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CH 4 - Consolidated Techniques and Procedures PDF
CH 4 - Consolidated Techniques and Procedures PDF
Advanced Accounting
Thirteenth Edition, Global Edition
Chapter 4
Consolidation
Techniques and
Procedures
Consolidation Techniques:
Objectives (continued)
4.6 For the Students: Create an electronic spreadsheet
to prepare a consolidation workpaper.
4.7 Appendix A: Understand the alternative trial balance
workpaper format.
4.8 Appendix B: Prepare a consolidation workpaper when
parent company uses either the cost method or
incomplete equity method.
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Workpaper Entries
1. Adjust for errors & omissions
2. Eliminate intercompany profits and losses
3. Eliminate income & dividends from sub. and bring
Investment account to its beginning balance
4. Record noncontrolling interest in sub.'s earnings &
dividends
5. Eliminate reciprocal Investment & sub.'s equity
balances
6. Amortize fair value differentials
7. Eliminate other reciprocal balances
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Analysis
Cost of 80% of Son $176 Allocated to: Amt Amort.
Implied value of Son Patents $40 10 yrs
($176/.80) $220
Book value (120+60) 180
Excess $40
Unamort. Unamort.
Blank Unamort. Bal. Amortization Bal. Amortization Bal.
on on on
Blank 1/1/2016 in 2016 12/31/2016 in 2017 12/31/2017
Patents $40 $4 $36 $4 $32
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A Look at Assets
– Investment in Son is eliminated.
– Patents at the start of 2016 were $20, and current
amortization is $2. They are $18 at the end of 2016.
– The total is calculated in the consolidated column.
Balance sheet, 12/31/2016 Pop Son DR CR Consol
Cash 78.0 20.0 blank blank 98.0
Other current assets 180.0 100.0 blank blank 280.0
Investment in Son 188.8 blank blank 12.8 0.0
Blank blank blank blank 176.0 blank
Plant & equipment, net 500.0 140.0 blank blank 680.0
Patents blank blank 40.0 4.0 36.0
Total 946.8 360.0 blank blank 1,054.0
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2017: Blank
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Errors
Most errors show up when the consolidated balance
sheet does not balance.
● Check for common omissions:
– Noncontrolling interest share (income)
– Goodwill
– Noncontrolling interest (equity)
● Check equality of DR and CR adjustments.
● Verify totals for parent and subsidiary statements.
● Re-calculate the consolidated amounts.
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Analysis at Acquisition
Cost of 90% of Sun $360 Allocated to: Amt Amort
Implied value of Son ($360/.90) $400 Inventories $10 1st yr
Book value (200+50) 250 Land 30 -
Excess $150 Building 80 20 yrs
Blank blank Equipment (20) 10 yrs
Noncontrolling interest, Goodwill 50 -
10%(400) $40 blank 150 blank
blank 2017
Pam's 90% share
Sun's net income $60 $43.2
Amortization ($12) $18.0
Adjusted income $48
blank blank
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