You are on page 1of 28

Business Combination

Formulas

Chapter 15

1.) Noncontrolling interest

Priority 1 = Fair value of NCI given to the problem but it should not be lower than the NCI - measured at
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 share
of 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 xxx
Multiply by: Noncontrolling interest x%
Fair value of NCI proportionate share in Subsidiary identifiable net assets xxx

Priority 2 = If Fair value of NCI is not given or unknown

Acquistion cost xxx


Divided by: Controlling interest x%
Total fair value of business xxx
Multiply 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
than the fair value of NCI in proportionate share in Subsidiary's identifiable net assets.

Note: We apply whichever is higher rule: Part of the new provision, NCI should not have
an amount that is lower than the fair value of NCI measured in proportionate share in
Subsidiary's identifiable net assets. We use whichever is higher.

2.) Result of acquisition

Acquisition cost (Consideration paid) xxx


FMV of NCI xxx
FMV of old investment in same company acquired ( less than 50%), included xxx
Contingent liabiilty xxx
Total xxx
Less: FMV of Subsidiary Net Assets (100%) xxx
Goodwill/Gain from acquisition xxx

3.) Consolidated total Assets

Parent total assets (book value) xxx


Subsidairy total assets (fair value) exclusive of goodwill, if any xxx
Goodwill - result from acquisition xxx
Payment - taken from the assets of the acquirer (xxx)
Consolidated total assets xxxx

4.) Consolidated retained earnings

Parent retained earnings before acquisition xxx


Add: Gain from acquistion, if any xxx
Total xxx
Less: Expenses (Direct cost, indirect cost) xxx
Consolidated retained earnings xxx

5.) Consolidated common stock

Parent common stock before acqquisition xxx


Add: New issued shares to acquire subsidairy @ Par value xxx
Consolidated Common Stock xxx

6.) Consolidated additional paid in capital

Parent additional paid in capital xxx


Add: New issued share to acquire subsidiay - excess of par xxx
Total xxx
Less: Stock issue cost, if any xxx
Consolidated additional paid in capital xxx

7.) Consolidated stockholders' equity

Consolidated common stock xxx


Consolidated additional paid in capital xxx
Consolidated retained earnings xxx
Noncontrolling interest xxx
Consolidated stockholders' equity xxx
@ Fair Value.
CONSOLIDATED STATEMENT
BUSINESS COMBINATION
FORMULAS

Chapter 16

1.) Consolidated net income

Parent net income


Less: Dividends income received from Subsidiary
Parent income from it's own operation
Less: Impairment loss on goodwill, if any
Parent adjusted net income
Add: 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 any
Subsidiary adjusted net income
Multiply: Controlling interest
Income from subsidiary

3.) Consolidated net income attributable to parent

Parent net income


Less: Dividends income received from Subsidiary
Parent income from it's own operation
Less: Impairment loss on goodwill, if any
Parent adjusted net income
Add: Income from subsidiary #2
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 any
Subsidiary adjusted net income
Multiply: Noncontrolling interest
NCI in net income of Subsidiary

5.) Consolidated retained earnings

Parent retained earnings - January 1, current year


Add: Gain from acquistion, if any
Consolidated net income attributable to parent - #3
Total
Less: Dividends declared - parent only
Consolidated retained earnings - December 31, current year

Consolidated retained earnings formula if involves more the one previous year passed

Parent Reported Retained Earnings - January 1, current year


Less: Impairment loss - previous year if any
Parent Adjusted Retained Earnings - January 1, current year
Add: Undistributed Subsidiary adjusted net income in previous year/s
Subsidiary Retained Earnings - January 1 current year
Less: Subsidiary Retained Earnings - date of acquisition
Undistributed Subsidiary unadjusted cumulative earnings (net income)
Less: Amortization ( cumulative amortization ) xxx
Impairment of goodwill - previous year if any xxx
Undistributed Subsidiary adjusted net income
Less: NCI share in the income undistributed adjusted cumulative earnings
Consolidated Retained Earnings - January 1, current year
Add: Consolidated net income attributable to parent - current year #3
Total
Less: Dividends declared - parent only
Consolidated Retained Earnings - ending

6.) Noncontrolling interest

First Year
Noncontrolling interest - January 1, current year - computed using formula chapter 15
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI
Total
Less: Dividends declared x Noncontrolling interest
Noncontrolling 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
Subsidiary Retained Earnings - January 1 current year
Less: Subsidiary Retained Earnings - date of acquisition
Undistributed Subsidiary unadjusted cumulative earnings (net income)
Less: Amortization ( cumulative amortization ) xxx
Impairment of goodwill - previous year if any xxx
Undistributed Subsidiary adjusted net income
Multiply by: Noncontrolling interest
Noncontrolling interest - January 1, current year
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI
Total
Less: Dividends declared x Noncontrolling interest
Noncontrolling interest - December 31 current year
xxx
xxx
xxx
xxx
xxx

xxx
xxx
xxx
xxx

xxx
xxx
xxx
xxx
x%
xxx

xxx
xxx
xxx
xxx
xxx
xxx
xxx

xxx
xxx
xxx
xxx
x%
xxx

xxx
xxx
xxx xxx
xxx
xxx
xxx

xxx
xxx
xxx

xxx
xxx
xxx
Previous Year/s
xxx
xxx
xxx xxx
xxx
xxx
xxx Current Year
xxx
xxx

xxx
xxx
xxx
xxx
xxx

Because that is always your

xxx

xxx
xxx
xxx
Previous Year/s
xxx
xxx
x% xxx
xxx
xxx
xxx Current Year
xxx
xxx
CONSOLIDATED STATEMENT
BUSINESS COMBINATION
FORMULAS

Chapter 17

1.) Consolidated Sales

Parent
Sabsidiary
Total
Less: Intercompany sales (Downstream sales + Upstream sales)
Consolidated Sales

2.) Consolidated cost of goods sold

First Year
Parent
Subsidiary
Total
Intercompany sales (Downstream sales + Upstream sales)
Amortization of excess (inventory), if any
Unrealized gross profit in ending inventory
Cosolidated cost of goods sold

Second Year
Parent
Subsidiary
Total
Intercompany sales (Downstream sales + Upstream sales)
Amortization of excess (inventory), if any
Realized gross profit in beginning inventory
Unrealized gross profit in ending inventory
Cosolidated cost of goods sold

3.) Consolidated Inventory

Parent
Subsidiary
Add: Excess of inventory FMV over BV during acquisition that are remained unsold, if any
Total
Less: Unrealized gross profit in ending inventory (Downstream + Upstream)
Consolidated inventory

4.) Consolidated net income

First Year
Parent net income from own operation, exclusive of dividends income received from Subsidiary
Impairment loss, if any
Unrealized profit in ending inventory (Downstream sale)
Parent adjusted net income
Add: Subsidiary adjusted net income
Subsidiary reported net income
+/- Amortization
Impairment loss, if any
Unrealized profit in ending inventory (Upstream sale)
Consolidated net income

Second Year
Parent net income from own operation, exclusive of dividends income received from Subsidiary
Impairment loss, if any
Realized profit in begining inventory
Downstream sales
Unrealized profit in ending inventory
Parent adjusted net income
Add: Subsidiary adjusted net income
Subsidiary reported net income
+/- Amortization
Impairment loss, if any
Realized profit in begining inventory
Upstream sales
Unrealized profit in ending inventory
Consolidated net income

5.) Income from subsidiary

First Year
Subsidiary reported net income
+/- Amortization
Impairment loss, if any
Unrealized profit in ending inventory (Upstream sale)
Subsidiary adjusted net income
Multiply by: Controlling interest
Income from subsidiary

Second Year
Subsidiary reported net income
+/- Amortization
Impairment loss, if any
Realized profit in begining inventory
Upstream sales
Unrealized profit in ending inventory
Subsidiary adjusted net income
Multiply by: Controlling interest
Income from subsidiary

6.) Consolidated net income attributable to parent

First Year
Parent net income from own operation, exclusive of dividends income received from Subsidiary
Impairment loss, if any
Unrealized profit in ending inventory (Downstream sale)
Parent adjusted net income
Add: Income from subsidiary
Consolidated net income attributable to parent

Second Year
Parent net income from own operation, exclusive of dividends income received from Subsidiary
Impairment loss, if any
Realized profit in begining inventory
Downstream sales
Unrealized profit in ending inventory
Parent adjusted net income
Add: Income from subsidiary
Consolidated net income attributable to parent

7.) NCI in net income of Subsidiary/ Consolidated net income attributable to NCI

First Year
Subsidiary reported net income
+/- Amortization
Impairment loss, if any
Unrealized profit in ending inventory (Upstream sale)
Subsidiary adjusted net income
Multiply by: Noncontrolling interest
NCI in net income of Subsidiary/Consolidated net income attributable to NCI

Second Year
Subsidiary reported net income
+/- Amortization
Impairment loss, if any
Realized profit in begining inventory
Upstream sales
Unrealized profit in ending inventory
Subsidiary adjusted net income
Multiply by: Noncontrolling interest
NCI in net income of Subsidiary

8.) Consolidated retained earnings

Parent retained earnings - January 1, current year


Add: Gain from acquistion, if any
Consolidated net income attributable to parent
Total
Less: Dividends declared - parent only
Consolidated retained earnings - December 31, current year

Consolidated retained earnings formula if involves more the one previous year passed

Parent Reported Retained Earnings - January 1, current year


Less: Impairment loss - previous years if any
Unrealized profit in ending inventory - recent previous year
Parent Adjusted Retained Earnings - January 1, current year
Add: Undistributed Subsidiary adjusted net income in previous year/s
Subsidiary Retained Earnings - January 1 current year
Less: Subsidiary Retained Earnings - date of acquisition
Undistributed Subsidiary unadjusted net income
Less: Amortization ( cumulative amortization ) xxx
Impairment of goodwill - previous year if any xxx
Unrealized profit in ending inventory - recent previous year xxx
Undistributed Subsidiary adjusted net income
Less: NCI share in the income undistributed adjusted cumulative earnings
Consolidated Retained Earnings - January 1, current year
Add: Consolidated net income attributable to parent - current year #3
Total
Less: Dividends declared - parent only
Consolidated Retained Earnings - ending

6.) Noncontrolling interest

First Year
Noncontrolling interest - January 1, current year - computed using formula chapter 15
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI
Total
Less: Dividends declared x Noncontrolling interest
Noncontrolling 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
Subsidiary Retained Earnings - January 1 current year
Less: Subsidiary Retained Earnings - date of acquisition
Undistributed Subsidiary unadjusted cumulative earnings (net income)
Less: Amortization ( cumulative amortization ) xxx
Impairment of goodwill - previous year if any xxx
Unrealized profit in ending inventory - recent previous year xxx
Undistributed Subsidiary adjusted net income
Multiply by: Noncontrolling interest
Noncontrolling interest - January 1, current year
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI
Total
Less: Dividends declared x Noncontrolling interest
Noncontrolling 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 previou
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 there
is other way. How? Don’t include realized profit in beginning in the computation of adjusted net income
and unrealized profit in ending recent previous year in adjusted retained earnings beginning to offset errors o
to counter balance. But again may I suggest to use the formula above constantly because it is seldom in
problem to have only Consolidated Retained Earnings as requirement normally consolidated net income is
also part of the requirement, with that you must included realized profit in beginning inventory.
xxx
xxx
xxx
xxx
xxx

xxx
xxx
xxx
(xxx)
xxx
xxx
xxx

xxx
xxx
xxx
(xxx)
xxx
(xxx)
xxx
xxx

xxx
xxx
xxx xxx
xxx
xxx
xxx

xxx
(xxx)
(xxx)
xxx

xxx
(xxx)
(xxx)
(xxx) xxx
xxx

xxx
(xxx)
xxx
(xxx)
xxx

xxx
(xxx)
(xxx)
xxx
(xxx) xxx
xxx

xxx
(xxx)
(xxx)
(xxx)
xxx
x%
xxx

xxx
xxx
(xxx)
xxx
(xxx)
xxx
x%
xxx

xxx
(xxx)
(xxx)
xxx
xxx
xxx

xxx
(xxx)
xxx
(xxx)
xxx
xxx
xxx

xxx
(xxx)
(xxx)
(xxx)
xxx
x%
xxx

xxx
xxx
(xxx)
xxx
(xxx)
xxx
x%
xxx

xxx
xxx
xxx xxx
xxx
xxx
xxx

xxx
xxx
xxx xxx
xxx

xxx
xxx
xxx
Previous Year/s
xxx
xxx
xxx xxx
xxx
xxx
xxx Current Year
xxx
xxx

xxx
xxx
xxx
xxx
xxx

n. Because it is always your

xxx

xxx
xxx
xxx
Previous Year/s

xxx
xxx
x% xxx
xxx
xxx
xxx Current Year
xxx
xxx

nrealized profit in ending inventory


in ending inventory recent previous

luded realized profit in


cedure. Because, I agree there
utation of adjusted net income
arnings beginning to offset errors or
nstantly because it is seldom in
mally consolidated net income is
beginning inventory.
CONSOLIDATED STATEMENT
BUSINESS COMBINATION
FORMULAS

Chapter 18

1.) Consolidated net income

Year of sale (plant asset) - First year (Inventory)


Parent net income from own operation, exclusive of dividends received from subsidairy
Impairment loss
Unrealized profit in ending inventory
Net unrealized gain/loss on sale (depreciable asset)
Unrealized gain/loss on sale (non-depreciable assets)
Parent adjusted net income
Add: Subsidiary adjusted net income
Subsidiary reported net income
+/- Amortization
Impairment loss
Unrealized profit in ending inventory
Net 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 loss
Realized profit in begining inventory
Unrealized profit in ending inventory
Realized gain/loss on sale (annual depreciation)
Parent adjusted net income
Add: Subsidiary adjusted net income
Subsidiary reported net income
+/- Amortization
Realized profit in begining inventory
Unrealized profit in ending inventory
Realized 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 loss
Unrealized profit in ending inventory
Net unrealized gain/loss on sale (depreciable asset)
Unrealized gain/loss on sale (non-depreciable assets)
Subsidiary adjusted net income
Multiply by: Controlling interest
Income from subsidiary

Second Year (plant asset) - Second year (inventory


Subsidiary reported net income
+/- Amortization
Realized profit in begining inventory
Unrealized profit in ending inventory
Realized gain/loss on sale (annual depreciation)
Subsidiary adjusted net income
Multiply by: Controlling interest
Income from subsidiary

3.) Consolidated net income attributable to parent

Year of sale (plant asset) - First year (Inventory)


Parent net income from own operation, exclusive of dividends received from subsidairy
Impairment loss
Unrealized profit in ending inventory
Net unrealized gain/loss on sale (depreciable asset)
Unrealized gain/loss on sale (non-depreciable assets)
Parent adjusted net income
Add: Income from subsidiary
Consolidated net income attributable to parent

Second Year (plant asset) - Second year (inventory)


Parent net income from own operation
Impairment loss
Realized profit in begining inventory
Unrealized profit in ending inventory
Realized gain/loss on sale (annual depreciation)
Parent adjusted net income
Add: Income from subsidiary
Consolidated 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 loss
Unrealized profit in ending inventory
Net unrealized gain/loss on sale (depreciable asset)
Unrealized gain/loss on sale (non-depreciable assets)
Subsidiary adjusted net income
Multiply by: Noncontrolling interest
Minority interest in net income

Second Year (plant asset) - Second year (inventory


Subsidiary reported net income
+/- Amortization
Realized profit in begining inventory
Unrealized profit in ending inventory
Realized gain/loss on sale (annual depreciation)
Subsidiary adjusted net income
Multiply by: Noncontrolling interest
Minority interest in net income

5.) Consolidated Retained Earnings

Year of sale of plant assets


No 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 passed
Parent Reported Retained Earnings - beginning / January 1
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
Unrealized gain/loss on sale (non-depreciable assets)
Parent Adjusted Retained Earnings - beginning / January 1
Add: Undistributed Subsidiary adjusted net income
Subsidiary Retained Earnings - beginning of current year
Less: Subsidiary Retained Earnings - date of acquisition
Undistributed Subsidiary unadjusted net income
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
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
Add: Consolidated net income attributable to parent- current year
Total
Less: Dividends declared - parent only current year
Consolidated Retained Earnings - ending

6.) Noncontrolling interest

Year of sale of plant assets


No 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 passed


Noncontrolling interest - at the date of acquisition ( initial )
Add: NCI share in the income undistributed adjusted cumulative earnings
Subsidiary Retained Earnings - beginning of current year
Less: Subsidiary Retained Earnings - date of acquisition
Undistributed Subsidiary unadjusted net income
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
Unrealized (gain)/loss on sale (non-depreciable assets)
Total
Multiply by: Noncontrolling interest %
Noncontrolling interest - January 1, current year
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI
Total
Less: Dividends declared x Noncontrolling interest
Noncontrolling 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, current
Add: 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 outsider


Add: Remainining unrealized gain on sale of assets
Total gain

Note: Please observed the sign if it is unrealized loss, deduct.


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

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

xxx
(xxx)
xxx
(xxx)
xxx
xxx

xxx
(xxx)
xxx
(xxx)
xxx xxx
xxx

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

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

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

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

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

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

xxx
xxx
(xxx)
xxx
(xxx)
(xxx) xxx
xxx

xxx
xxx
xxx
xxx
(xxx)
(xxx)
(xxx)
(xxx)
xxx
xxx xxx
xxx
xxx
xxx
xxx
xxx

xxx
xxx
xxx
xxx
xxx
(xxx)
(xxx)
(xxx)
(xxx)
xxx
xxx xxx
xxx
xxx
xxx
xxx
xxx

uary 1, current xxx


xxx
xxx

xxx
xxx
xxx