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Business Combination

Formulas

1.)

Noncontrolling interest

Priority 1 = Fair value of NCI given to the problem but it should not be lower than the NCI - measured at
Non-controlling interest's proportionate share of Subsidairy's identifiable net assets @ Fair Value.
If fair value of NCI given to the problem is lower than NCI measured at proportionate share
of Subsidiary's identifiable net assets use the latter.
Compuation of NCI measured in proportionate share of Subsidiary's identifiable net assets.
Subsidiary net assets at Fair Value
Multiply by: Noncontrolling interest
Fair value of NCI proportionate share in Subsidiary identifiable net assets

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Priority 2 = If Fair value of NCI is not given or unknown


Acquistion cost
Divided by: Controlling interest
Total fair value of business
Multiply by: Noncontrolling interest
Fair value of Noncontrolling interest

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Note: But again the computed Fair value of Noncontrolling interest should not be lower than
than the fair value of NCI in proportionate share in Subsidiary's identifiable net assets.
Note: We apply whichever is higher rule: Part of the new provision, NCI should not have
an amount that is lower than the fair value of NCI measured in proportionate share in
Subsidiary's identifiable net assets. We use whichever is higher.

2.)

Result of acquisition
Acquisition cost (Consideration paid)
FMV of NCI
FMV of old investment in same company acquired ( less than 50%), included
Contingent liabiilty
Total
Less: FMV of Subsidiary Net Assets (100%)
Goodwill/Gain from acquisition

3.)

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Consolidated total Assets


Parent total assets (book value)
Subsidairy total assets (fair value) exclusive of goodwill, if any
Goodwill - result from acquisition
Payment - taken from the assets of the acquirer

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Consolidated total assets


4.)

Consolidated retained earnings


Parent retained earnings before acquisition
Add: Gain from acquistion, if any
Total
Less: Expenses (Direct cost, indirect cost)
Consolidated retained earnings

5.)

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Consolidated additional paid in capital


Parent additional paid in capital
Add: New issued share to acquire subsidiay - excess of par
Total
Less: Stock issue cost, if any
Consolidated additional paid in capital

7.)

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Consolidated common stock


Parent common stock before acqquisition
Add: New issued shares to acquire subsidairy @ Par value
Consolidated Common Stock

6.)

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Consolidated stockholders' equity


Consolidated common stock
Consolidated additional paid in capital
Consolidated retained earnings
Noncontrolling interest
Consolidated stockholders' equity

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@ Fair Value.

CONSOLIDATED STATEMENT
BUSINESS COMBINATION
FORMULAS
Chapter 16
1.) Consolidated net income
Parent net income
Less: Dividends income received from Subsidiary
Parent income from it's own operation
Less: Impairment loss on goodwill, if any
Parent adjusted net income
Add: Subsidiary adjusted net income
Subsidiary reported net income
+/- Amortization
- impairment loss on goodwill, if any
Consolidated net income
2.) Income from subsidiary
Subsidiary reported net income
+/- Amortization
- impairment loss on goodwill, if any
Subsidiary adjusted net income
Multiply: Controlling interest
Income from subsidiary
3.) Consolidated net income attributable to parent
Parent net income
Less: Dividends income received from Subsidiary
Parent income from it's own operation
Less: Impairment loss on goodwill, if any
Parent adjusted net income
Add: Income from subsidiary #2
Consolidated net income attributable to parent
4.) NCI in net income of Subsidiary/ Consolidated net income attributable to NCI
Subsidiary reported net income
+/- Amortization
- impairment loss on goodwill, if any
Subsidiary adjusted net income
Multiply: Noncontrolling interest
NCI in net income of Subsidiary
5.) Consolidated retained earnings
Parent retained earnings - January 1, current year

Add: Gain from acquistion, if any


Consolidated net income attributable to parent - #3
Total
Less: Dividends declared - parent only
Consolidated retained earnings - December 31, current year

Consolidated retained earnings formula if involves more the one previous year passed
Parent Reported Retained Earnings - January 1, current year
Less: Impairment loss - previous year if any
Parent Adjusted Retained Earnings - January 1, current year
Add: Undistributed Subsidiary adjusted net income in previous year/s
Subsidiary Retained Earnings - January 1 current year
Less: Subsidiary Retained Earnings - date of acquisition
Undistributed Subsidiary unadjusted cumulative earnings (net income)
Less: Amortization ( cumulative amortization )
Impairment of goodwill - previous year if any
Undistributed Subsidiary adjusted net income
Less: NCI share in the income undistributed adjusted cumulative earnings
Consolidated Retained Earnings - January 1, current year
Add: Consolidated net income attributable to parent - current year #3
Total
Less: Dividends declared - parent only
Consolidated Retained Earnings - ending

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6.) Noncontrolling interest


First Year
Noncontrolling interest - January 1, current year - computed using formula chapter 15
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI
Total
Less: Dividends declared x Noncontrolling interest
Noncontrolling interest - December 31 current year
Note: You must noted the initial Noncontrolling interest amount on the date of acquisition. Because that is always your
beginning balances.
Computation of Noncontrolling interest more then one previous year passed
Noncontrolling interest - at the date of acquisition ( initial )
Add: NCI share in the income undistributed adjusted cumulative earnings
Subsidiary Retained Earnings - January 1 current year
Less: Subsidiary Retained Earnings - date of acquisition
Undistributed Subsidiary unadjusted cumulative earnings (net income)
Less: Amortization ( cumulative amortization )
Impairment of goodwill - previous year if any
Undistributed Subsidiary adjusted net income
Multiply by: Noncontrolling interest
Noncontrolling interest - January 1, current year

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Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI


Total
Less: Dividends declared x Noncontrolling interest
Noncontrolling interest - December 31 current year

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Previous Year/s
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Current Year

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ecause that is always your

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Previous Year/s
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Current Year

CONSOLIDATED STATEMENT
BUSINESS COMBINATION
FORMULAS

Chapter 17
1.) Consolidated Sales
Parent
Sabsidiary
Total
Less: Intercompany sales (Downstream sales + Upstream sales)
Consolidated Sales
2.) Consolidated cost of goods sold
First Year
Parent
Subsidiary
Total
Intercompany sales (Downstream sales + Upstream sales)
Amortization of excess (inventory), if any
Unrealized gross profit in ending inventory
Cosolidated cost of goods sold
Second Year
Parent
Subsidiary
Total
Intercompany sales (Downstream sales + Upstream sales)
Amortization of excess (inventory), if any
Realized gross profit in beginning inventory
Unrealized gross profit in ending inventory
Cosolidated cost of goods sold
3.) Consolidated Inventory
Parent
Subsidiary
Add: Excess of inventory FMV over BV during acquisition that are remained unsold, if any
Total
Less: Unrealized gross profit in ending inventory (Downstream + Upstream)
Consolidated inventory
4.) Consolidated net income
First Year
Parent net income from own operation, exclusive of dividends income received from Subsidiary
Impairment loss, if any
Unrealized profit in ending inventory (Downstream sale)
Parent adjusted net income
Add: Subsidiary adjusted net income
Subsidiary reported net income

+/- Amortization
Impairment loss, if any
Unrealized profit in ending inventory (Upstream sale)
Consolidated net income
Second Year
Parent net income from own operation, exclusive of dividends income received from Subsidiary
Impairment loss, if any
Realized profit in begining inventory
Downstream sales
Unrealized profit in ending inventory
Parent adjusted net income
Add: Subsidiary adjusted net income
Subsidiary reported net income
+/- Amortization
Impairment loss, if any
Realized profit in begining inventory
Upstream sales
Unrealized profit in ending inventory
Consolidated net income

5.) Income from subsidiary


First Year
Subsidiary reported net income
+/- Amortization
Impairment loss, if any
Unrealized profit in ending inventory (Upstream sale)
Subsidiary adjusted net income
Multiply by: Controlling interest
Income from subsidiary
Second Year
Subsidiary reported net income
+/- Amortization
Impairment loss, if any
Realized profit in begining inventory
Unrealized profit in ending inventory
Subsidiary adjusted net income
Multiply by: Controlling interest
Income from subsidiary

Upstream sales

6.) Consolidated net income attributable to parent


First Year
Parent net income from own operation, exclusive of dividends income received from Subsidiary
Impairment loss, if any
Unrealized profit in ending inventory (Downstream sale)
Parent adjusted net income
Add: Income from subsidiary
Consolidated net income attributable to parent
Second Year
Parent net income from own operation, exclusive of dividends income received from Subsidiary
Impairment loss, if any

Realized profit in begining inventory


Downstream sales
Unrealized profit in ending inventory
Parent adjusted net income
Add: Income from subsidiary
Consolidated net income attributable to parent
7.) NCI in net income of Subsidiary/ Consolidated net income attributable to NCI
First Year
Subsidiary reported net income
+/- Amortization
Impairment loss, if any
Unrealized profit in ending inventory (Upstream sale)
Subsidiary adjusted net income
Multiply by: Noncontrolling interest
NCI in net income of Subsidiary/Consolidated net income attributable to NCI
Second Year
Subsidiary reported net income
+/- Amortization
Impairment loss, if any
Realized profit in begining inventory
Unrealized profit in ending inventory
Subsidiary adjusted net income
Multiply by: Noncontrolling interest
NCI in net income of Subsidiary

Upstream sales

8.) Consolidated retained earnings


Parent retained earnings - January 1, current year
Add: Gain from acquistion, if any
Consolidated net income attributable to parent
Total
Less: Dividends declared - parent only
Consolidated retained earnings - December 31, current year

Consolidated retained earnings formula if involves more the one previous year passed
Parent Reported Retained Earnings - January 1, current year
Less: Impairment loss - previous years if any
Unrealized profit in ending inventory - recent previous year
Parent Adjusted Retained Earnings - January 1, current year
Add: Undistributed Subsidiary adjusted net income in previous year/s
Subsidiary Retained Earnings - January 1 current year
Less: Subsidiary Retained Earnings - date of acquisition
Undistributed Subsidiary unadjusted net income
Less: Amortization ( cumulative amortization )
Impairment of goodwill - previous year if any
Unrealized profit in ending inventory - recent previous year
Undistributed Subsidiary adjusted net income
Less: NCI share in the income undistributed adjusted cumulative earnings
Consolidated Retained Earnings - January 1, current year
Add: Consolidated net income attributable to parent - current year #3

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Total
Less: Dividends declared - parent only
Consolidated Retained Earnings - ending

6.) Noncontrolling interest


First Year
Noncontrolling interest - January 1, current year - computed using formula chapter 15
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI
Total
Less: Dividends declared x Noncontrolling interest
Noncontrolling interest - December 31 current year
Note: You must noted the initial Noncontrolling interest amount on the date of acquisition. Because it is always your
beginning balance.
Computation of Noncontrolling interest more then one previous year passed
Noncontrolling interest - at the date of acquisition ( initial )
Add: NCI share in the income undistributed adjusted cumulative earnings
Subsidiary Retained Earnings - January 1 current year
Less: Subsidiary Retained Earnings - date of acquisition
Undistributed Subsidiary unadjusted cumulative earnings (net income)
Less: Amortization ( cumulative amortization )
Impairment of goodwill - previous year if any
Unrealized profit in ending inventory - recent previous year
Undistributed Subsidiary adjusted net income
Multiply by: Noncontrolling interest
Noncontrolling interest - January 1, current year
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI
Total
Less: Dividends declared x Noncontrolling interest
Noncontrolling interest - December 31 current year

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Note: Why we adjust Retained earnings and Noncontrolling interest beginning with the unrealized profit in ending inven
recent previous year?
Because we corrected net income of the current year with the unrealized profit in ending inventory recent prev
year, which is now realized profit in beginning inventory for the current year.

See the computation of adjusted net incomes for Parent and Subsidairy, we included realized profit in
beginning inventory to get adjusted net income. Make this a constant procedure. Because, I agree there
is other way. How? Dont include realized profit in beginning in the computation of adjusted net income
and unrealized profit in ending recent previous year in adjusted retained earnings beginning to offset erro
to counter balance. But again may I suggest to use the formula above constantly because it is seldom in
problem to have only Consolidated Retained Earnings as requirement normally consolidated net income
also part of the requirement, with that you must included realized profit in beginning inventory.

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Current Year

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Current Year

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n. Because it is always your

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nrealized profit in ending inventory

n ending inventory recent previous

luded realized profit in


edure. Because, I agree there
tation of adjusted net income
arnings beginning to offset errors or
stantly because it is seldom in
mally consolidated net income is
beginning inventory.

Current Year

CONSOLIDATED STATEMENT
BUSINESS COMBINATION
FORMULAS

Chapter 18
1.) Consolidated net income
Year of sale (plant asset) - First year (Inventory)
Parent net income from own operation, exclusive of dividends received from subsidairy
Impairment loss
Unrealized profit in ending inventory
Net unrealized gain/loss on sale (depreciable asset)
Unrealized gain/loss on sale (non-depreciable assets)
Parent adjusted net income
Add: Subsidiary adjusted net income
Subsidiary reported net income
+/- Amortization
Impairment loss
Unrealized profit in ending inventory
Net unrealized gain/loss on sale (depreciable asset)
Unrealized gain/loss on sale (non-depreciable assets)
Consolidated net income
Second Year (plant asset) - Second year (inventory)
Parent net income from own operation
Impairment loss
Realized profit in begining inventory
Unrealized profit in ending inventory
Realized gain/loss on sale (annual depreciation)
Parent adjusted net income
Add: Subsidiary adjusted net income
Subsidiary reported net income
+/- Amortization
Realized profit in begining inventory
Unrealized profit in ending inventory
Realized gain/loss on sale (annual depreciation - excess)
Consolidated net income
2.) Income from subsidiary
Year of sale (plant asset) - First year (Inventory)
Subsidiary reported net income
+/- Amortization
Impairment loss
Unrealized profit in ending inventory
Net unrealized gain/loss on sale (depreciable asset)
Unrealized gain/loss on sale (non-depreciable assets)
Subsidiary adjusted net income

Multiply by: Controlling interest


Income from subsidiary
Second Year (plant asset) - Second year (inventory
Subsidiary reported net income
+/- Amortization
Realized profit in begining inventory
Unrealized profit in ending inventory
Realized gain/loss on sale (annual depreciation)
Subsidiary adjusted net income
Multiply by: Controlling interest
Income from subsidiary
3.) Consolidated net income attributable to parent
Year of sale (plant asset) - First year (Inventory)
Parent net income from own operation, exclusive of dividends received from subsidairy
Impairment loss
Unrealized profit in ending inventory
Net unrealized gain/loss on sale (depreciable asset)
Unrealized gain/loss on sale (non-depreciable assets)
Parent adjusted net income
Add: Income from subsidiary
Consolidated net income attributable to parent
Second Year (plant asset) - Second year (inventory)
Parent net income from own operation
Impairment loss
Realized profit in begining inventory
Unrealized profit in ending inventory
Realized gain/loss on sale (annual depreciation)
Parent adjusted net income
Add: Income from subsidiary
Consolidated net income attributable to parent
4.) NCI in the net income of Subsidairy
Year of sale (plant asset) - First year (Inventory)
Subsidiary reported net income
+/- Amortization
Impairment loss
Unrealized profit in ending inventory
Net unrealized gain/loss on sale (depreciable asset)
Unrealized gain/loss on sale (non-depreciable assets)
Subsidiary adjusted net income
Multiply by: Noncontrolling interest
Minority interest in net income
Second Year (plant asset) - Second year (inventory
Subsidiary reported net income

+/- Amortization
Realized profit in begining inventory
Unrealized profit in ending inventory
Realized gain/loss on sale (annual depreciation)
Subsidiary adjusted net income
Multiply by: Noncontrolling interest
Minority interest in net income
5.) Consolidated Retained Earnings
Year of sale of plant assets
No adjustment in Retained earnings on intercompany sales of plant assets, they are adjustment in
consolidated net income in the year of sales.
Second year or More than one previous year passed:
Consolidated retained earnings formula if involves more the one previous year passed
Parent Reported Retained Earnings - beginning / January 1
Gain on acquisition - on the date of acquisition
Impairment loss - previous years (cumulative)
Unrealized profit in ending inventory - recent previous year
Net unrealized gain/loss on sale (depreciable asset) - before adjustment of current year
Unrealized gain/loss on sale (non-depreciable assets)
Parent Adjusted Retained Earnings - beginning / January 1
Add: Undistributed Subsidiary adjusted net income
Subsidiary Retained Earnings - beginning of current year
Less: Subsidiary Retained Earnings - date of acquisition
Undistributed Subsidiary unadjusted net income
Amortization ( cumulative amortization )
Impairment loss - previous years (cumulative)
Unrealized profit in ending inventory - recent previous year
Net unrealized (gain)/loss on sale (depreciable asset) - before adjustment of current year
Unrealized (gain)/loss on sale (non-depreciable assets)
Total
Less: NCI share in the income undistributed adjusted cumulative earnings
Consolidated Retained Earnings - beginning/January 1
Add: Consolidated net income attributable to parent- current year
Total
Less: Dividends declared - parent only current year
Consolidated Retained Earnings - ending

6.) Noncontrolling interest


Year of sale of plant assets
No adjustment in Retained earnings on intercompany sales of plant assets, they are adjustment in
consolidated net income in the year of sales.
Computation of Noncontrolling interest more then one previous year passed
Noncontrolling interest - at the date of acquisition ( initial )
Add: NCI share in the income undistributed adjusted cumulative earnings

Subsidiary Retained Earnings - beginning of current year


Less: Subsidiary Retained Earnings - date of acquisition
Undistributed Subsidiary unadjusted net income
Amortization ( cumulative amortization )
Impairment loss - previous years (cumulative)
Unrealized profit in ending inventory - recent previous year
Net unrealized (gain)/loss on sale (depreciable asset) - before adjustment of current year
Unrealized (gain)/loss on sale (non-depreciable assets)
Total
Multiply by: Noncontrolling interest %
Noncontrolling interest - January 1, current year
Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI
Total
Less: Dividends declared x Noncontrolling interest
Noncontrolling interest - December 31 current year

7.) Plant and equipment on consolidated - Old cost or Cost prior to intercompany sales
8.) Accumulated Depreciation
Accumulated Depreciation - amount prior to intercompany sales (original or old value) - January 1, current
Add: Depreciation for year - computed in original depreciation (OLD)
Total
9.) Total gain on sale of plant assets when asset sold intercompany is sold to outsider.
Actual gain in selling it to outsider
Add: Remainining unrealized gain on sale of assets
Total gain
Note: Please observed the sign if it is unrealized loss, deduct.

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Downstream sales

Upstream sales
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Upstream sales only

Downstream sales

Downstream sales

Upstream sales only

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Upstream sales only

uary 1, current

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