SEPARATE AND

CONSOLIDATED
FINANCIAL
STATEMENTS
---------
Date of Acquisition
 Table of Contents

Introduction Concept of Control

• Net Asset Acquisition vs. Stock Control
•

Acquisition • PFRS 10 Guidance on Control

• Levels of Investment • Default presumption

Accounting for Stock Separate and

Acquisition Consolidated FS
• Acquisition Method • Entity Theory vs Parent
• Non-Controlling Interest Theory
• Step Acquisition • Consolidation
• Control Premium and • Reverse Acquisition /
Discount Takeover
 01
INTRODUCTIO
N
Net Asset Acquisition
vs Stock Acquisition
Net Asset Acquisition
● Obtain control of the acquired
corporation through buying its
assets and liabilities
● Acquirer - acquiree relationship
● Consolidated Financial
Statements (PFRS 10)
Stock
Acquisition
● Obtain control of the acquired
corporation through buying its
voting shares (Common Stock)
● Parent - Subsidiary relationship
(Group)
● Separate (PAS 27) and
Consolidated Financial
Statements (PFRS 10)
Levels of Investment

Level of Types of Influence /

Ownership Investment Control

No significant
Investment in Passive
X < 20% influence and
Shares/Equity Investment
control

Strategic With significant

Investment in
20% < x < 50% (Active) influence and
Associates
Investment no control

Strategic With significant

Investment in
50% < x (Active) influence and
Subsidiary
Investment control
Levels of Investment (Cont…)

Accounting Accounting Preparation of

Standards Methods FS

Investment in
PFRS 9 Cost Model Separate FS
Shares/Equity

Investment in
PAS 28 Equity Model Separate FS
Associates

Cost Model,
Separate and
Investment in Equity Model,
PFRS 10 Consolidated
Subsidiary Fair Value
FS
Option
Levels of Investment (Cont…)
 Levels of Investment
(Cont…)
PASSIVE INVESTMENT ACTIVE INVESTMENT
Initially recorded at
cost and subsequently
reported at fair value
(FVTPL or FVTOCI)
No significant influence
nor control
Initially recorded at
cost and subsequently
recorded at either
equity method, Cost
method, fair value
option.
 02
THE
CONCEPT OF
CONTROL
 It is the criterion for identifying a
parent-subsidiary relationship and the
T R O L basis for consolidation.
CON PFRS 10 uses control as the single
basis for consolidation.
PFRS 10
Guidance on 2.
Control Exposure, or rights,
to variable returns

1. 3.
Power over the Ability to use power
Investee over the investee
Default Presumption
-use of this quantitative criterion is only a guide in the absence of any evidence
of control of the parent to the subsidiary.

Investment in Investment in Investment in

Shares Associates Subsidiary

0% 20% 50% 100%

 03
ACCOUNTING
FOR STOCK
ACQUISITION
 Acquisition Method

1
04 Identify the acquirer
01
and the acquisition
4 date
2
Calculate the Determine the
Goodwill/ Bargain Consideration
Purchase Gain 3 transferred and
the level of
Determine the
ownership
fair value of the
identifiable net
assets as well as
03 the adjustment 02
from their book
value
Computation of Goodwill or Bargain Purchase Gain

I. The aggregate of:

A. Consideration Transferred XXX

B. Non-Controlling Interest XXX

C. Previously Held Interest XXX XXX

II. Fair Value of the Business XXX

Acquisition
III. Goodwill / Bargain Purchase Gain XXX
Method (Cont…)
 Acquisition
Related Cost
• It does not affect the computation of
goodwill.
• It is considered as expenses on the
books of the parent entity
• Direct and indirect cost are closed
to the retained earnings while
stock-related costs are closed to
the Share premium or additional
paid-in capital.
 Wholly-owned vs Partially-owned
Subsidiaries
Wholly-Owned Partially-Owned
Subsidiary Subsidiary

Non-controlling
Interest / NCI
20% (Minority Interest)

100% 80%

Controlling Interest
(Parent’s Interest)
 OPTION 1: Can be measured
Non- at given fair value or implied fair
Cont value. (FAIR VALUE BASIS)
ng In rolli
teres
(NCI t
) OPTION 2: Can be measured
at proportionate share of the
identifiable net assets acquired.
(PROPORTIONAL BASIS)
 Goodwill
Is an unidentifiable
asset in which its
existence is an
important motivation
for a parent to acquire
a subsidiary.
Goodwill
(Cont…)

Full Goodwill Partial Goodwill

(Fair Value Basis) (Proportionate Basis)
• Goodwill is recognized by both • Goodwill is recognized only by
the controlling interest and the controlling interest and not
non-controlling interest. by Non-controlling interest.

• The fair value of the business • The fair value of the business
allocated to the NCI is not equal allocated to the NCI is equal to
to the fair value/implied value of the fair value/implied value of
the NCI. the NCI.
 Control Premium is an amount that a L
R O
buyer is usually willing to pay over the
CONT M
current market price of a publicly
E M I U
traded company. PR
vs
Control discount is the opposite
T R O L
situation of control premium which CON N T
arises from lack of control. O U
DISC
Business Combinations Achieved in Stages
Step Acquisition
Investment in Subsidiary
Investment in A
shares 60%

18%
25%

Investment in
Associates 100%