formulas for business combination

Business CombinationFormulas

Chapter 15

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


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


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: 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



Impairment of goodwill - previous year if any

Noncontrolling interest - January 1, 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

xxx

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xxxxxxx% xxx

xxx

Previous Year/s

Current Year

Previous Year/s

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Current Year


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


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


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



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


First Year


Parent adjusted net incomeAdd: Income from subsidiaryConsolidated net income attributable to parent

Second Year


Unrealized profit in ending inventory (Upstream sale)




Unrealized profit in ending inventory (Downstream sale)


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


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


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


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


First 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: Amortization ( cumulative amortization ) xxxxxxxxx

Undistributed Subsidiary adjusted net incomeMultiply by: Noncontrolling interest


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



Impairment of goodwill - previous year if anyUnrealized profit in ending inventory - recent previous year


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(xxx)(xxx)(xxx) xxx

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xxxxxx

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xxx(xxx)

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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

xxx

xxxxxxxxx

xxxxxxx% xxx

xxxxxxxxxxxxxxx

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


Chapter 18


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)


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)



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


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


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 %


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


xxx(xxx)(xxx)(xxx) Downstream sales(xxx)xxx

xxx(xxx)(xxx)(xxx)(xxx) Upstream sales(xxx) xxx

xxx

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xxx

xxx(xxx)(xxx)(xxx)(xxx) Upstream sales only(xxx)xxx

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(xxx) Upstream sales onlyxxxxxxx%xxx

xxx(xxx)(xxx)(xxx) Downstream sales(xxx)xxxxxxxxx

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(xxx) Downstream salesxxxxxxxxxxxx

xxx(xxx)(xxx)(xxx)(xxx) Upstream sales only(xxx)xxx%

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(xxx) Upstream sales onlyxxxxxx%

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Accumulated Depreciation - amount prior to intercompany sales (original or old value) - January 1, current xxxxxxxxx

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formulas for business combination

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