Key concepts

Considerations Goodwill
transferred
A group Non-controlling interest
Net asset of Basic principles
subsidiary
Fair value Group’s retained
earnings

1-1
 Considerations

Cash Issuing shares Incurring

liabilities…

1-2
 A group: One enterprise (the parent) controls,
either directly or indirectly another enterprise
(the subsidiary). A group consists of a parent
and its subsidiaries

 Net asset: represents the net value of an entity

and is calculated as the total value of the entity’s
assets minus the total value of its liabilities
Net asset = Total assets- Total liabilities= Equity

1-3
 Fair value:
The price that would be received to sell an asset
or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date
Fair value of net assets of subsidiary at the date of
acquisition: identifiable assets and liabilities of
subsidiary in acquisition are measured at
acquisition-date fair value
Fair value of net assets of subsidiary= Book value
of equity of subsidiary (net book value of
1-4
subsidiary)+ Fair value adjustment on acquisition
 (1) Goodwill (in shares of parent)=fair value of consideration
paid-(% share of parent own in subsidiary x fair value of net
assets of subsidiary)

(2) Goodwill ( of NCI)= Fair value of NCI at the date of

acquisition- (% share of non-controlling shareholders in
subsidiary x Fair value of net assets of subsidiary)

Total Goodwill (reported in the group’s consolidated statement of

financial position)=(1)+ (2) = Fair value of consideration paid+
Fair value of NCI at acquisition date- 100% Fair value of net
assets of subsidiary
Goodwill is unchanged if there is no impairment on goodwill

1-5
 Example:
A paid $900.000 in cash to buy 80% shares of B on
31/12/2021. Fair value of net asset of B on 31/12/2021 is
$1.000.000. Fair value of NCI is $230.000 on 31/12/2021.
Calculate the goodwill?
- (1) Goodwill (in shares of parent): =fair value of
consideration paid-(% share of parent own in subsidiary x
fair value of net assets of subsidiary on the acquisition
date)= 900.000-80%*1.000.000=$100.000
 (2) Goodwill ( of NCI)= Fair value of NCI at the date of
acquisition- (% share of non-controlling shareholders in
subsidiary x Fair value of net assets of subsidiary on the
acquisition date)=230.000-20%*1.000.000=$30.000
Total goodwill=(1)+(2)=100.000+30.000=130.000

1-6
 Non-controlling interest:
The holder of any shares not acquired by the
parent are collectively referred as a non-controlling
interest (part-owners of subsidiary)
All of the net assets of the subsidiary is included in
the group statement of financial position. Non-
controlling interest is shown as partly financing
those net assets
NCI post acquisition presented in group’s
statement= NIC at acquisitionday+ % share of
Non-controlling shareholders x retained earnings
1-7
of subsidiary (from acquisition day to reported day)
 A paid $900.000 in cash to buy 80% shares of B
on 31/12/2021. Fair value of net asset of B on
31/12/2021 is $1.000.000. Fair value of NCI is
$230.000 on 31/12/2021. From 31/12/2021 to
31/3/2022, B makes $150.000 profit after tax and
all keeps as retained earnings.
Calculate NCI on 31/3/2022?
NCI post acquisition presented in group’s
statement= NIC at acquisition day+ % share of
Non-controlling shareholders x retained earnings
of subsidiary (from acquisition day to reported day)
=230.000+20%*150.000

1-8
 Group retained earnings= P’s retained earnings + P’s
share in S’s post-acquisition retained earnings
Ex: A paid $900.000 in cash to buy 80% shares of B on
31/12/2021. Fair value of net asset of B on 31/12/2021 is
$1.000.000. Fair value of NCI is $230.000 on 31/12/2021.
From 31/12/2021 to 31/3/2022, B makes $150.000 profit
after tax and all keeps as retained earnings.
On 31/3/2022: retained earnings of parent in parent’s
financial statement is 300.000
Calculate group retained earnings on 31/3/2022?
On 31/3/2022: Group retained
earnings=300.000+80%*150.000

1-9
 Basic principles

Adding together Cancellation of Consolidation as if

intragroup items you owned everything
then show the extent
to which you do not
own everything

Assets and liabilities are - Investment in subsidiary is The non-controlling

added together (do not add
equity of subsidiary with
equity of parent)
Revenues, expenses…are
added together
1-10
replaced by the % share of interest in the
parent of fair value of the assets subsidiary’s net asset is
and liabilities of subsidiary separately reported as a
- Eliminate in full intragroup assets part of equity
and liabilities, equity, income,
expenses and cash flows relating to
transactions between entities of the
group
  Cancellation of intragroup items
A: parent: has A’s financial statement (statement of financial position,
statement of income, statement of cash flow…)
B: subsidiary has B’s financial statement (statement of financial
position, statement of income, statement of cash flow…)
A and B are two separate entities
Now: Prepare consolidated statement of financial position,
consolidated statement of income…of the group (including A and B)
A and B in the same house when we prepare the consolidation accounts
of the group
Ex: A sold to B 20.000 products with the price is $200.000 to get
cash, cost of good cost of this transaction is $150.000
Record: A:
Debit cash/Credit revenue: 200.000
Debit cost of good sold/Credit inventory: 150.000
Record: B: Debit inventory/Credit cash: 200.000
1-11