STEPS IN CONSOLIDATION WORKING PAPERS ON THE DATE OF ACQUISITION

1 Compute the Cost/Book Value Differential. Keep this computation on file because it will be used in the working
papers of SUBSEQUENT PERIODS

2 In the Working Paper:

A Eliminate the Subsidiary's Shareholders' Equity and the Investment in Subsidiary Accoutn (up to the extent of
the PARENT's Interest), and set up a Minority Interest in the Net Assets of the Subsidiary (MINAS) Account

B ADJUST the Assets and Liabilities of the Subsidiary and RECORD GOODWILL (if there is any) with corresponding
CREDITs to Investment in Subsidiary and MINAS

STEPS IN CONSOLIDATION WORKING PAPERS SUBSEQUENT TO THE DATE OF ACQUISITION

A ADJUST Investment in Subsidiary Account from Cost Method to Equity Method as of the BEGINNING of the YEAR

1 Get the DIFFERENCE between the RE of the Subsidiary as of the Beg of the Current Year and the RE of the
Subsidiary as of the DATE OF ACQUISITION

2 From the DIFFERENCE, get the % of the Parent

3 From the share of the PARENT, DEDUCT the Parent's ADJUSTMENTS for :
DEPRECIATION
AMORTIZATION

of the COST/BOOK VALUE DIFFERENTIAL from the DATE OF ACQUISITION up to the BEGINNING OF THE YEAR

B ELIMINATE DIVIDENDs INCOME Account and ADJUST MINAS with a corresponding elimination of the DIVIDENDS
DECLARED account in the Subsidiary's Statement of Retained Earnings

C ELIMINATE the Subsidiary's SHARE CAPITAL and RETAINED EARNINGS ACCOUNT at the BEGINNING of Year with a
corresponding CREDITS to Investment in Subsidiary account and MINAS

D ADJUST Assets and Liabilities of the Subsidiary and Goodwill as of the BEGINNING of year with a corresponding
CREDIT to Investment in Subsidiary account.

E ADJUST Cost and Expenses (if there are depreciable or amortizable increases in Assets and Liabilities

F TRANSFER MINORITY INTEREST NET INCOME of the Subsidiary (MINIS) to MINAS

3 A & B COMPANY DATE OF ACQUISITION

The balance sheets of A Company and B Company immediately BEFORE the acquisition of B Company by A Company:

BALANCE SHEET A Co. B Co.

Cash 180,900 37,400
Net receivables 34,200 9,100
Inventories 22,900 16,100
Equipment- net 29,000 40,000
Patents 0 10,000
Total assets 267,000 112,600

Accounts payable 4,000 6,600

Bonds payable 100,000 0
Ordinary shares, P 10 par C/S 100,000 50,000
Share premium APIC 15,000 15,000
Retained earnings 48,000 41,000
Total liabilities & equity 267,000 112,600
 At the date of combination, the FAIR VALUES of all the Assets and Liabilities are determined by appraisals as
follows:
B COMPANY
BOOK FAIR
PARTICULARS VALUE MKT VALUE DIFFERENCE INCREASE DECREASE
A Cash 37,400 37,400 -
Accounts receivable - net 9,100 9,100 -
Inventories 16,100 18,100 2,000 2,000
Equipment - net 40,000 48,000 8,000 8,000
Patents 10,000 12,000 2,000 2,000
-
L Accounts payable (6,600) (6,600) -
TOTAL NET ASSETS 106,000 118,000

CASE 1 80 PERCENT ACQUISITION A Company acquired all the net assets of B Company for P 134,000

A Journal entry on A Company's Books DEBIT CREDIT

Investment in B Company stocks 134,000
Cash 134,000

B Compute Cost Book Value Differential to facilitate Working Paper preparation

100% PARENT MINORITY
Acquisition cost 134,000
Book value of Net Assets acquired 106,000 (80%) #VALUE! 21,200

Difference due to: #VALUE!

Increase in Inventory 2,000 (80%) #VALUE! #VALUE!
Increase in Equipment 8,000 (80%) #VALUE! #VALUE!
Increase in Patents 2,000 (80%) #VALUE! #VALUE!
EXCESS (If Any) GOODWILL #VALUE! #VALUE!

MINORITY INTEREST IN THE NET ASSETS OF THE SUB #VALUE!

C ELIMINATION ENTRIES DATE OF ACQUISITION DEBIT CREDIT

a Share capital 50,000
Share premium 15,000
Retained earnings 41,000
Investment in B stocks 106,000 (80%) 84,800
MINAS (20%) 21,200

b Inventories 2,000
Equipment 8,000
Patents 2,000
Investment in B stocks 12,000 (80%) 9,600
MINAS (20%) 2,400

c Goodwill #VALUE!
Investment in B stocks #VALUE!
D WORKING PAPER
ELIMINATIONS CONSOLI
BALANCE SHEET A B DEBIT CREDIT BS
Cash 46,900 37,400 84,300
Accounts receivable - net 34,200 9,100 43,300
Inventories 22,900 16,100 b 2,000 41,000
Equipment - net 29,000 40,000 b 8,000 77,000
Patents 0 10,000 b 2,000 12,000
c #VALUE!
INVESTMENT IN B STOCKS 134,000 a 84,800 0
b 9,600
Goodwill c #VALUE! #VALUE!

Total assets 267,000 112,600 #VALUE!

Accounts payable 4,000 6,600 10,600

Bonds payable 100,000 0 100,000
Ordinary shares 100,000 50,000 a 50,000 100,000
Share premium 15,000 15,000 a 15,000 15,000
-
Retained earnings 48,000 41,000 a 41,000 48,000

MINORITY INTEREST (MINAS) 0 0 a 21,200

b 2,400
23,600

Total liabilities & equity 267,000 112,600 297,200