2. LIST OF APPLICABLE IFRS
Topic List Standards
Business Combination IFRS 3
Consolidation of Financial Statement IFRS 10
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3. INTRODUCTION
● IFRS 10
establishes principles for the presentation and preparation
of consolidated F/Ss when an entity controls one
or more other entities.
Requires an entity that is a parent to present
consolidated F/Ss
define the principle of control as a basis for determining
which entities are consolidated in the consolidated F/Ss
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4. IFRS 10 CONSOLIDATED FINANCIAL STATEMENTS
Definition of Consolidation:
√ The process of combining the F/Ss of a parent
company and one or more legally separate and distinct
subsidiaries as a single economic entity for financial
reporting purposes.
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5. INTRODUCTION
● Consolidated F/S provides Information about
resources under the control of the group (assets) and
claims against those resources
assists users to better assess the prospects for future net cash
inflows to the group which is useful in making decisions
about providing resources to the group.
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6. Consolidation Cases
1. Consolidated Financial statement for wholly
owned subsidiary
I. Consolidation On the date of business combination
II. Consolidation in subsequent years.
2. Consolidated Financial statement for Partially
owned subsidiary
I. Consolidation On the date of business combination
II. Consolidation in subsequent years.
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7. Consolidation On the date of business combination
Only balance sheet is consolidated
It is prepared by parent
In the elimination Column
Equity Accounts of subsidiary is eliminated against
Investment in subsidiary
Assets and liabilities of subsidiary are adjusted to at
FV on the date of B.C
Goodwill or gain on bargain purchase related with
business combination is included
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8. Example1-Wholly owned subsidiary
Separate balance sheets of P Company and S
Company on May 31, 2010, together with current
fair values of S’s identifiable net assets are as
follows:
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9. Consolidation of Wholly Owned Subsidiary -Separate balance
sheets of P Company and S Company on May 31, 2010, together
with current fair values of S’s identifiable net assets are as follows:
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10. Cont..
On May 31,2010, P acquired all (100%) 10,000 shares of S’s
outstanding common stock by paying Br.300,000 cash to S’s
stockholders and Br. 50,000 cash to finder’s and legal fees
relating to the business combination.
Required:
Record the business combination on May 31, 2010
Compute GW or Gain bargain purchase
Prepare Consolidated balance sheet of P company and
subsidiary on may 31, 2010
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11. Entry to record business combination:
Investment in S Company 300,000
Finder and Legal expense 50,000
Cash 350,000
Calculation of Goodwill or income on Bargain Purchase
Fair value of assets 900,000
Fair value of liabilities 520,000
Fair value of net assets 380,000
Price paid 300,000
Gain in Purchase 80,000
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12. Working paper elimination in journal entry form:
Common Stock 100,000
Additional Paid in Capital 40,000
Retained earnings 180,000
Inventories 20,000
Plant Assets 80,000
Long-term debt 40,000
Income on bargain purchase 80,000
Investment in Company S 300,000
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13. 13
P Company and Subsidiary
Working paper for Consolidated Financial Statement
May 31,2010
Balance/Assets P
Corporation
S
Company
Elimination Consolidated
Cash Br. 200,000 Br.10,000 210,000
Acct. receivable 700,000 60,000 760,000
Inventories 1,400,000 120,000 20,000 1,540,000
Investment in S 300,000 (300,000)
Plant assets (net) 2,850,000 610,000 80,000 3,540,000
Total assets 5,450,000 800,000 (200,000) 6,050,000
Current liabilities Br.500,000 Br.80,000 580,000
Long-term debt 1,000,000 400,000 40,000 1,440,000
Common Stock 1,500,000 100,000 (100,000) 1,500,000
Add. Paid-in Capital 1,200,000 40,000 40,000) 1200,000
Retained Earnings 1,250,000 180,000
80,000
(180,000)
1,330,000
Total
5,450,000 800,000 (200,000) 6,050,000
14. P Company and Subsidiary
Consolidated Balance Sheet
May 31, 2010
ASSETS
Cash Br.210,000
Accounts Receivable 760,000
Inventories 1,540,000
Total current assets 2,510,000
Plant assets (net) 3,540,000
Total assets Br.6,050,000
LIABILITIES & STOCKHOLDER’S EQUITY
Current liabilities Br. 580,000
Long-term debt Br. 1,440,000
Common Stock 1,500,000
Additional Paid-in Capital 1,200,000
Retained Earnings 1,330,000 5,470,000
Total Liabilities and Stockholders’ Equity Br.6,050,000
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16. Example:
On May31, 2010, P Company issued 100,000
shares of no-par, current fair vale Br.12 per
share for 18,800 shares of the outstanding Br.
20 par common stock of S Company.
Br. 150,000 out-of pocket costs of business
combination was also paid by P on May 31,
2010, allocated 60% to direct cost of business
combination and 40 % to the registration
statement for P’s common stock issued in the
business combination. The following balance
sheets are given:
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17. 17
P Company S Company
BV (Before BC) BV (Post BC) Book Value Fair MV
ASSETS
Cash Br. 200,000 Br. 50,000 Br.100,000 Br.100,000
Accounts Receivable (net) 400,000 400,000 200,000 200,000
Inventories 600,000 600,000 300,000 340,000
Investment in S Company 1,200,000
Plant assets (net) 1,300,000 1,300,000 1,000,000 1,100,000
Total assets 2,500,000 3,550,000 1,600,000 1,740,000
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities Br.800,000 Br.800,000 Br.400,000 Br.400,000
Long-term debt 100,000 90,000
Common Stock 1,200,000 2,340,000
Common Stock, Br.20 par 400,000
Retained Earnings 500,000 410,000 700,000
Total Liabilities & SE Br.2,500,000 Br.3,550,000 Br.1,600,000
18. Required:
Record the business combination on May
31, 2010
Compute GW or Gain bargain purchase
Prepare Consolidated balance sheet of P
company and subsidiary on may 31, 2010
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19. 19
Journal entry for parent co. to record the business combination on May 31, 2010.
Investment in S Company 1,200,000
Direct Expenses 90,000
Common Stock (Br.1, 200,000 - Br. 60,000) 1,140,000
Cash 150,000
20. Goodwill or income on Bargain Purchase
Fair value of assets 1,740,000
Fair value of liabilities 490,000
Total Fair value of net assets 1,250,000
Fair value of net assets acquired 1,175,000
(94%*1,250,000)
Price paid 1,200,000
Goodwill 25,000
NCI 6% X 1,250,000 75,000
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21. 21
Working paper elimination in journal entry form:
Common Stock 400,000
Retained earnings 700,000
Inventories 40,000
Plant Assets 100,000
Goodwill 25,000
Long-term debt 10,000
Investment in Company S 1,200,000
NCI 75,000
22. 22
P Company and Subsidiary
Working paper for Consolidated Financial Statement
May 31,2010
Balance/Assets P
Corporation
S
Company
Elimination Consolidated
Cash Br. 50,000 Br.100,000 150,000
Acct. receivable 400,000 200,000 600,000
Inventories 600,000 300,000 40,000 940,000
Investment in S 1,200,000 (1,200,000)
Plant assets (net) 1,300,000 1,000,000 100,000 2,400,000
Goodwill 25,000 25,000
Total assets 3,550,000 1,600,000 (1,035,000) 4,115,000
Current liabilities Br.800,000 Br.400,000 1,200,000
NCI 75,000 75,000
Long-term debt 100,000 (10,000) 90,000
Common Stock 2,340,000 400,000) (400,000) 2,340,000
Retained Earnings 410,000 700,000 (700,000) 410,000
Total
3,550,000
1,600,000 (1,035,000) 4,115,000
23. 23
P Company and Subsidiary
Consolidated Balance Sheet
May 31, 2010
ASSETS
Cash Br.150,000
Accounts Receivable 600,000
Inventories 940,000
Total current assets 1,690,000
Plant assets (net) Br. 2,400,000
Goodwill 25,000 2,515,000
Total assets Br.4,115,000
LIABILITIES & STOCKHOLDER’S EQUITY
Current liabilities 1,200,000
Long-term debt 90,000
Minority Interest in Net Assets of Subsidiary 75,000
Total Liabilities Br.1,365,000
Common Stock Br. 2,340,000
Retained Earnings 500,000 2,840,000
Total Liabilities and Stockholders’Equity Br.4,115,000
25. 25
Prepare the consolidated financial
statements for the parent company and its
subsidiaries for the years following
business combination :
For wholly owned purchased
subsidiaries
For partially owned purchased
subsidiaries
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Equity Method
A parent company uses the equity method for the
operating results of subsidiaries
The parent company record investment at initial cost
and then adjusts for its subsequent share in the
subsidiary’s net income or loss
The subsidiary’s net income/loss is further adjusted
for the depreciation / amortization of asset’s excess
fairvalue over book value on the date of B.C.
The parent company also recognizes its share of
dividends declared by the subsidiary.
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All three basic financial statements
the income statement,
the statement of retained earnings and
the balance sheet must be consolidated for
accounting period following the date of
business combination.
The items that must be included in the
elimination are:
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Working Paper Elimination
Eliminations include:
a. The subsidiary’s stockholder’s equity accounts
b. The subsidiary’s dividends
c. parent’s investment account;
d. the parent’s intercompany investment income ;
e. unamortized balance excess fair value over
Book value of the subsidiary on the date of
B.C
