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Formulas For Business Combination
Formulas For Business Combination
Formulas
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.
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.
Chapter 16
4.) NCI in net income of Subsidiary/ Consolidated net income attributable to NCI
Consolidated retained earnings formula if involves more the one previous year passed
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.
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CONSOLIDATED STATEMENT
BUSINESS COMBINATION
FORMULAS
Chapter 17
Parent
Sabsidiary
Total
Less: Intercompany sales (Downstream sales + Upstream sales)
Consolidated Sales
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
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
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
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
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
Consolidated retained earnings formula if involves more the one previous year passed
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.
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.
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Chapter 18
7.) Plant and equipment on consolidated - Old cost or Cost prior to intercompany sales
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.
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