YOU MUST REVIEW DOCS 1, 2 & 3 FIRST.

THIS EXCEL CONCENTRATES ON THE CONSOLIDATED F/S

Create the Consolidated Income Statement

Assume: it is year 4 (4th year after the date of acquisition)
P S
Sales 10,000 9,000

Other revenue 5,000 4,000

Other gains 700 1,000

COGS 2,000 1,000

Operating expenses
Rent expense 170 -
Interest expense 500 500

Other admin expense 200 200

Depreciation expense (tangible assets) 500 500

Impairment (goodwill) - -

Tax expense 2,000 1,000

 Intercompany sales
a Any intercompany sales between parent and sub (up and/or down) needs to be removed for the FULL cur
e.g. assume sales b/n parent and sub were $100
We remove $100 from sales AND $100 from COGS (as one entity is making the sale and the other is pur

Intercompany dividends
Here the entity would record any revenue which is NOT the sales revenue (e.g. sales revenue is only reve
b
e.g. intercompany dividends were $30. This would be dividends from the sub to the parent.
The parent company uses the COST method (in its OWN FS) to account for any investments it controls. H
Any dividends declared by the parent to its own shareholders is NOT intercompany

Other intercompany transactions (revenues and expenses)

c, d, e Any intercompany transactions between parent and sub needs to be removed for the FULL current year am
e.g. the following types of transactions could occur b/n the two entities:
e.g. rent ($70), management fee ($75), interest ($80), other
We remove the full amount from other revenue and from the related expense account (as one entity is ear

Other gains (or losses) (PROFIT from sale of property - depreciable or non-depreciable). Specific c
f Any intercompany sale of property, whether depreciable or non-depreciable, will have a gain or loss in th
e.g. Cost - Accumulated Depreciation = NBV. So FV - NBV = gain or loss. The YEAR of the sale is the o
e.g. Assume the parent sold property in the current year to the sub. The property was land and therefore n

There is no depreciation of the land, so to recognize (REALIZE) the gain on the sale of the land we need

g Assume that another parcel of land was sold to the sub for a gain of $90 (taxes of $36) BUT, this sale hap
However, the sub sold the land to a 3rd party in the current year. This gain would be REALIZED in the c

Since the profit is now REALIZED, there is nothing to r

h Assuming the same case facts as in "f", except rather than land (non-depreciable), we replace the item sol
e.g. Assume the sub sold property in the (beginning) current year to the parent. The property was a machi

There is depreciation for the machine, so to recognize (REALIZE) the gain on the machine we do NOT n
Each year $1,000 / 5 = $200 of the gain will be realized via depreciation. The parent would be depreciatin
So by recognizing the gain each year, we offset this extra depreciation and the consolidated amount repre

i Assume that another machine was sold to the parent for a gain of $2,000 BUT, this sale happened 3 years
The parent has not yet sold the machine to a 3rd party in the current year. However, they were depreciatin
Therefore, each year the REALIZED gain would be $2,000 / 5 = $400.
 Intercompany PROFIT (in inventory)
j By creating Table 3 (with the intercompany profits) we know what the total profits and taxes would be. A
40%
Profit Taxes
Jan 1, current year 200 80

Dec 31, current year 250 100

Amortization of the AD from Table 2

k By creating Table 2 (with the acquisition differentials, e.g. the "extra" or "discount" we paid/received for
Assume the case facts below:
Jan 1 - 3 years ago
Balance - date of Prior years (year
Item acquisition 1-3) Current year 4

i Inventory 600 -600 0

ii PPE -700 300 100
iii Patent 900 -270 -90
iv Bond -300 112.5 37.5
500 -457.5 47.5
Parent %
NCI %

v Goodwill 1000 0 -500

*

i Assume the Inventory FV was > than CV on the date of acquisition.

ii Assume the PPE FV was < than CV on the date of acquisition.
iii Assume the patent FV was > than CV on the date of acquisition.
iv Assume the FV of the bond was > than CV on the date of acquisition.
v Assume impairment in the current year of 500

* The goodwill is unique as the impairment loss allocation to parent and NCI will depend on the method.
FVE implied Take % for the parent and % for the NCI. The % is determined based on the ow
FVE modified Take % for parent and % for the NCI (which is typically 0); however, the % is
INA method Take % for the parent ONLY.

Balance Sheet As at December 31, current year (year 4)

P S Adjustments

Cash 10,000 5,000 -

AR 2,000 1,000 (100)
Inventory 150,000 50,000 -
(250)

PPE 110,000 220,000 (300)

(700)
 (800)
(400)

Patent 2,000 1,000 540

Goodwill - - 500
Investment in Sub xxx - xxx

DTA 2,000 1,000 100

280
320
160

Current Liabilities 250,000 220,000 (100)

Bond - 9,900 150

Common Shares 1,000 1,100

Retained Earnings
NCI

L Intercompany AR and/or AP
Any receivables or payables that are due to and from the parent and/or sub are removed from the balance
There MUST be BOTH a reduction of the receivable AND the payable as one entity will receive and the
e.g. assume there is 100 of a receivable owing from the sub. This AUTOMATICALLY means there is a p

Consolidated Retained Earnings

You may be asked for Jan 1 or December 31 Consolidated Retained Earnings. Take care in noting t

Step 1 Parent's Retained Earnings (from the G/L) on the date required
Adjustments any + or -
The adjustments are for the UNREALIZED adjustments.
e.g. there is profit which is recorded (flows through RE from previous year or current year net income) B
e.g. there is loss rather than profit which is recorded (flows through RE from previous year or current yea
Any transactions which impacted both a revenue AND expense of each entity are NOT included here. e.g
Relevant adjustments: e.g. UNREALIZED after tax profit on land or depreciable property, UNREALIZED

Step 2: Sub's change in RE RETAINED EARNINGS on date required

RETAINED EARNINGS on date of acquis
d = change in RE [often this is positive as the
e Before we apply the parent's ownership %,
See above discussion in blue - same logic a

d+e -e=f Apply the % owned by the parent to the su

Step 3 YTD amortization of the acquisition table (Table 2 - the prior year and the curr
See discussion earlier about the differences for the 3 methods
NCI balance
Often you will be asked for the NCI as at December, current year

Step 1 Take the net assets of the sub as at Dec 31, current year

a Common shares
b Retained earnings
c Total net assets

+/ - d Before we apply the NCI's ownership %, w

See above discussion in blue - same logic a

c+d-d=e Total adjusted net assets which we would a

Step 2 f Add the unamortized acquisition differenti

See previous notes for the differences in th
TES ON THE CONSOLIDATED F/S

Adjustments Consolidated
-100 a sales 18,900

-110 b dividend 8,665

-70 c rent
-75 d fee
-80 e interest

-700 f gain land 1 90

90 g gain land 2
-1000 h gain machine 1
27,655 Total revenues

-100 a sales 2,950

-200 j realized
250 j unrealized

-70 c rent 100

-80 d interest 883
-37.5 k (iv) dep'n bond

-75 e fee 325

-200 h gain machine 1 390
-400 i gain machine 2
-100 k (ii) dep'n PPE
90 k (iii) dep'n patent

500 k (v) 500 Step 1

-280 f gain land 1 2,576

36 g gain land 2
-400 h gain machine 1
80 h gain machine1
160 i gain machine 2
80 j realized
-100 j unrealized
7,724 Total expenses

19,932 Consolidated Net income

x Attributable to parent
y Attributable to NCI Step 2
eeds to be removed for the FULL current year sales amount

s making the sale and the other is purchasing)

venue (e.g. sales revenue is only revenue generated from selling that which the entity is in the business of doing).

m the sub to the parent.

ount for any investments it controls. However, the parent also prepares CONSOLIDATED F/S.
T intercompany

Step 3
removed for the FULL current year amount

expense account (as one entity is earning revenue and the other incurs an expense

able or non-depreciable). Specific calculations should be done via Table 3.

reciable, will have a gain or loss in the G/L of the company that SOLD the item.
or loss. The YEAR of the sale is the only time we see the gain or loss in the G/L.
The property was land and therefore non-depreciable. Gain was $700 (taxes $280). This would be UNREALIZED.
Year 4 - year of sale
gain on the sale of the land we need to wait until the sub sells to a 3rd party. Dec 31 Year 4

$90 (taxes of $36) BUT, this sale happened 3 years ago. This means it is not recorded in the current year G/L.
is gain would be REALIZED in the current year. Year 1 - year of sale
Year 2 & 3 still the same amount
Year 4 the amounts are REALIZED
now REALIZED, there is nothing to remove from the b/sheet as the land is NO LONGER on the books. Dec 31 Year 4

-depreciable), we replace the item sold with a machine that has a remaining 5 years useful life. The sale was also upstream (sub to parent)
the parent. The property was a machine and therefore depreciable. Gain was $1,000 ($400 taxes). This would be UNREALIZED.

he gain on the machine we do NOT need to wait until the parent sells to a 3rd party. We realize via depreciation usage.
ation. The parent would be depreciating the machine at a higher depreciation amount (b/c the FV was greater than the CV).
on and the consolidated amount represents the "original" depreciation prior to the intercompany sale.
Year 4 - year of sale
Year 4 REALIZED
Dec 31 year 4

,000 BUT, this sale happened 3 years ago. This means it is not recorded in the current year G/L.
year. However, they were depreciating the asset over a 5 year period. Year 1 - year of sale
Year 1 realized
Year 2 realized
Year 3 realized
Year 4 realized
 Dec 31 Year 4

he total profits and taxes would be. Assume the case facts below:

After tax profit

120 REALIZED

150 UNREALIZED

a" or "discount" we paid/received for the assets, liabilities, and goodwill on the date of acquisition) we have "balances" which need to be am

Dec 31 Current
Year Amortization as of the date of acquisition

0 No asset remains Sold in year 1 (during the year)

-300 Decrease asset by remaining amount 7 years 100 per year
540 Increase asset by remaining amount 10 years 90 per year
-150 Increase the liability by remaining amount 8 years 37.5 per year
90

500 Increase asset by remaining amount

nd NCI will depend on the method.

The % is determined based on the ownership.
ich is typically 0); however, the % is not determined by ownership BUT on the goodwill allocation calculated in step 5 of the purchase price

Consolidated

15,000
L 2,900 Any intercompany receivable AND the corresponding intercompany payable
k (i) 199,750 If there was any inventory left from Table 2, it would be incorporated here.
j ONLY the UNREALIZED profit from intercompany sales are adjusted. The opening invento

k (ii) 327,800 This is the value (either add or subtract AS APPROPRIATE) which is left in Table 2 for th
f Only the UNREALIZED portion of the profit remaining (from Table 3) is removed
 h Only the UNREALIZED portion of the profit remaining (from Table 3) is removed
i Only the UNREALIZED portion of the profit remaining (from Table 3) is removed

k (iii) 3,540 This is the value (either add or subtract AS APPROPRIATE) which is left in Table 2 for th

k( v) 500 This is the value (either add or subtract AS APPROPRIATE) which is left in Table 2 for th
0 This is ALWAYS $0 on the consolidated b/sheet

j 3,860 This is the expense we are deferring on the intercompany profit in inventory which is UNRE
f Only the UNREALIZED portion of the profit remaining (from Table 3) is removed
h Only the UNREALIZED portion of the profit remaining (from Table 3) is removed
i Only the UNREALIZED portion of the profit remaining (from Table 3) is removed

L 469,900 Any intercompany receivable AND the corresponding intercompany payable

k (v) 10,050 This is the value (either add or subtract AS APPROPRIATE) which is left in Table 2 for th

1,000 ONLY pick up the amount from the parent

This is CALCULATED See notes below
This is CALCULATED See notes below

or sub are removed from the balance sheet.

ble as one entity will receive and the other will pay.
UTOMATICALLY means there is a payable from the sub that needs to also be removed.

ned Earnings. Take care in noting the "date"

on the date required a XXX 100%

us year or current year net income) BUT a portion is UNREALIZED b Deduct unrealized PRO
RE from previous year or current year net income) BUT a portion is UNREALIZED c Add unrealized LOSS (
ach entity are NOT included here. e.g. NOT relevant (interco: rent, fees, interest)
r depreciable property, UNREALIZED after-tax profits on inventory.

AINED EARNINGS on date required

AINED EARNINGS on date of acquisition
nge in RE [often this is positive as the sub's RE have grown over time due to income]
e we apply the parent's ownership %, we need to make any adjustments any + or -
bove discussion in blue - same logic applies except this would be for UNREALIZED profit or loss in SUB

y the % owned by the parent to the subtotal "f" f (Change in sub's RE + /

(Table 2 - the prior year and the current year amortization). g Deduct this if the numb
s for the 3 methods Parent's portion %
Total Total Consolidated RE
, current year

ned earnings

e we apply the NCI's ownership %, we need to make any adjustments any + or -

bove discussion in blue - same logic applies except this would be for UNREALIZED profit or loss in SUB

adjusted net assets which we would apply the NCI % to.

he unamortized acquisition differential left (on Dec 31 current year) x the % ownership for the NCI
revious notes for the differences in the 3 methods. [e.g. the impact of goodwill given the FVE modified, implied and INA]
Attributable to parent = x Attributable to NCI = y

Parent's NI x parent % 100% Parent's NI x NCI % 0%

Adjustments + or -
This would include ANY realized or unrealized
adjustments relevant for the parent. See the
"adjustments" column for relevant examples. We
need to focus on any "downstream" elements. Any
transactions which impacted both a revenue AND
expense of each entity are NOT included here.
e.g. NOT relevant (interco: rent, fees, interest)
Relevant adjustments: e.g. dividend from sub, after
tax profit on land or depreciable property
(REALIZED and UNREALIZED), after-tax profits
on inventory (REALIZED and UNREALIZED).

Sub's NI x parent % Sub's NI x NCI %

Adjustments + or - Adjustments + or -
 This would include ANY realized or unrealized See note to left for types of adjustments.
adjustments relevant for the parent. See the
"adjustments" column for relevant examples. We
need to focus on any "upstream" elements. Any
transactions which impacted both a revenue AND
expense of each entity are NOT included here.
e.g. NOT relevant (interco: rent, fees, interest)
Relevant adjustments: e.g. after tax profit on land or See note to left for types of adjustments.
depreciable property (REALIZED and
UNREALIZED), after-tax profits on inventory
(REALIZED and UNREALIZED).

Current year amortization of the acquisition differential AD Current year amortization of the acquisition differential AD
Take only the parent's portion Take only the NCI's portion

Profit Tax After-tax

Year 4 - year of sale 700 280 420
Dec 31 Year 4 700 280 420

Year 1 - year of sale 90 36 54

3 still the same amount 90 36 54
mounts are REALIZED 90 36 54
Dec 31 Year 4 0 0 0

pstream (sub to parent)

UNREALIZED.

Profit Tax After-tax

Year 4 - year of sale 1000 400 600
Year 4 REALIZED 200 80 120
Dec 31 year 4 800 320 480

Profit Tax After-tax

2000 800 1200
400 160 240
400 160 240
400 160 240
400 160 240
 400 160 240

ces" which need to be amortized based on usage.

he date of acquisition

ep 5 of the purchase price allocation.

sted. The opening inventory would have been sold and therefore removed from the b/sheet.

ch is left in Table 2 for the PPE [unamortized AD remaining]

ble 3) is removed [intercompany sale of the land and the machine - the "profit" amount (before tax) which has not been recognized]
ble 3) is removed [intercompany sale of the land and the machine - the "profit" amount (before tax) which has not been recognized]
ble 3) is removed [intercompany sale of the land and the machine - the "profit" amount (before tax) which has not been recognized]

ch is left in Table 2 for the patent

ch is left in Table 2 for the Goodwill

nventory which is UNREALIZED

ble 3) is removed [intercompany sale of the land and the machine - the tax amount of the profit which has not been recognized]
ble 3) is removed [intercompany sale of the land and the machine - the tax amount of the profit which has not been recognized]
ble 3) is removed [intercompany sale of the land and the machine - the tax amount of the profit which has not been recognized]

ch is left in Table 2 for the bond

XXX 100%

Deduct unrealized PROFIT (after-tax) 100% [deduct b/c there IS a gain and we need to remove it]
Add unrealized LOSS (after-tax) 100% [deduct b/c there IS a loss and we need to remove it]

(Change in sub's RE + / - adjustments ) x parent %

Deduct this if the number is a net YTD expense. Add if a net YTD gain.
Parent's portion %
Total Consolidated RE
acquisition differential AD
not been recognized]
not been recognized]
not been recognized]

been recognized]
been recognized]
been recognized]