●

Business
Acquirer must acquire 100% of the
net assets of the acquiree
● Maybe:

combination ✔ Merger
✔ Consolidation

Acquisition
There must be (Requirement for business
combination)

● Control
● Business

Happens through:
Method
Refers to the method used in accounting for
I. Acquisition of common stock
business combination
II. Net asset acquisition
Steps in the Acquisition Method
Acquisition of common stock

Acquirer obtains control by acquiring

majority of ownership of interest in the
voting rights of the acquiree ( basically a
investment)

Effects:

● Books of the acquirer and acquiree

company remains intact
● Acquirer must obtain more than
50% of the voting common stock
● Acquired company need NOT be
dissolve
● Uses “investment in subsidiary”
account

Can be accounted for as:

✔ Investment inf fair value- used

when there is no significant control
(less than 20%)
FV of the
o FVTPL
o FVTOCI consideration
✔ Investment in associate – with
significant influence (20%-50%)
✔ Investment in subsidiary (51%) The sum of: ( All must be measured at FV)
Net Asset acquisition ● Assets transferred by the acquirer
Effects: (monetary or non-monetary
assets)
● Books of the acquiree are closed ● Liabilities incurred by the acquirer
out, the assets and liabilities are to former owners of acquiree
then transferred to the books of ● Equity interest issued by the
the acquirer acquirer

Page 1 of 7
 ●
Non-Controlling
Consider the acquisition
related cost
● Contingent consideration
● Control premium interest
Acquisition related costs Refers to the equity in a subsidiary not
attributable directly or indirectly to a parent
Cost directly attributable to the combination
of business ( excluded in the FV of
consideration)

Type:
Measured through:
● Stock or debt issuance
✔ Stock issuance – ● At FV (Consideration based – value
deduction to APIC if any of NC or given)
and then to RE if APIC is ● NCI’s proportionate share of the
fully exhausted acquiree’s INA.
✔ Debt issuance –
Note that NCI cannot have a gain or bargain
Charged to premium or
purchase – it is either a goodwill or 0
discount
● Others Formula:
Are expense and are charged to RE
Used for full goodwill
Contingent consideration
FV of NCI
Payment can be through ● Consist of
Proportionate share of
● Cash/ Liability
NCI in Net asset +
● Equity / shares
Share in goodwill
Measurement: FV at acquisition date
NCI-NI
This is measured or recognized as Less: Dividend paid
consideration only when there is available FV
at the time of acquisition
Partial goodwill
Remeasurement
FV of NCI
● Within 1 year – charge to their ● Consist of
accounts as if they occurred at Proportionate share of
acquisition date NCI in Net asset
● More than 1 year – charge to P/L
NCI-NI
Agreed contingent consideration @ X Less: Dividend paid
date of acquisition
Less: FV of CC @ Acquisition date (X)
Remeasurement XX Business Combination achieved in
Applicable only to cash payments , Remeasurement STAGES (PREVIOUSLY HELD
on equity payments are ignored
INTEREST)
Refers to situation where investor acquires
additional shares from investee which it HAD
PREVIOUSLY held equity interest (additional
Page 2 of 7
shares resulted to obtaining control over the
investee)
To transfer the cumulative Gain or Loss on
Steps: RE

● Remeasure the previously held Gain

equity interest at its acquisition
date fair value (MTM OR Unrealized gain -OCI X
Retained Earnings X
REMEASUREMENT)
Loss
● Recognize gain or loss on
remeasurement in: (RECLASSIFY) Retained Earnings X
✔ Profit or Loss – if Unrealized Loss –OCI X
previously held equity
interest was FVPL
✔ OCI- if previously held To record the investment
equity interest was FVOCI
Investment in subsidiary X
Profit or Loss – if previously held equity Cash X
interest was FVPL Investment in FVOCI X
securities
( and at the same time derecognized the trading in
securities because you have already gain control –
To recognize the Gain on remeasurement thus it becomes an investment in subsidiary

If Gain (FV – CA) Investment in subsidiary X

Cash X
Held for trading securities X
Held for trading securities X
Unrealized Gain – P/L X
If Loss

Unrealized Loss– P/L X

Held for trading securities X

To record the investment

( and at the same time derecognized the trading in

securities because you have already gain control –
thus it becomes an investment in subsidiary)

OCI- if previously held equity interest was

FVOCI

To remeasure the FVOCI

If Gain (FV – CA)

Held for trading securities X

Unrealized Gain –OCI X
If Loss

Unrealized Loss– OCI X

Held for trading securities X

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Identifiable NET
Consideration transferred
assets NCI in the acquiree X
Previously held interest in the X
Measurement : Fair Value acquiree
Total XX
Assumption: (General rule- unless otherwise Less: FV of INA (X)
stated) Goodwill (Gain on Purchase XX
bargain)
● Goodwill of acquiree – 0 value
● Prepaid expenses of acquiree - 0
value Goodwill in:
● Operating leases
● Parents separate statement – not
If acquiree is the lessee ( measured
recorded (included as a deduction in IIS)
at FV difference)
● In consolidated statement – Recorded
✔ Unfavorable – liability of separately
acquiree

OPERATION
✔ Favorable – asset of
acquiree

If acquiree is the lessor – ignore

Declaration of income

Goodwill Treatment

Income of Parent Income of

Is the sum of: subsidiary
1) 100% to parent Distributed to:
● Parent
● FV of consideration ● NCI
● NCI
● Previously held interest

Less: Declaration and payment of dividends

2) Treatment
● FV of the Identifiable net assets
Dividend declared Dividend declared
by parent by subsidiary
1> 2 Goodwill 100% to parent Distributed to:
1<2 Gain on purchase bargain ● Parent
● NCI

Goodwill asked can be:

● Partial - refers to the goodwill of Intracompany transaction

the parent only Types:
● Full goodwill – refers to the
goodwill of parent and NCI ● Inventory
Markup can be based:
✔ Sales ( x)
✔ Cost (÷1. %)
● Depreciable assets
Page 4 of 7
 ● Non- depreciable asses NON- DEPRECIABLE
ASSET (Whole amount
Realized Unrealized of gain)
Inventory When sold Unsold *SP-BV
to outsider (Ending Downstream
Unrealized Loss
(Beginning balance)
Realized Loss
balance)
Unrealized Gain
Depreciable Straight Full
Realized Gain
Asset line Upstream
(Selling Unrealized Loss
price – BV) Realized Loss
Non- When sold Not sold Unrealized Gain
Depreciable (whole Realized Gain
amount) Impairment of (X) (X) (X)
Goodwill
Consolidated Net XX XX XX
CI-NI NCI-NI
Intracompany transaction can be: Income

● Downstream
● Upstream Items that affect RETAIN EARINGS ( any
items related to income)
Downstream, 100% to parent
Upstream Distributed to: Indirect cost
● Parent Gain on BP
● NCI Excess APIC

Deducted when unrealized, added back

when realized
ITEMS OF RETAINED EARNING
CONSOLIDATED INCOME STATEMENT
At date of acquisition
TOTAL P S
Income of parent X X Parent- RE
Income of subsidiary X X X Less: Indirect acquisition related
Allocation of excess (X) (X) (X) cost or deficient direct cost
INVENTORY
Downstream
UPEI (X) (X) At subsequent date
RPBI X X
Upstream Parent – RE
UPEI (X) (X) (X) Add: CI-NI
RPBI X X X
Less: Dividend paid
DEPRECIABLE ASSET
SP-BV ( Amortized or
by parent
depreciated)
Downstream
Unrealized Loss X X SHE
Realized Loss (X) (X)
Unrealized Gain (X) (X) C/S parent
(Old + New issuance)
Realized Gain X X
RE
Upstream
(as computed)
Unrealized Loss X X X
APIC
Realized Loss (X) (X) (X)
Unrealized Gain (X) (X) (X)
Gain on BP
Realized Gain X X X NCI

Page 5 of 7
Note that in stock acquisition- the SHE of ✔
SP of share sold
subsidiary is closed ✔
FV of remaining share
unsold
Net assets can be:
✔ BV of NCI
● Net Assets ● CONTROL IS NOT LOSS by the parent
● Net Identifiable assets
Without goodwill No additional share is issued
CONSOLIDATED SALES
SP of the share sold
Sales – Parent Less: Cost of the share sold
Sales - Subsidiary Addition to Paid in capital
Less: Intercompany sales With additional shares issued

Cash proceeds from additional

CONSOLIDATED COST OF GOOD SOLD shares
Less: Δ in the value of NCI
COGS – Parent
Addtion (Deduction) to APIC
COGS – Subsidiary
UPEI
Less: Where: Δ in the value of NCI
Intercompany sales
RPBI Before NCI : INA X NCI% before

Less: NCI after

CASES: (INA before + Cash proceed)x New NCI %

1. Consideration transferred is with *New NCI % = ( New NCI shares/ New outstanding
share)
control premium
✔ To compute for the NCI

((𝐶𝑇 − 𝐶𝑃)÷𝐶𝐼% )𝑋 𝑁𝐶𝐼% OR

New value of IIS

*BV after issuance X (CI shares/ New
outstanding share)
Old value of IIS
Addition (Deduction) to APIC

GAIN OR LOSS ON DECONSOLIDATION In cases when:

● There is LOSS OF CONTROL of Disposal of Depreciable asset by Purchasing

SUBSIDIARY by the parent. affiliate (Sales to outsider)

FV- new To adjust to the true gain realized by the

Less: Old FV ( now the BV) before
the sale
Gain (Loss ) on deconsolidation
Note that the new and old fv are measured
at the ownership % of acquirer before the
loss of control
entity
Adjustment= True gain – Recognized gain by
the selling affiliate based on the cost
recorded by the seller.
Amount is also the remaining unrealized gain
from the intercompany sale

Step 1: Get the NEW FV

Composed of :
Page 6 of 7
Entry In Equity Method

Retained earnings – P X Results of the operations are usually

NCI X reflected in the “Investment in subsidiary
Gain on sale of depreciable X account
asset
Share in the unrealized net gain Parents book

INVESTMENT IN SUBSIDIARY (Debit)

EQUITY + -

METHOD ● Income of parent

● Income of subsidiary
●Dividends
received from
( CI%) subsidiary (CI%)
● Realized gain on ●Amortization
intercompany and impairment
transactions ●Unrealized gain
on intercompany
transaction

Under Equity Method:

● Parent’s net income = INVESTMENT INCOME

NI-CI
● Parent’s RE= - +
Consolidated RE ● Amortization ● NI of Subsidiary
● Parent’s CS = Consoliated and ● Realized gain on
C/S impairment intercompany sale
● Parent’s APIC=
Consolidated APIC
● Parent’s Dividend ● Unrealized gain
declared or paid= on
Consolidated dividend intercompany
declared or paid sale

What differs in the equity method against

the cost method is the VALUE of the
“INVESTMENT IN SUBSIDIARY” account in
the parent SEPARATE BOOK.

In cost method:

The IIS account is at cost, which means that

the value recorded is the CONSIDERATION
TRANSFERRED at the date of acquisition.

Meaning: It is not affected by any other

activities that will occur after the acquisition.

The changes and the operation is generally

reflected in the Retained earnings of the
parent.

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