CH3
AN INTRODUCTION TO CONSOLIDATED
FINANCIAL STATEMENTS
Parent–subsidiary Relationship

a parent–subsidiary relationship is created
 Acquire
controlling interest in voting stock
 Usually more than 50%
 May have control through indirect ownership(Ch9)
Consolidated financial statements
 Parent
and subsidiary continue to function
as separate entities and maintain accounting
records on a separate basis.
 Separate
parent and subsidiary financial
statements are converted into consolidated
financial statements that reflect the financial
position and the results of operations of the
combined entity.
Consolidated financial statements



More meaningful than separate financial
statements
Necessary for a fair presentation
A consolidated entity is a fictitious (conceptual)
reporting entity.
Consolidated Statements


Prepared by the parent company
Fiscal year end
 Use
parent's fiscal year end, but
 P&S Difference <=3 months, Disclose(adjust)
intervening material events
 P&S Difference >3months, adjusted as closely as
possible to the fiscal period of the parent
company.
Parent Acquires 100 Percent of
Subsidiary at Book Value p92

P acquires 100% of S at its book value and fair
value of $40,000 on 1/1 2011.
- P’s “Investment in S” appears in the
separate balance sheet of P, but not in the
consolidated balance sheet for P and S
- We eliminate reciprocal accounts in the
process of consolidation and combine only
nonreciprocal accounts.
Parent Acquires 100 Percent of Subsidiary at Book Value p92
Parent Acquires 100 Percent of Subsidiary—With
Goodwill p93


P acquires all of S’s stocks for $50,000, there will
be a $10,000 excess of investment cost over
book value acquired ($50,000 investment cost
less $40,000 stockholders’ equity of S).
In the absence of evidence that identifiable net
assets are undervalued, this asset is assumed to
be goodwill.
Parent Acquires 100 Percent of Subsidiary—With Goodwill
E3-3 p94
Parent Acquires 100 Percent of Subsidiary—With
Goodwill p93
Parent Acquires 90 Percent of Subsidiary—With
Goodwill p93

Under the acquisition method, all assets and
liabilities of the subsidiary are reported using
100 percent of fair values at the combination
date, based on the price paid by the parent for
its controlling interest, even when the parent
acquires less than a 100 percent interest.
Parent Acquires 90 Percent of Subsidiary—With
Goodwill p93


Both the controlling and noncontrolling
interests will be reported based on
fair values (that is, including goodwill) at the
acquisition date.
That is, GAAP requires measurement of
noncontrolling interests at fair values (including
goodwill).
Parent Acquires 90 Percent of Subsidiary—
With Goodwill p93
P paid $45,000 for a 90 percent interest.
- implies that the total fair value of S is $50,000 ($45,000 /
90%).
Controlling interest(90%)->$45,000(P買90%花的錢)
Noncontrolling interest(10%)->$5,000
(如果這10%今天要買要花多少錢)
-
-
the excess of total fair value over book value of
S’s net identifiable assets and liabilities is $10,000
($50,000-($30,000+$10,000)) =>Goodwill
Goodwill belong to P is $9,000($45,000-$40,000x90%)
Goodwill belong to S is $1,000($5,000-$40,000x10%)
P Acquires 90% of S—With Goodwill E3-4 p94
Parent Acquires 90 Percent of
Subsidiary—With Goodwill
Parent Acquires 90 Percent of Subsidiary—
With Goodwill (IFRS)

For noncontrolling interests, The IFRS will
permit acquirers either fair value (that is, with
goodwill, GAAP 做法) or measurement of the
proportional interest in the fair value of the
subsidiary’s identifiable net assets (that is,
without goodwill) for each acquisition
Parent Acquires 90 Percent of Subsidiary—With
Goodwill (IFRS)
Noncontrolling interests-measurement of the
proportional interest in the fair value of the
subsidiary’s net assets
 Controlling interest
- $45,000(原本花的錢)
 Noncontrolling interest
- ($30,00+$10,000)*10%=$4,000
可辨認淨資產公允價值*非控制股權比例
Parent Acquires 90 Percent of Subsidiary—With
Goodwill (IASB)
Goodwill
=$45,000+$4,000-($30,00+$10,000)=$9,000
屬於非控制股權的商譽為 $0
 Goodwill 另一種看法
Controlling interest’s goodwill
=$45,000- ($30,00+$10,000)x90%=$9,000
Noncontrolling interest’s goodwill
=$4,000-($30,00+$10,000)x10%=$0

Note
將課本的商譽(即總商譽)乘上非控制權益比率即可
得到非控制權益所擁有的商譽
(1)將課本的商譽扣除非控制權益所擁有的商譽即可
得到IFRS第二種作法的商譽
(2)將課本的非控制權益扣除非控制權益所擁有的
商譽即可得到IFRS第二種作法的非控制權益
 Total fair value of S is different from
the fair value of all identifiable net assets of S
子公司的公允價值與子公司的可辨認淨資產之公允
價值是不同的

Noncontrolling interest


A noncontrolling interest in a subsidiary should
be displayed and labeled in the consolidated
balance sheet as a separate component of
equity.
Income attributable to the noncontrolling interest
is not an expense or a loss but a deduction from
consolidated net income to compute income
attributable to the controlling interest.
Consolidated Balance Sheet after acquisition
p96
1. P acquired 90% of S for $45,000 on 1/1 2011
S’s net assets was $40,000 (see E3-4 p95).
2. The accounts payable of S include $5,000
owed to P.
3. During 2011, S had income of $20,000 and
declared $10,000 in dividends.
The balance sheets of P and S at 12/31 2011,
one year after acquisition, p88

P
S
P’s Investment account balance
12/31 2011 p96


Investment in S, 1/1 2011
+ 90% of S’ net income
- 90% of S’s dividend
Investment in S,12/31 2011
$45,000
18,000
(9,000)
$54,000
Noncontrolling Interest, 1/1 2011
+ 10% of S’ net income
- 10% of S’s dividend
Noncontrolling Interest,12/31 2011
$ 5,000
2,000
(1,000)
$6,000
E3-5 p97
Working paper entries p97
Effect of Assignment on Consolidated Balance
Sheet at Acquisition 98


P purchases 90% of for $5,200,000 cash plus
100,000 shares of P’s $10 par common stock
with a market value of $5,000,000 on 12/31
2011
P paid additional costs of combination
$200,000 in cash, P pays these additional
costs in cash (expense it)
E3-6 p99
Effect of Assignment on Consolidated Balance
Sheet at Acquisition p98
Allocation E3-7 p99
P99 p100 p101 also see E3-8
see E3-8 p100
IFRS 另一種作法
可辨認資產及負債的分攤與課本一樣
(既然非控制權益為可辨認淨資產乘上非控制比例)
 但商譽改為
$10,200-$7,000(可辨認淨資產公允價值)x90%
=$3,900
兩個商譽的差別
=$4,333
- $3,900
=$433
課本總商譽 $4,333x0.9 $4,333x0.1
 非控制權益 = $7,000x10%=$700 (課本$1,133-$433)
 若有使用Unamortized excess科目,該科目也扣除$433

IFRS 另一種作法
5,000
700
3,900
5,000
Effect of Amortization on Consolidated
Balance Sheet After Acquisition p101

The effect of amortizing the $5,433,000 excess
on the 12/31,2012 is based on
Effect of Amortization on Consolidated Balance
Sheet After Acquisition p101

Using an equity method perspective, we
calculate P’s income from S as follows
Investment balance at 12/31
= $10,200+$571.5-$270=$10,501.5

Effect of Amortization on Consolidated Balance
Sheet After Acquisition p102

Alternatively,
2010
2010
Effect of Amortization on Consolidated Balance
Sheet After Acquisition p102

verify the noncontrolling interest at 12/31 2012
Effect of Amortization on Consolidated Balance
Sheet After Acquisition p95
Effect of Amortization on Consolidated Balance
Sheet After Acquisition p103
Effect of Amortization on Consolidated Balance
Sheet After Acquisition p102
Consolidated income statement p105
IFRS 第二種作法
4,835
733.5
3,900
4,835
其他補充說明

合併商譽在母公司或子公司帳上均未記錄，僅出現於工
作底稿及合併資產負債表中。
(但歸屬於母公司之商譽之數額仍會存在在投資科
目中)


在收購日合併資產負債表上子公司之淨資產雖係按公允
價值衡量，母公司之淨資產則仍依原帳面金額衡量。
收購日之後年度之合併資產負債表上子公司之淨資產
(有高低估資產部分)仍按收購日之公允價值衡量(調整折
舊後)
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其他補充說明

合併資產負債表上之股本、資本公積、保留盈
餘均等於母公司本身資產負債表上各項目之金
額。

非控制權益應列示於合併資產負債表之權益中，
與母公司權益分別列示，無須區分股本、資本
公積及保留盈餘 (或累積虧損) 等。
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