P (80%) NCINIS (20%)
NI-P P300,000 -
NI-S 80,000 20,000
UPEI (Downstream) (8,000) -
UPEI (Upstream) (24,000) (6,000)
RPBI - -
TOTAL P348,000 P14,000

Consolidated Net Income (CNI) = P348,000 + P14,000 = P362,000

B. INTERCOMPANY SALE OF DEPRECIABLE ASSETS

When a depreciable asset is sold by the parent to the subsidiary (and vice versa), the book value of the
asset is derecognized in the books of the seller, while the buyer records the asset purchased at its selling
price. This results to two things: (1) an unrealized gain (loss) on sale in the consolidated books, since the
sale is not to an unrelated party, and (2) a change in the periodic depreciation recognized on such asset
since the buying affiliate records the asset at its new purchase price. The following consolidating items are
incorporated in our CNI table:

1. Unrealized gain/loss on sale (UG/UL) – equal to the gain or loss on sale arising from the
intercompany sale (i.e. Selling price less book value). In our CNI table, the UG/UL is only
recognized at the year of the intercompany sale (i.e. the first year). Any UG/UL recognized on the
year of the intercompany sale is no longer recognized in subsequent periods since it no longer
affects net income in those periods.

Accounting treatment: Unrealized gains (UG) are a DEDUCTION in the CNI table since they
represent fictitious gains that should be eliminated in consolidation. On the contrary, unrealized
losses (UL) are an ADDITION in the CNI table since they represent fictitious losses.

2. Realized gain/loss (RG/RL) – equal to the change in the periodic depreciation due to the
intercompany sale. There are multiple ways of computing RG/RL, but the most common is:

Unrealized gain (loss) / Remaining life of the depreciable asset from the point of sale

The periodic realization of the unrealized gain or loss is (surprisingly or not) equal to the change in
the periodic depreciation of the depreciable asset (try figuring this out through journalizing the
 transactions). HOWEVER, if the asset is sold to unrelated parties before it is fully depreciated,
any remaining unrealized gain or loss that arose from its intercompany sale is immediately
recognized.
Accounting treatment: Realized gains (RG) is an ADDITION in the CNI table since it represents
excess depreciation expense that should be eliminated. On the other hand, realized losses (RL) is a
DEDUCTION in the CNI table since it represents insufficient depreciation that should be recognized
in the consolidated books.

Illustration: P Co. owns 70% of S Inc. The acquisition was at book value. No goodwill or bargain purchase
gain was recorded. On January 1, 2015, P Co. sold machinery to S Inc. for a gain of P100,000. The
machinery has a remaining useful life of 5 years on that date. Also, on July 1, 2016, S Inc. sold a delivery
truck to P Co. for P200,000. The truck had a book value of P250,000 and has a remaining life of 10 years
from the date of sale. No other intercompany transactions occurred for 2015 and 2016. Net income of P Co.
and S Inc. for 2015 is P500,000 and P200,000, respectively; for 2016, P400,000 and P150,000, respectively.
No dividends were declared by both companies for 2015 and 2016.

Question 1: What is the CNI-P, NCINIS and CNI for 2015 and 2016?
FOR 2015:
CNI-P (70%) NCINIS (30%) Explanation/Computation
NI-P P500,000 - Net income of parent
NI-S 140,000 P60,000 P200,000 is allocated using 70:30 ratio.
UG (100,000) - The unrealized gain of P100,000 is only
deducted in the CNI-P column since it is
downstream.
RG 20,000 - 100,000 / 5 years, this pertains to
EXCESS DEPRECIATION arising from
the intercompany downstream sale
that should be eliminated in the
consolidated books every period until
the asset is fully-depreciated or until
the asset is sold to unrelated parties.
UL - - N/A
RL - - N/A
TOTAL P560,000 60,000 CNI (2015) = P620,000
FOR 2016:
CNI-P (70%) NCINIS (30%) Explanation/Computation
NI-P P400,000 - Net income of parent
NI-S 105,000 P45,000 P150,000 is allocated using 70:30 ratio.
UG - - The UG last year will no longer be
eliminated in the consolidated books
this year since it no longer affects the
net income of both companies this year.
RG 20,000 - 100,000 / 5 years, same explanation
as above
UL 35,000 15,000 The unrealized loss of P50,000 is
allocated to CNI-P and NCINIS since it is
upstream.
RL (1,750) (750) 50,000 / 10 years x 6/12 = P2,500,
this pertains to INSUFFICIENT
DEPRECIATION arising from the
intercompany upstream sale that
should be recognized in the
consolidated books.
TOTAL P558,250 P59,250 CNI (2016) = P617,500

Question 2: If the machinery was sold on January 1, 2017 to unrelated parties, what is the amount of
realized gain for 2017 attributed to the sale of this asset to be included in the CNI table?

Unrealized gain during intercompany sale P100,000

Cumulative realized gains (P20,000 + P20,000) (40,000)
Realized gain – 2017 P60,000
INTERCOMPANY SALE OF NON-DEPRECIABLE ASSET
The effect is similar to an intercompany sale of depreciable asset, except that depreciation is not affected.
The effect is an unrealized gain or loss on sale, as the case may be. The amount will always be unrealized
since no periodic realization occurs, unless the non-depreciable asset is sold to unrelated parties.

COMPREHENSIVE CNI TABLE:

Consolidating items CNI-P NCINIS Things to remember:

NI – P XXX - Fully to CNI-P
NI – S XXX XXX Allocated using ownership percentages
Dividends paid by S x % ownership of
Div Income from S (XXX) - parent; Note: If NI-P is from own or separate
operations, no need to deduct this amount.
XXX/
FV-BV Amortization XXX/(XXX) Allocated using ownership percentages
(XXX)
Allocated using GOODWILL ratios if total
GW Imp. Loss (XXX) (XXX) goodwill. If partial goodwill, allocated only
to CNI-P
UPEI (XXX)
(End inv. x GP%)
RPBI XXX If DOWNSTREAM, entire amount is
(Beg. inv. x GP%) to CNI-P only.
UG (XXX) If UPSTREAM, amount is allocated to
(SP > BV) CNI-P and NCINIS using
RG XXX ownership percentages.
(UG/Rem. Life) x *UG and UL are only recognized once
fraction of time on the year of the intercompany sale
UL XXX of the asset.
(SP < BV)
RL
(UL/Rem. Life) x (XXX)
fraction of time
 TOTAL XXXX XXXX CNI-P + NCINIS = CNI

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TOO… MUCH… INFORMATION... SIR, HOW DO YOU EXPECT ME TO REMEMBER ALL OF THESE?!
---------------------------------------------------------------------------------------------------------------------------------

Well, the only way that you can only absorb all these is if you understand the concept behind. Luckily, the
inclusion of the UPEI, RPBI, UG, UL, RG, and RL in the CNI table follows a single underlying concept:
Obtaining consolidated net income (CNI) assuming that NO INTERCOMPANY TRANSACTIONS
occurred.

As what I’ve mentioned at the beginning of this module, accounting for business combinations are
fundamentally procedural. However, due to the bulk of the procedures, it is almost impossible to retain
everything in one sitting. That’s when conceptual learning comes in. Again, the “how” will only make sense
if you understand the “why”. Just remember:

The PARENT and the SUBSIDIARY are ONE and THE

SAME COMPANY, and that the HEART of
CONSOLIDATION is the PREVENTION of
FRAUDULENT FINANCIAL REPORTING.

Practice problems:

Problem 1: GV Company purchased 70% ownership of DL Company on January 1, 2013 at underlying

book value. While each company has its own sales forces and independent product lines, there are
substantial intercompany sales of inventory each period. The following intercompany sales occurred
during 2014 and 2015:

Selling Cost of Buying Sales Unsold at Year Sold to

Year affiliate goods sold affiliate Price year-end Outsiders
2014 GV Co. P448,000 DL Co. P640,000 P140,000 2015
2015 DL Co. P312,000 GV Co. P480,000 P77,000 2016
2015 GV Co. P350,000 DL Co. P437,500 P63,000 2016

The following data summarized the results of their financial operations for the year ended, December 31,
2015:
GV Company DL Company
Sales P3,850,000 P1,680,000
Gross Profit 1,904,000 504,000
Operating Expenses 770,000 280,000
Ending Inventories 336,000 280,000
Dividend Received from affiliate 126,000 -
Dividend Received from non-affiliate - 70,000

For the year ended 2015, compute:

1. Consolidated sales and Consolidated cost of goods sold

A. P4,612,500; P2,457,550 C. P4,612,500; P2,202,050
B. P4,612,500; P2,206,950 D. P5,530,000; P2,202,050

2. Consolidated net income attributable to parent’s shareholders equity and non-controlling interest
in net income
A. P1,301,335; P59,115 C. P1,476,335; P80,115
B. P1,476,335; P59,115 D. P1,350,335; P80,115
Problem 2: A Co. acquired 60% of the outstanding ordinary shares of B Co. on January 1, 2014. A Co.
acquired it at book value which is the same as its fair value at the date of acquisition. Income statements of
A Co. and B Co. for 2015 were as follows:
A B
Net Sales P875,000 P350,000
Cost of Sales 525,000 210,000
Gross Profit P350,000 P140,000
Operating expenses 105,000 52,500
Operating income P245,000 P87,500
Dividend income 56,000 ____-____
Net income P301,000 P87,500
 There was an upstream sales of P112,000 in 2014 and P168,000 in 2015.
 The buying affiliate reported inventory on December 31, 2014 amounting to P70,000 of which 20%
comes from the selling affiliate and inventory on December 31, 2015 amounting to P84,000 of
which 30% comes from the selling affiliate.
 A Co. uses 30% mark up on cost and B Co. uses 25% mark up on cost for their selling prices.
 A Co. and B Co. declared and paid dividends in 2015 amounting to P84,000 and P70,000
respectively.
 On January 1, 2015, B Co. has ordinary shares of P320,000; share premium of P120,000 and
retained earnings of P160,000.

How much is the non-controlling interest in the net assets of the subsidiary (NCINAS) at the end of 2015?
A. P296,156 B. P244,984 C. P246,104 D. P245,024

Problem 3: On January 1, 2015, RDJ Company purchased 80% of the stocks of MCD Corporation at book
value. The stockholders’ equity of MCD Corporation on this date showed: Common stock - PI,140,000 and
Retained earnings - P980,000.
 On April 30, 2015, RDJ Company acquired a used machinery for P168,000 from MCD Corp. that was
being carried in the latter's books at P210,000. The asset still has a remaining useful life of 5 years.
 On the other hand, on August 31, 2015, MCD Corp. purchased an equipment that was already 20%
depreciated from RDJ Co. for P690,000. The original cost of this equipment was P750,000 and had a
remaining life of 8 years.
 Net income of RDJ Co. and MCD Corp. for 2015 amounted to P720,000 and P310,000. Dividends
paid totaled to P230,000 and P105,000 for RDJ Co. and MCD Corp, respectively.

Net income attributable to parent's shareholders equity and non-controlling interest net income:
A. P826,870; P69,280 C. P834,150; P62,000
B. P826,870; P62,000 D. P834,150; P59,280

Non-controlling interest in net assets and carrying value of the Property and equipment:
A. P472,280; P810,000 C. P465,000; P757,000
B. P465,000; P810,000 D. P472,280; P757,000

Problem 4: On January 1, 2015, P Corporation purchased 80% of S Company's outstanding stock for
P3,100,000. At that date, all of S Company's assets and liabilities had market values approximately equal to
their book values and no goodwill was included in the purchase price.

 The following information was available for 2015: Income from own operations of P Corporation,
P750,000 ; Operating loss of S Company, P100,000
 Dividends paid in 2015 by P Corporation, P375,000; by S Company to P Corporation, P60,000.
 On July 1, 2015, there was a downstream sale of equipment at a gain of P125,000. The equipment is
expected to have a remaining useful life of 10 years from the date of sale.
 Also, on January 2, 2015, there was an upstream sale of furniture at a loss of P37,500. The furniture
is expected to have a useful life of five years from the date of sale.
 Non-controlling interest is measured at fair market value.

How much is the consolidated net income attributable to parent shareholders' equity?

A. P486,250 B. P575,250 C. P561,250 D. P515,250

Comprehensive problem:
On January 1, 2014, Parent Corporation acquired 70% of the common stock of Subsidiary Corporation by
issuing 150,000 shares (P2 par value, P10 market value) and paying cash of P2,000,000. The shareholders’
equity balances of the two companies at the acquisition date are given below:

Parent Corporation Subsidiary Corporation

Common stock P2,000,000 P1,500,000
Additional paid-in capital 4,000,000 2,750,000
Retained earnings 890,000 180,000
Upon appraisal, the following has been determined:
a. Non-controlling interest is valued at P1,400,000.
b. The subsidiary’s land is overvalued by P200,000
c. One of the subsidiary’s machinery has a book value and fair value of P300,000 and P400,000,
respectively. The machinery has a remaining useful life of 4 years.
d. The inventory of the subsidiary is undervalued by P30,000.
For the year 2014 and 2015, the parent and the subsidiary reported the following figures in their separate
books:
Parent Corporation Subsidiary Corporation
YEAR 2014
Sales P1,500,000 P650,000
Cost of goods sold (1,125,000) (520,000)
Operating expenses (169,000) (32,400)
Other income (other losses) _91,500_ ___-____
Net income (Net loss) 297,500 97,600

Dividends declared and paid 40,000 45,000

YEAR 2015
Sales P1,275,000 P480,000
Cost of goods sold (892,500) (360,000)
Operating expenses (60,500) (189,700)
Other income (other losses) _39,000_ _(20,000)_
Net income (Net loss) 361,000 (89,700)

Dividends declared and paid 45,000 20,000

During 2014, the subsidiary sold inventory to the parent for P150,000. The parent was able to sell 70% of
the inventory to outsiders before the end of 2014. There was also a downstream sale of inventory costing
P45,000, half of which remained in the ending inventory of the buying affiliate. The gross profit rates (on
sales) of the parent and subsidiary averaged 25% and 20%, respectively. On October 1, 2014, a delivery
truck with a remaining life of 5 years on that date was sold by the parent to the subsidiary for P100,000,
resulting to a gain of P60,000. Goodwill, if any, is impaired by P50,000.

On February 23, 2015, there was a downstream sale of land costing P300,000. The sale resulted to a gain of
P25,000. On March 31, 2015, the subsidiary sold to its parent machinery with a book value of P80,000 for
P20,000 loss. The machinery has a remaining life of 4 years on that date. Towards the end of the year, an
upstream sale of inventory occurred for P100,000. The sale resulted to a P30,000 increase in gross profit in
the books of the selling affiliate. Only 10% of the inventory was sold to outsiders. An assessment of
intangibles indicated that goodwill is impaired to P450,000 at the end of 2015.

Required: Prepare the consolidated income statement of Parent Corporation and Subsidiary
Corporation.

Appendix (Other Formulas):

Assets of the acquirer (parent) at BOOK VALUE XXX

Assets of the acquiree (subsidiary) at FAIR VALUE XXX
Cash consideration/Purchase price (XXX)
Non-monetary assets given as consideration at FAIR VALUE (XXX)
Payment for acquisition-related costs (XXX)
Goodwill arising from acquisition XXX_
Total consolidated assets – DATE OF ACQUISITION XXXX
Liabilities of the acquirer (parent) at BOOK VALUE XXX
Liabilities of the acquiree (subsidiary) at FAIR VALUE XXX
Acquisition-related costs INCURRED BUT NOT YET PAID XXX
Liabilities assumed as consideration at FAIR VALUE/PRESENT VALUE XXX
Contingent consideration payable (CCP) XXX_
Total consolidated liabilities - DATE OF ACQUISITION XXXX

Cost of goods sold – Parent XXX

Cost of goods sold – Subsidiary XXX
Intercompany sales (XXX)
FV-BV amortization of inventory XXX/(XXX)
UPEI (current year) XXX
RPBI (current year, which is the UPEI last year) (XXX)
Consolidated COGS for the year XXXX

Sales – Parent XXX

Sales – Subsidiary XXX
Intercompany sales (XXX)
Consolidated Sales for the year XXXX

Operating expenses – Parent XXX

Operating expenses – Subsidiary XXX
FV-BV amortization of depreciable assets XXX/(XXX)
Realized gain on intercompany sale of plant assets (XXX)
Realized losses on intercompany sale of plant assets XXX
Consolidated Operating Expenses for the year XXXX

Retained earnings, parent (at date of acquisition) XXX

Cumulative consolidated net income (loss) – parent (CNI-P) XXX
Cumulative dividends declared by the parent (XXX)
Consolidated retained earnings (CRE), end XXXX
Or
Consolidated retained earnings, beginning XXX
Consolidated net income (loss) – parent (CNI-P) XXX
Dividends declared by the parent (XXX)
Consolidated retained earnings (CRE), end XXXX

NCI (at date of acquisition) XXX

Cumulative NCI in the net income (loss) of the subsidiary (NCINIS) XXX
Cumulative dividends paid to NCI (XXX)
NCI in the net assets of the subsidiary (NCINAS), end XXXX
Or
NCINAS, beginning XXX
NCINIS XXX
Dividends paid to NCI (XXX)
NCI in the net assets of the subsidiary (NCINAS), end XXXX

Shareholders’ equity – PARENT XXX

Bargain purchase gain (date of acquisition) XXX
Consolidated retained earnings (CRE) XXX
Non-controlling interest in the net assets of the subsidiary (NCINAS) XXX
Consolidated shareholders’ equity, end XXXX