Pertemuan 10 Bu There Chapter 8

Chapter 8
Consolidations –
Changes in Ownership
Interests
to accompany
Advanced Accounting, 11th edition
by Beams, Anthony, Bettinghaus, and Smith
Copyright ©2012 Pearson Education,

8-1
Inc. Publishing as Prentice Hall
Consolidations - Changes in
Ownership Interests: Objectives
1. Prepare consolidated statements
when parent's ownership percentage
increases or decreases during the
reporting period.
2. Apply consolidation procedures to
interim (mid-year) acquisitions.
3. Record subsidiary/investee stock
issuances and treasury stock
transactions.
8-2
Consolidations – Changes in Ownership Interests
1: CHANGES IN OWNERSHIP
PERCENTAGE

8-3
Changes in Parent Ownership
Increases (acquires or maintains control)
1. Parent acquires controlling interest during
interim period
2. Parent acquires controlling interest in stages
3. Parent acquires additional shares from
noncontrolling interest
Decreases (maintains or loses control)
4. Parent sells shares but maintains control
5. Parent sells shares giving up control

8-4
Interim Acquisition of Control
Parent obtains control
 Determine implied value and allocate excess
 Apply consolidation procedures

8-5
Interim Acquisition
Where Control is Maintained
Parent increases its share by buying
more stock or decreases its share by
selling some stock
 Change in Investment in sub is based on the
underlying fair value of equity
 No gain or loss is recognized; paid in capital is
adjusted

8-6
Interim Sale
Where Control is Relinquished
Parent sells part of its investment and no
longer maintains control
 Reduce the investment based on proportion of
interest sold
 Record gain or loss on sale
 Discontinue consolidation

8-7
Is There a Gain or Loss?
Basic rule: No gain or loss is recorded on
equity transactions with a firm's owners.
1.Control before and after the transaction is an
equity transaction
 No gain or loss
 Adjust paid in capital, if needed
2.No control before and control after
 Point of business acquisition
 No loss
 Might have gain on bargain purchase
3.Control before and no control after
 Disposition of asset
 Gain or loss is recorded

8-8
Preacquisition Earnings
Earnings prior to the date of acquisition
are eliminated from consolidated income
by one of two methods.
1.Exclude revenues and expenses of the
subsidiary prior to acquisition from
consolidated amounts, or
2.Include the revenues and expenses of
the subsidiary in the consolidated income
statement for the full year and deduct
preacquisition income as a separate item.
8-9
Equity Book Value on Interim Date
Calculate book value (equity) as of the
acquisition date:
Beginning BV equity
+ preacquisition revenues
– preacquisition expenses
– preacquisition dividends
= BV equity at acquisition
Sales and expenses (not dividends) for
the year may be assumed level.
8-10
2: INTERIM ACQUISITIONS

8-11
Simple Interim Acquisition: Example
Pot acquires 80% of Spot for $2,400 on 5/1/12. Fixed
assets with a remaining life of 5 years are undervalued by
$600. Spot distributed $150 dividends each on 3/1/12 and
12/1/12. Spot's trial balance on 12/31/12 was:
Cash 50 Accounts payable 300

Inventories 900 Other liabilities 1,200
Fixed assets, net 2,800 Common stock 600
Cost of sales 1,500 Retained earnings, 1/1 1,350
Operating expenses
Revenues and expenses600
are Sales
assumed to be incurred 2,700
Dividends over the year.300
uniformly
6,150 6,150

8-12
Find Book Value at Acquisition
Retained Earnings and Four months’
Common Stock at 1/1/12. proportion of
revenue and
expenses.
Book value of equity on 1/1/12 $1,950
Preacquisition amounts:
Revenues 900 Jan-Apr
Cost of sales (500) Jan-Apr
Operating expenses (200) Jan-Apr
Dividends (150) none
Book value on 5/1/12 $2,000

8-13
Analysis and Amortizations
$2,400 / .80
Cost of 80% of Spot 2,400
Implied value of Spot 3,000 From previous
Book value 2,000 calculation. $600/5 x 8/12.
Excess 1,000
Unamort Unamort
Allocated to: 5/5/12 2012 12/31/12
Fixed assets 600 (80) 520
Goodwill 400 0 400
Total 1,000 (80) 920
Spot's 20012 income 600

Income since May 1 400
Amortization (80) CI 80% share 256
Adjusted 320 NCI 20% share 64
8-14
Pot's Equity Entries
These entries are made in Pot’s general ledger:

Investment in Spot 2,400
Cash 2,400
for acquisition
Cash (150X 80%) 120
Investment in Spot 120
for dividends
Investment in Spot (previous
calculation) 256
Income from Spot 256
for income from sub
8-15
Income from Spot 256
Dividends 120
Investment in Spot 136
Noncontrolling interest share 64
Worksheet Dividends 30
elimination Noncontrolling interest 34
entries for Sales 900
2012. Common stock 600
Retained earnings 1/1 1,350
Notice the Fixed assets 600
Goodwill 400
preacquisition
Cost of sales 500
revenues, Operating expenses 200
expenses, and Dividends 150
dividends Investment in Spot 2,400
included in the Noncontrolling interest 600
third entry. Depreciation expense 80
Accumulated depreciation 80
8-16
Income statement: Pot Spot DR CR Consol
Sales 5,000 2,700 900 6,800
Income from Spot 256 256 0
Cost of sales (2,100) (1,500) 500 (3,100)
Operating expense (800) (600) 80 200 (1,280)
Noncontrolling interest
share 64 (64)
Controlling interest share 2,356 600 2,356
State of retained earnings:
Retained earnings, 1/1 4,300 1,350 1,350 4,300
Add net income 2,356 600 2,356
Deduct dividends (1,000) (300) 120
30
150 (1,000)
Retained earnings, 12/31 5,656 1,650 5,656
8-17
Balance sheet: Pot Spot DR CR Consol
Cash 950 50 1,000
Inventories 1,300 900 2,200
Fixed assets, net 5,170 2,800 600 80 8,490
Investment in Spot 2,536 136
2,400 0
Goodwill 400 400
Total 9,956 3,750 12,090
Accounts payable 500 300 800
Other liabilities 1,800 1,200 3,000
Common stock 2,000 600 600 2,000
Retained earnings 5,656 1,650 5,656
Noncontrolling interest 600
34 634
Total 9,956 3,750 12,090
8-18
Simple Interim Acquisition: Example
P memperoleh S 70% seharga 2,4 Milyard pada tanggal 1 april 2015.
Aktiva tetap memiliki sisa umur ekonomis 8 tahun dengan saldo
undervalue 16 juta. S membagi deviden setiap tanggal 1 maret dan 1
desember. neraca saldo S per 31 desember 2015 sbb :
Cash 50 jt Accounts payable 300jt

Inventories 900jt Other liabilities 1,2 M
Fixed assets, net 2,8M Common stock 600 jt
Cost of sales 1,5M Retained earnings, 1/1 1,35M
Operating expenses 600jt Sales 2,7M
Pendapatan dan biaya diasumsikan terjadi secara rata-rata setiap
Dividends
bulan dalam setahun 300jt
6,15M 6,15M

8-19
1. Hitunglah nilai buku aktiva bersih S pada saat
dibeli oleh P
2. Hitunglah ekses yang terjadi atas transaksi
pembelian Soleh P
3. Hitunglah amortisasi atas ekses yang terjadi
pada akhir tahun 2015
4. Hitunglah hak P dan NCI atas laba S
5. Buatlah jurnal investasi dan pengakuan laba dan
deviden S
6. Buatlah jurnal eliminasi yang dibutuhkan untuk
menyusun laporan konsolidasi pada akhir tahun
2015

11-20
Piecemeal Acquisition: Example
Pepper acquired Salt in a series of acquisitions,
resulting in a total 90% ownership.
Interest Investment
Date Acquired Cost
April 1 5% 7,000
July 1 5% 8,000
October 1 80% 210,000
90% 225,000
The total book value and fair value of Salt's net
assets on October 1 (date control was
acquired) was $220,000. Cost of 90% of Salt 225,000
Implied value of Salt 250,000
Book value 220,000
Goodwill 30,000
8-21
Income Distribution
Salt's income allocation for the year:
Total Oct 1 - Dec 31 before Oct 1
Preacquisitio
Income CI 90% share NCI 10% Share n
Sales 150,000 33,750 3,750 112,500
Expenses (110,000) (24,750) (2,750) (82,500)
Net
income 40,000 9,000 1,000 30,000

8-22
Pepper's Worksheet Entries
Income from Salt 9,000
Dividends 0
There were Investment in Salt 9,000
no dividends Noncontrolling interest
before or share 1,000
after the Dividends 0
acquisition Noncontrolling interest 1,000
in this case. Sales 112,500
Zeros are Common stock 100,000
included just Retained earnings 1/1 90,000
for clarity. Expenses 82,500
Dividends 0
Investment in Salt 225,000
Noncontrolling interest
25,000
8-23
Income statement: Pepper Salt DR CR Consol
Sales 274,875 150,000 112,500 312,375
Income from Salt 9,000 9,000 0
Expenses (220,000) (110,000) 82,500 (247,500)
Noncontrolling interest share 1,000 (1,000)
Controlling interest share 63,875 40,000 63,875
State of retained earnings:
Retained earnings, 1/1 221,500 90,000 90,000 221,500
Add net income 63,875 40,000 63,875
Deduct dividends 0 0
Retained earnings, 12/31 285,375 130,000 285,375
8-24
Balance sheet: Pepper Salt DR CR Consol
Other assets 451,375 300,000 751,375
Investment in Salt 234,000 9,000

225,000 0
Goodwill 30,000 30,000
Total 685,375 300,000 781,375
Liabilities 100,000 70,000 170,000
Common stock 300,000 100,000 100,000 300,000
Retained earnings 285,375 130,000 285,375
Noncontrolling 25,000
interest 1,000 26,000
Total 685,375 300,000 781,375
8-25
Piecemeal Acquisition: Example
P memperoleh S dengan kepemilikan bertahap dengan total nilai
80%, Berikut ini detail kepemilikannnya:
Interest Investment
Date Acquired Cost
April 1 10% 7,000
Juli 1 70% 210,000

80% 225,000
The nilai buku total book value and fair value of
Salt's net assets on October 1 (date control was
acquired) was $220,000.
Cost of 90% of Salt 225,000
Implied value of Salt 250,000
Book value 220,000
Goodwill 30,000
8-26
Interim Sale, Continued Control:
Example
Pablo owns 90% of Sergio. Pablo’s 1/1/12 $228
investment balance reflects Sergio's
underlying equity plus $18 goodwill ($20 total
implied goodwill). During 2012, Sergio reports
$36 income and pays $20 dividends on July 1.
Pablo sells 10% interest in Sergio on April 1 for
$40.
Before Interest After
the sale sold the sale
Pablo's interest in Sergio 90% 10% 80%
Investment account:
1/1 balance 288.0
Income to 4/1 8.1
4/1 balance 296.1 32.9 263.2
8-27
Investment in Sergio: T-account
Investment in Sergio
1/1 Balance 288.0
90% income to 4/1 8.1
4/1 sale of 10% (1/9 of
4/1 Balance 296.1 32.9 shares)
16.0 6/1 dividends (80%)
80% income since
4/1 21.6
12/31 Balance 268.8

8-28
Pablo's Entry for the Sale
Cash 40.0
Investment in Sergio 32.9
Additional paid in capital 7.1
No gain or loss is recorded. Since

Pablo retains control, the sale of
some shares is treated as an owner
transaction; the difference impacts
paid in capital.
8-29
Noncontrolling Interest Calculations
Balance on Jan 1: (288*.1/.9) $32.0

Income to April 1: (36*.1*3/12) 0.9
Addition to NCI on April 1 32.9
Income since April 1: (36*.2*9/12) 5.4
Dividends (20*.2) (4.0)
Balance at Dec 31 $67.2

8-30
Worksheet Entries
Income from Sergio (8.1+21.6) 29.7
Dividends 16.0
Investment in Sergio 13.7
Noncontrolling interest share (0.9+5.4) 6.3
Dividends 4.0
Noncontrolling interest 2.3
Common stock 200.0
Retained earnings 1/1 100.0
Goodwill 20.0
Investment in Sergio (288-32.9) 255.1
Noncontrolling interest, 1/1 32.0
Noncontrolling interest, 4/1 32.9
8-31
Interim Sale, Loss of Control: Example
1. Bring investment account up to date,

recognizing partial year's income as
appropriate
2. Determine BV of fraction of investment sold
3. Compare to selling price
4. Record a gain or loss on difference
5. The "parent" no longer consolidates the
"subsidiary"
 That relationship has been dissolved
 Parent will use equity or fair value/cost method as
appropriate
8-32
3: SUBSIDIARY’S STOCK
TRANSACTIONS

8-33
Subsidiary Actions
Subsidiary actions increasing Parent share
1. Sub issues additional shares to Parent
2. Sub reacquires shares from noncontrolling interest
Subsidiary actions decreasing Parent share
3. Sub issues additional shares to noncontrolling interests
4. Sub reacquires shares from Parent
Subsidiary actions not impacting ownership
5. Sub issues stock to both parent & noncontrolling interest
6. Sub issues stock split or stock dividend

8-34
Sub Issues Stock to Parent: Example
Pratt owns 80% of Strut, acquired at $180.
Cost of 80% of Strut $180

Implied value of Strut $225
Book value of Strut 200
Excess, goodwill $25
Strut issues additional shares to Pratt.

Outstanding shares increased from 10K to 12K.
Pratt had owned 8K of the 10K (80%), but now
owns 10K of the 12K shares (66.67%).
8-35
Pratt's Entry
Pratt acquires additional shares directly from

Strut at book value, $40.
Investment in Strut 40
Cash 40
If Pratt had paid $70 (above book value) or $30
(below book value), only the amount in the entry
would change.
The following analysis shows different amounts
of goodwill which will be used in the
consolidation worksheet.
8-36
Before sale
Strut's equity 200
Goodwill 25 Goodwill may go
Total value 225 up or down
Pratt's Investment in Strut 180 depending on the
Pratt's share of BV of equity 160 value Pratt paid
Goodwill 20 for the additional
Total value 180 shares of Strut
Sell at BV Sell > BV Sell < BV

for $40 for $70 for $30
Strut's equity, after the issuance 240 270 230
Pratt's Investment, after 220 250 210.0
Pratt's share of equity, 10/12 share 200 225 191.7
New measure of goodwill 20 25 18.3
Total 220 250 210.0
8-37
Sub Issues Stock to Outsiders: Example
Puny owns 80% of Stat, acquired at $180.
Cost of 80% of Stat $180
Implied value of Stat $225
Book value of Stat 200
Excess, goodwill $25
Stat issues additional shares to outside
entities. Outstanding shares increased from
10K to 12K.
Puny had owned 8K of the 10K (80%), but now
owns 8K of the 12K shares (66.67%).
8-38
Before sale
Stat equity 200
Goodwill 25
Puny's measure of Total value 225
goodwill does not
Puny's Investment 180
change when Stat
issues the shares to Puny's share of BV of equity 160
outside entities, just Goodwill 20
the value of its Total value 180
Investment in Stat
account. Sell at BV Sell > BV Sell < BV
for $40 for $70 for $30
Stat equity, after 240 270 230
Puny's Investment current balance 180 180 180.0
Puny's share of equity, 10/12 share 160 180 153.3
Old goodwill 20 20 20.0
Total, new balance in Investment 180 200 173.3
Adjustment 0 +20 -6.7
8-39
Puny's Adjusting Entry
for $40:
no entry needed
for $70
Investment in Stat 20.0
for $30
Investment in Stat 6.7

8-40
Sub Purchases Treasury Stock:
Example
Pointer owns 80% of Shelly acquired for
$160, at cost equal to book value.
Cost of 80% of Shelly $160
Implied value of Shelly $200
Book value of Shelly 200
Excess, goodwill $0
Pointer holds 8K of Shelly's 10K shares
outstanding (80%). Shelly reacquires 0.4K
shares from outsiders. Pointer now holds
8K of Shelly's 9.6K shares outstanding
(83.33%)
8-41
Before treasury stock
Shelly's equity 200
Goodwill 0
There was no prior
Total value 200
goodwill; none is
Pointer's Investment in Shelly 160
created by Shelly
Pointer's share of BV of equity 160
purchasing treasury
stock. Pointer
Goodwill 0
adjusts the balance Total value 160
in its Investment
Buy = BV Buy > BV Buy < BV
account.
for $8 for $12 for $6
Shelly's equity, after 192 188 194
Pointer's Investment current balance 160 160 160.0
Pointer's share of equity, 8/9.6 160 156.7 161.7
Old goodwill 0 0.0 0.0
Total, new balance in Investment 160 156.7 161.7
Adjustment needed 0 -3.3 +1.7
8-42
Pointer's Adjustment
Pointer's entry when Shelly purchases treasury
shares from outsiders.
Treasury stock purchased for $8

no entry needed
Investment in Shelly 3.3
Investment in Shelly 1.7

8-43
Sub Stock Splits/ Stock Dividends:
Example
A subsidiary may issue stock dividends or
stock splits
 Impact is proportional on both controlling and
noncontrolling interests
 Percentage ownership does not change
 Stock dividends capitalize some of the subsidiary's
retained earnings

8-44
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Chapter 8

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Cash 50 Accounts payable 300

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Spot's 20012 income 600

These entries are made in Pot’s general ledger:

Cash 50 jt Accounts payable 300jt

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Juli 1 70% 210,000

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No gain or loss is recorded. Since

Balance on Jan 1: (288*.1/.9) $32.0

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1. Bring investment account up to date,

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Cost of 80% of Strut $180

Strut issues additional shares to Pratt.

Pratt acquires additional shares directly from

Sell at BV Sell > BV Sell < BV

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Treasury stock purchased for $8

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