formulas for business combination
DESCRIPTION
Formula for Business CombinationTRANSCRIPT
Business CombinationFormulas
1.) Noncontrolling interest
Non-controlling interest's proportionate share of Subsidairy's identifiable net assets @ Fair Value.
If fair value of NCI given to the problem is lower than NCI measured at proportionate shareof Subsidiary's identifiable net assets use the latter.
Compuation of NCI measured in proportionate share of Subsidiary's identifiable net assets.Subsidiary net assets at Fair Value xxxMultiply by: Noncontrolling interest x%Fair value of NCI proportionate share in Subsidiary identifiable net assets xxx
Acquistion cost xxxDivided by: Controlling interest x%Total fair value of business xxxMultiply by: Noncontrolling interest x%Fair value of Noncontrolling interest xxx
Note: But again the computed Fair value of Noncontrolling interest should not be lower than
Note: We apply whichever is higher rule: Part of the new provision, NCI should not have
Subsidiary's identifiable net assets. We use whichever is higher.
2.) Result of acquisition
Acquisition cost (Consideration paid) xxxFMV of NCI xxx
xxxContingent liabiilty xxxTotal xxxLess: FMV of Subsidiary Net Assets (100%) xxxGoodwill/Gain from acquisition xxx
3.) Consolidated total Assets
Parent total assets (book value) xxxxxxxxx
(xxx)
Priority 1 = Fair value of NCI given to the problem but it should not be lower than the NCI - measured at
Priority 2 = If Fair value of NCI is not given or unknown
than the fair value of NCI in proportionate share in Subsidiary's identifiable net assets.
an amount that is lower than the fair value of NCI measured in proportionate share in
FMV of old investment in same company acquired ( less than 50%), included
Subsidairy total assets (fair value) exclusive of goodwill, if anyGoodwill - result from acquisitionPayment - taken from the assets of the acquirer
Consolidated total assets xxxx
4.) Consolidated retained earnings
Parent retained earnings before acquisition xxxAdd: Gain from acquistion, if any xxxTotal xxxLess: Expenses (Direct cost, indirect cost) xxxConsolidated retained earnings xxx
5.) Consolidated common stock
Parent common stock before acqquisition xxxAdd: New issued shares to acquire subsidairy @ Par value xxxConsolidated Common Stock xxx
6.) Consolidated additional paid in capital
Parent additional paid in capital xxxAdd: New issued share to acquire subsidiay - excess of par xxxTotal xxxLess: Stock issue cost, if any xxxConsolidated additional paid in capital xxx
7.) Consolidated stockholders' equity
Consolidated common stock xxxConsolidated additional paid in capital xxxConsolidated retained earnings xxxNoncontrolling interest xxxConsolidated stockholders' equity xxx
Non-controlling interest's proportionate share of Subsidairy's identifiable net assets @ Fair Value.
CONSOLIDATED STATEMENTBUSINESS COMBINATION FORMULAS
Chapter 16
1.) Consolidated net income
Parent net incomeLess: Dividends income received from SubsidiaryParent income from it's own operation Less: Impairment loss on goodwill, if anyParent adjusted net incomeAdd: Subsidiary adjusted net income
Subsidiary reported net income+/- Amortization - impairment loss on goodwill, if any
Consolidated net income
2.) Income from subsidiary
Subsidiary reported net income+/- Amortization - impairment loss on goodwill, if anySubsidiary adjusted net incomeMultiply: Controlling interestIncome from subsidiary
3.) Consolidated net income attributable to parent
Parent net incomeLess: Dividends income received from SubsidiaryParent income from it's own operation Less: Impairment loss on goodwill, if anyParent adjusted net income
Consolidated net income attributable to parent
4.) NCI in net income of Subsidiary/ Consolidated net income attributable to NCI
Subsidiary reported net income+/- Amortization - impairment loss on goodwill, if anySubsidiary adjusted net incomeMultiply: Noncontrolling interestNCI in net income of Subsidiary
5.) Consolidated retained earnings
Add: Income from subsidiary #2
Parent retained earnings - January 1, current year
Add: Gain from acquistion, if anyConsolidated net income attributable to parent - #3
TotalLess: Dividends declared - parent onlyConsolidated retained earnings - December 31, current year
Consolidated retained earnings formula if involves more the one previous year passed
Add: Undistributed Subsidiary adjusted net income in previous year/s
Less: Subsidiary Retained Earnings - date of acquisition
Less: Amortization ( cumulative amortization ) xxxxxx
Undistributed Subsidiary adjusted net income Less: NCI share in the income undistributed adjusted cumulative earnings
Total Less: Dividends declared - parent onlyConsolidated Retained Earnings - ending
6.) Noncontrolling interest
First Year
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCITotalLess: Dividends declared x Noncontrolling interestNoncontrolling interest - December 31 current year
Note: You must noted the initial Noncontrolling interest amount on the date of acquisition. Because that is always your beginning balances.
Computation of Noncontrolling interest more then one previous year passed
Noncontrolling interest - at the date of acquisition ( initial ) Add: NCI share in the income undistributed adjusted cumulative earnings
Less: Subsidiary Retained Earnings - date of acquisition
Less: Amortization ( cumulative amortization ) xxxxxx
Undistributed Subsidiary adjusted net incomeMultiply by: Noncontrolling interest
Parent Reported Retained Earnings - January 1, current yearLess: Impairment loss - previous year if anyParent Adjusted Retained Earnings - January 1, current year
Subsidiary Retained Earnings - January 1 current year
Undistributed Subsidiary unadjusted cumulative earnings (net income)
Impairment of goodwill - previous year if any
Consolidated Retained Earnings - January 1, current yearAdd: Consolidated net income attributable to parent - current year #3
Noncontrolling interest - January 1, current year - computed using formula chapter 15
Subsidiary Retained Earnings - January 1 current year
Undistributed Subsidiary unadjusted cumulative earnings (net income)
Impairment of goodwill - previous year if any
Noncontrolling interest - January 1, current year
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCITotalLess: Dividends declared x Noncontrolling interestNoncontrolling interest - December 31 current year
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Note: You must noted the initial Noncontrolling interest amount on the date of acquisition. Because that is always your
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Previous Year/s
Current Year
Previous Year/s
CONSOLIDATED STATEMENTBUSINESS COMBINATION FORMULAS
Chapter 17
1.) Consolidated Sales
Parent SabsidiaryTotal Less: Intercompany sales (Downstream sales + Upstream sales)Consolidated Sales
2.) Consolidated cost of goods sold
First YearParentSubsidiary TotalIntercompany sales (Downstream sales + Upstream sales)Amortization of excess (inventory), if anyUnrealized gross profit in ending inventoryCosolidated cost of goods sold
Second YearParentSubsidiary TotalIntercompany sales (Downstream sales + Upstream sales)Amortization of excess (inventory), if anyRealized gross profit in beginning inventoryUnrealized gross profit in ending inventoryCosolidated cost of goods sold
3.) Consolidated Inventory
ParentSubsidiary
TotalLess: Unrealized gross profit in ending inventory (Downstream + Upstream)Consolidated inventory
4.) Consolidated net income
First Year
Impairment loss, if any
Parent adjusted net incomeAdd: Subsidiary adjusted net income
Subsidiary reported net income
Add: Excess of inventory FMV over BV during acquisition that are remained unsold, if any
Parent net income from own operation, exclusive of dividends income received from Subsidiary
Unrealized profit in ending inventory (Downstream sale)
+/- Amortization Impairment loss, if any
Consolidated net income
Second Year
Impairment loss, if anyRealized profit in begining inventoryUnrealized profit in ending inventoryParent adjusted net incomeAdd: Subsidiary adjusted net income
Subsidiary reported net income+/- Amortization Impairment loss, if anyRealized profit in begining inventoryUnrealized profit in ending inventory
Consolidated net income
5.) Income from subsidiary
First YearSubsidiary reported net income+/- Amortization Impairment loss, if any
Subsidiary adjusted net incomeMultiply by: Controlling interestIncome from subsidiary
Second YearSubsidiary reported net income+/- Amortization Impairment loss, if anyRealized profit in begining inventoryUnrealized profit in ending inventorySubsidiary adjusted net incomeMultiply by: Controlling interestIncome from subsidiary
6.) Consolidated net income attributable to parent
First Year
Impairment loss, if any
Parent adjusted net incomeAdd: Income from subsidiaryConsolidated net income attributable to parent
Second Year
Impairment loss, if any
Unrealized profit in ending inventory (Upstream sale)
Parent net income from own operation, exclusive of dividends income received from Subsidiary
Unrealized profit in ending inventory (Upstream sale)
Parent net income from own operation, exclusive of dividends income received from Subsidiary
Unrealized profit in ending inventory (Downstream sale)
Parent net income from own operation, exclusive of dividends income received from Subsidiary
Downstream sales
Upstream sales
Upstream sales
Realized profit in begining inventoryUnrealized profit in ending inventoryParent adjusted net incomeAdd: Income from subsidiaryConsolidated net income attributable to parent
7.) NCI in net income of Subsidiary/ Consolidated net income attributable to NCI
First YearSubsidiary reported net income+/- Amortization Impairment loss, if any
Subsidiary adjusted net incomeMultiply by: Noncontrolling interestNCI in net income of Subsidiary/Consolidated net income attributable to NCI
Second YearSubsidiary reported net income+/- Amortization Impairment loss, if anyRealized profit in begining inventoryUnrealized profit in ending inventorySubsidiary adjusted net incomeMultiply by: Noncontrolling interestNCI in net income of Subsidiary
8.) Consolidated retained earnings
Add: Gain from acquistion, if anyConsolidated net income attributable to parent
TotalLess: Dividends declared - parent onlyConsolidated retained earnings - December 31, current year
Consolidated retained earnings formula if involves more the one previous year passed
Add: Undistributed Subsidiary adjusted net income in previous year/s
Less: Subsidiary Retained Earnings - date of acquisition Undistributed Subsidiary unadjusted net income Less: Amortization ( cumulative amortization ) xxx
xxxxxx
Undistributed Subsidiary adjusted net income Less: NCI share in the income undistributed adjusted cumulative earnings
Unrealized profit in ending inventory (Upstream sale)
Parent retained earnings - January 1, current year
Parent Reported Retained Earnings - January 1, current yearLess: Impairment loss - previous years if any
Unrealized profit in ending inventory - recent previous yearParent Adjusted Retained Earnings - January 1, current year
Subsidiary Retained Earnings - January 1 current year
Impairment of goodwill - previous year if anyUnrealized profit in ending inventory - recent previous year
Consolidated Retained Earnings - January 1, current yearAdd: Consolidated net income attributable to parent - current year #3
Upstream sales
Downstream sales
Total Less: Dividends declared - parent onlyConsolidated Retained Earnings - ending
6.) Noncontrolling interest
First Year
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCITotalLess: Dividends declared x Noncontrolling interestNoncontrolling interest - December 31 current year
Note: You must noted the initial Noncontrolling interest amount on the date of acquisition. Because it is always your beginning balance.
Computation of Noncontrolling interest more then one previous year passed
Noncontrolling interest - at the date of acquisition ( initial ) Add: NCI share in the income undistributed adjusted cumulative earnings
Less: Subsidiary Retained Earnings - date of acquisition
Less: Amortization ( cumulative amortization ) xxxxxxxxx
Undistributed Subsidiary adjusted net incomeMultiply by: Noncontrolling interest
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCITotalLess: Dividends declared x Noncontrolling interestNoncontrolling interest - December 31 current year
Note: Why we adjust Retained earnings and Noncontrolling interest beginning with the unrealized profit in ending inventory recent previous year?Because we corrected net income of the current year with the unrealized profit in ending inventory recent previous
year, which is now realized profit in beginning inventory for the current year.
See the computation of adjusted net incomes for Parent and Subsidairy, we included realized profit in beginning inventory to get adjusted net income. Make this a constant procedure. Because, I agree thereis other way. How? Don’t include realized profit in beginning in the computation of adjusted net incomeand unrealized profit in ending recent previous year in adjusted retained earnings beginning to offset errors orto counter balance. But again may I suggest to use the formula above constantly because it is seldom inproblem to have only Consolidated Retained Earnings as requirement normally consolidated net income isalso part of the requirement, with that you must included realized profit in beginning inventory.
Noncontrolling interest - January 1, current year - computed using formula chapter 15
Subsidiary Retained Earnings - January 1 current year
Undistributed Subsidiary unadjusted cumulative earnings (net income)
Impairment of goodwill - previous year if anyUnrealized profit in ending inventory - recent previous year
Noncontrolling interest - January 1, current year
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Previous Year/s
Current Year
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Note: You must noted the initial Noncontrolling interest amount on the date of acquisition. Because it is always your
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xxxxxxx% xxx
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Note: Why we adjust Retained earnings and Noncontrolling interest beginning with the unrealized profit in ending inventory
Because we corrected net income of the current year with the unrealized profit in ending inventory recent previous
See the computation of adjusted net incomes for Parent and Subsidairy, we included realized profit in beginning inventory to get adjusted net income. Make this a constant procedure. Because, I agree thereis other way. How? Don’t include realized profit in beginning in the computation of adjusted net incomeand unrealized profit in ending recent previous year in adjusted retained earnings beginning to offset errors orto counter balance. But again may I suggest to use the formula above constantly because it is seldom inproblem to have only Consolidated Retained Earnings as requirement normally consolidated net income isalso part of the requirement, with that you must included realized profit in beginning inventory.
Previous Year/s
Current Year
Current Year
CONSOLIDATED STATEMENTBUSINESS COMBINATION FORMULAS
Chapter 18
1.) Consolidated net income
Year of sale (plant asset) - First year (Inventory)
Impairment lossUnrealized profit in ending inventoryNet unrealized gain/loss on sale (depreciable asset)Unrealized gain/loss on sale (non-depreciable assets)Parent adjusted net incomeAdd: Subsidiary adjusted net income
Subsidiary reported net income+/- Amortization Impairment lossUnrealized profit in ending inventoryNet unrealized gain/loss on sale (depreciable asset)Unrealized gain/loss on sale (non-depreciable assets)
Consolidated net income
Second Year (plant asset) - Second year (inventory)Parent net income from own operation Impairment lossRealized profit in begining inventoryUnrealized profit in ending inventoryRealized gain/loss on sale (annual depreciation)Parent adjusted net incomeAdd: Subsidiary adjusted net income
Subsidiary reported net income+/- Amortization Realized profit in begining inventoryUnrealized profit in ending inventoryRealized gain/loss on sale (annual depreciation - excess)
Consolidated net income
2.) Income from subsidiary
Year of sale (plant asset) - First year (Inventory)Subsidiary reported net income+/- Amortization Impairment lossUnrealized profit in ending inventoryNet unrealized gain/loss on sale (depreciable asset)Unrealized gain/loss on sale (non-depreciable assets)Subsidiary adjusted net income
Parent net income from own operation, exclusive of dividends received from subsidairy
Multiply by: Controlling interestIncome from subsidiary
Second Year (plant asset) - Second year (inventorySubsidiary reported net income+/- Amortization Realized profit in begining inventoryUnrealized profit in ending inventoryRealized gain/loss on sale (annual depreciation)Subsidiary adjusted net incomeMultiply by: Controlling interestIncome from subsidiary
3.) Consolidated net income attributable to parent
Year of sale (plant asset) - First year (Inventory)
Impairment lossUnrealized profit in ending inventoryNet unrealized gain/loss on sale (depreciable asset)Unrealized gain/loss on sale (non-depreciable assets)Parent adjusted net incomeAdd: Income from subsidiaryConsolidated net income attributable to parent
Second Year (plant asset) - Second year (inventory)Parent net income from own operation Impairment lossRealized profit in begining inventoryUnrealized profit in ending inventoryRealized gain/loss on sale (annual depreciation)Parent adjusted net incomeAdd: Income from subsidiaryConsolidated net income attributable to parent
4.) NCI in the net income of Subsidairy
Year of sale (plant asset) - First year (Inventory)Subsidiary reported net income+/- Amortization Impairment lossUnrealized profit in ending inventoryNet unrealized gain/loss on sale (depreciable asset)Unrealized gain/loss on sale (non-depreciable assets)Subsidiary adjusted net incomeMultiply by: Noncontrolling interestMinority interest in net income
Second Year (plant asset) - Second year (inventorySubsidiary reported net income
Parent net income from own operation, exclusive of dividends received from subsidairy
+/- Amortization Realized profit in begining inventoryUnrealized profit in ending inventoryRealized gain/loss on sale (annual depreciation)Subsidiary adjusted net incomeMultiply by: Noncontrolling interestMinority interest in net income
5.) Consolidated Retained Earnings
Year of sale of plant assetsNo adjustment in Retained earnings on intercompany sales of plant assets, they are adjustment in
consolidated net income in the year of sales.
Second year or More than one previous year passed:Consolidated retained earnings formula if involves more the one previous year passedParent Reported Retained Earnings - beginning / January 1
Unrealized gain/loss on sale (non-depreciable assets)Parent Adjusted Retained Earnings - beginning / January 1Add: Undistributed Subsidiary adjusted net income
Undistributed Subsidiary unadjusted net income
Unrealized (gain)/loss on sale (non-depreciable assets) Total Less: NCI share in the income undistributed adjusted cumulative earnings
Consolidated Retained Earnings - beginning/January 1
Total
Consolidated Retained Earnings - ending
6.) Noncontrolling interest
Year of sale of plant assetsNo adjustment in Retained earnings on intercompany sales of plant assets, they are adjustment in
consolidated net income in the year of sales.
Computation of Noncontrolling interest more then one previous year passedNoncontrolling interest - at the date of acquisition ( initial ) Add: NCI share in the income undistributed adjusted cumulative earnings
Gain on acquisition - on the date of acquisition Impairment loss - previous years (cumulative)
Unrealized profit in ending inventory - recent previous year Net unrealized gain/loss on sale (depreciable asset) - before adjustment of current year
Subsidiary Retained Earnings - beginning of current year Less: Subsidiary Retained Earnings - date of acquisition
Amortization ( cumulative amortization ) Impairment loss - previous years (cumulative)
Unrealized profit in ending inventory - recent previous year Net unrealized (gain)/loss on sale (depreciable asset) - before adjustment of current year
Add: Consolidated net income attributable to parent- current year
Less: Dividends declared - parent only current year
Undistributed Subsidiary unadjusted net income
Unrealized (gain)/loss on sale (non-depreciable assets) Total Multiply by: Noncontrolling interest %
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCITotalLess: Dividends declared x Noncontrolling interestNoncontrolling interest - December 31 current year
7.) Plant and equipment on consolidated - Old cost or Cost prior to intercompany sales
8.) Accumulated Depreciation
Accumulated Depreciation - amount prior to intercompany sales (original or old value) - January 1, currentAdd: Depreciation for year - computed in original depreciation (OLD)Total
9.) Total gain on sale of plant assets when asset sold intercompany is sold to outsider.
Actual gain in selling it to outsiderAdd: Remainining unrealized gain on sale of assets Total gain
Note: Please observed the sign if it is unrealized loss, deduct.
Subsidiary Retained Earnings - beginning of current year Less: Subsidiary Retained Earnings - date of acquisition
Amortization ( cumulative amortization ) Impairment loss - previous years (cumulative)
Unrealized profit in ending inventory - recent previous year Net unrealized (gain)/loss on sale (depreciable asset) - before adjustment of current year
Noncontrolling interest - January 1, current year
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