Advanced Financial Accounting Ch5 Lecture Notes

Advanced Financial - 5-1 CHAPTER FIVE Consolidation of Less-than-Wholly Owned Subsidiaries ACCT400 Advanced Financial Accounting Fall Semester 2008

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
1 5-1 CHAPTER FIVE Consolidation of Less-than-Wholly Owned Subsidiaries ACCT400 Advanced Financial Accounting Fall Semester 2008 5-2 Effect of a non-controlling interest Non-controlling or minority interest (NCI) : stockholders who own shares of subsidiary not held by parent • Consolidated F/S must include ALL subsidiary’s assets, liabilities, revenues and expenses whether there is NCI or not • I/S: Deduct NCI’s share of subsidiary income to obtain consolidated NI • B/S: NCI is shown between liabilities and stockholders’ equity sections • Consolidation procedures are slightly modified to include NCI
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 5-3 Consolidated NI: • Total income accrues to P’s stockholders • 2 approaches: (1) Additive (similar to equity method) = P’s OI + P share of S’s NI – Differential amortization (if any) – Goodwill impairment (if any) (2) Residual (same as consolidation workpaper) = P’s NI – Income from subsidiary + S’s NI – NCI share of S’s NI – Differential amortization (if any) – Goodwill impairment (if any) Consolidated RE: • Undistributed earnings accrue to P’s stockholders 5-4 Consolidated B/S: Immediately after acquisition Textbook example: • On January 1, 2001, P purchases 80% of S’s common stock for $310,000 • On date of combination, S has $200,000 common stock outstanding and retained earnings of $100,000 • Positive differential = $310,000 - $240,000 = $70,000 • FV equals BV for all of S’s assets and liabilities except : Inventory $5,000 (P shares $4,000) Land $10,000 (P shares $8,000) Buildings and equipment $60,000 (P shares $48,000) • P shares a total of $60,000 out of $75,000 FV increments of identifiable assets • Under current GAAP, only recognize P’s share in consolidation • Hence, goodwill =$70,000 - $60,000 = $10,000 • NCI = remaining 20%
Background image of page 2
3 5-5 P’s journal entry: Investment in S stock 310,000 Cash 310,000 Consolidation workpaper (Figure 5-3): Eliminating entry 1 (intercorporate stockholdings): Common stock – S 200,000 Retained earnings 100,000 Differential 70,000 Investment in S stock 310,000 Noncontrolling interest ($300,000 × 20%) 60,000 Eliminating entry 2 (assign differential): Inventory 4,000 Land 8,000 Buildings and equipment 48,000 Goodwill 10,000 Differential 70,000 5-6 Important!!! – NCI only has proportionate share of subsidiary’s BV of
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/13/2008 for the course ADVANCED ACCT440 taught by Professor Teresa during the Spring '08 term at University of Manchester.

Page1 / 11

Advanced Financial - 5-1 CHAPTER FIVE Consolidation of Less-than-Wholly Owned Subsidiaries ACCT400 Advanced Financial Accounting Fall Semester 2008

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online