Formulas for Business Combination

(1)

Business Combination Formulas

Chapter 15

1.) Noncontrolling interest

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 xxx

Multiply by: Noncontrolling interest x%

Fair value of NCI proportionate share in Subsidiary identifiable net assets xxx

Acquistion cost xxx

Divided by: Controlling interest x%

Total fair value of business xxx

Multiply by: Noncontrolling interest x%

Fair value of Noncontrolling interest xxx

Note: But again the computed Fair value of Noncontrolling interest should not be lower than

Note: We apply whichever is higher rule: Part of the new provision, NCI should not have Subsidiary's identifiable net assets. We use whichever is higher.

2.) Result of acquisition

Acquisition cost (Consideration paid) xxx

FMV of NCI xxx

xxx

Contingent liabiilty xxx

Total xxx

Less: FMV of Subsidiary Net Assets (100%) xxx

Goodwill/Gain from acquisition xxx

3.) Consolidated total Assets

Parent total assets (book value) xxx

xxx xxx (xxx) Priority 1 = Fair value of NCI given to the problem but it should not be lower than the NCI - measured at

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

than the fair value of NCI in proportionate share in Subsidiary's identifiable net assets.

an amount that is lower than the fair value of NCI measured in proportionate share in

FMV of old investment in same company acquired ( less than 50%), included

Subsidairy total assets (fair value) exclusive of goodwill, if any Goodwill - result from acquisition

(2)

Consolidated total assets xxxx 4.) Consolidated retained earnings

Parent retained earnings before acquisition xxx

Add: Gain from acquistion, if any xxx

Total xxx

Less: Expenses (Direct cost, indirect cost) xxx

Consolidated retained earnings xxx

5.) Consolidated common stock

Parent common stock before acqquisition xxx

Add: New issued shares to acquire subsidairy @ Par value xxx

Consolidated Common Stock xxx

6.) Consolidated additional paid in capital

Parent additional paid in capital xxx

Add: New issued share to acquire subsidiay - excess of par xxx

Total xxx

Less: Stock issue cost, if any xxx

Consolidated additional paid in capital xxx

7.) Consolidated stockholders' equity

Consolidated common stock xxx

Consolidated additional paid in capital xxx

Consolidated retained earnings xxx

Noncontrolling interest xxx

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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

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

Add: Income from subsidiary #2

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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

Add: Undistributed Subsidiary adjusted net income in previous year/s Less: Subsidiary Retained Earnings - date of acquisition

Less: Amortization ( cumulative amortization ) xxx

xxx Undistributed Subsidiary adjusted net income

Less: NCI share in the income undistributed adjusted cumulative earnings

Total

Less: Dividends declared - parent only Consolidated Retained Earnings - ending 6.) Noncontrolling interest

First 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

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 Less: Subsidiary Retained Earnings - date of acquisition

Less: Amortization ( cumulative amortization ) xxx

xxx Undistributed Subsidiary adjusted net income

Multiply by: Noncontrolling interest

Parent Reported Retained Earnings - January 1, current year Less: Impairment loss - previous year if any

Parent Adjusted Retained Earnings - January 1, current year Subsidiary Retained Earnings - January 1 current year

Undistributed Subsidiary unadjusted cumulative earnings (net income) Impairment of goodwill - previous year if any

Consolidated Retained Earnings - January 1, current year Add: Consolidated net income attributable to parent - current year #3

Noncontrolling interest - January 1, current year - computed using formula chapter 15

Subsidiary Retained Earnings - January 1 current year

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xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx x% xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx x% xxx xxx

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xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx Note: You must noted the initial Noncontrolling interest amount on the date of acquisition. Because that is always your

xxx xxx xxx xxx xxx xxx x% xxx xxx Previous Year/s Current Year Previous Year/s

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xxx xxx xxx xxx

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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 Total

Less: Unrealized gross profit in ending inventory (Downstream + Upstream) Consolidated inventory

4.) Consolidated net income First Year

Impairment loss, if any Parent adjusted net income

Add: Subsidiary adjusted net income Subsidiary reported net income

Add: Excess of inventory FMV over BV during acquisition that are remained unsold, if any

Parent net income from own operation, exclusive of dividends income received from Subsidiary Unrealized profit in ending inventory (Downstream sale)

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+/- Amortization Impairment loss, if any Consolidated net income Second Year

Impairment loss, if any

Realized profit in begining inventory Unrealized profit in ending inventory Parent adjusted net income

Realized profit in begining inventory Unrealized profit in ending inventory Consolidated net income

5.) Income from subsidiary First Year

Subsidiary adjusted net income Multiply by: Controlling interest Income from subsidiary Second Year

Realized profit in begining inventory Unrealized profit in ending inventory Subsidiary adjusted net income Multiply by: Controlling interest Income from subsidiary

6.) Consolidated net income attributable to parent First Year

Impairment loss, if any Parent adjusted net income Add: Income from subsidiary

Consolidated net income attributable to parent Second Year

Unrealized profit in ending inventory (Upstream sale)

Parent net income from own operation, exclusive of dividends income received from Subsidiary

Unrealized profit in ending inventory (Upstream sale)

Parent net income from own operation, exclusive of dividends income received from Subsidiary Unrealized profit in ending inventory (Downstream sale)

Parent net income from own operation, exclusive of dividends income received from Subsidiary Downstream sales

Upstream sales

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Realized profit in begining inventory 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 adjusted net income Multiply by: Noncontrolling interest

NCI in net income of Subsidiary/Consolidated net income attributable to NCI Second Year

Realized profit in begining inventory Unrealized profit in ending inventory Subsidiary adjusted net income Multiply by: Noncontrolling interest NCI in net income of Subsidiary 8.) Consolidated retained earnings

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

Add: Undistributed Subsidiary adjusted net income in previous year/s Less: Subsidiary Retained Earnings - date of acquisition

Undistributed Subsidiary unadjusted net income

Less: Amortization ( cumulative amortization ) xxx xxx xxx Undistributed Subsidiary adjusted net income

Less: NCI share in the income undistributed adjusted cumulative earnings Unrealized profit in ending inventory (Upstream sale)

Parent retained earnings - January 1, current year

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

Impairment of goodwill - previous year if any

Unrealized profit in ending inventory - recent previous year

Consolidated Retained Earnings - January 1, current year Add: Consolidated net income attributable to parent - current year #3

Upstream sales Downstream sales

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Total

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

6.) Noncontrolling interest First 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 Less: Subsidiary Retained Earnings - date of acquisition

Less: Amortization ( cumulative amortization ) xxx xxx xxx Undistributed Subsidiary adjusted net income

Multiply by: Noncontrolling interest

Note: Why we adjust Retained earnings and Noncontrolling interest beginning with the unrealized profit in ending inventory recent previous year?

Because we corrected net income of the current year with the unrealized profit in ending inventory recent previous 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? Don’t 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 errors or 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 is also part of the requirement, with that you must included realized profit in beginning inventory.

Noncontrolling interest - January 1, current year - computed using formula chapter 15

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xxx xxx xxx xxx xxx xxx xxx xxx (xxx) xxx xxx xxx xxx xxx xxx (xxx) xxx (xxx) xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx (xxx) (xxx) xxx xxx

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(xxx) (xxx) (xxx) xxx xxx xxx (xxx) xxx (xxx) xxx xxx (xxx) (xxx) xxx (xxx) xxx xxx xxx (xxx) (xxx) (xxx) xxx x% xxx xxx xxx (xxx) xxx (xxx) xxx x% xxx xxx (xxx) (xxx) xxx xxx xxx xxx (xxx)

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xxx (xxx) xxx xxx xxx xxx (xxx) (xxx) (xxx) xxx x% xxx xxx xxx (xxx) xxx (xxx) xxx x% xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx Previous Year/s Current Year

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xxx xxx xxx xxx xxx xxx xxx xxx Note: You must noted the initial Noncontrolling interest amount on the date of acquisition. Because it is always your

xxx xxx xxx xxx xxx xxx x% xxx xxx xxx xxx xxx xxx

Note: Why we adjust Retained earnings and Noncontrolling interest beginning with the unrealized profit in ending inventory Because we corrected net income of the current year with the unrealized profit in ending inventory recent previous

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? Don’t 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 errors or 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 is also part of the requirement, with that you must included realized profit in beginning inventory.

Previous Year/s

Current Year Current Year

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CONSOLIDATED STATEMENT BUSINESS COMBINATION FORMULAS

Chapter 18

1.) Consolidated net income

Year of sale (plant asset) - First year (Inventory) 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

Impairment loss

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

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

Net unrealized gain/loss on sale (depreciable asset) Unrealized gain/loss on sale (non-depreciable assets) Subsidiary adjusted net income

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Multiply by: Controlling interest Income from subsidiary

Second Year (plant asset) - Second year (inventory Subsidiary reported net income

+/- Amortization

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)

Impairment loss

Net unrealized gain/loss on sale (depreciable asset) Unrealized gain/loss on sale (non-depreciable assets) Parent adjusted net income

Consolidated net income attributable to parent Second Year (plant asset) - Second year (inventory)

Parent net income from own operation Impairment loss

Realized gain/loss on sale (annual depreciation) Parent adjusted net income

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

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

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+/- Amortization

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

Unrealized gain/loss on sale (non-depreciable assets) Parent Adjusted Retained Earnings - beginning / January 1 Add: Undistributed Subsidiary adjusted net income

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

Total

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 Gain on acquisition - on the date of acquisition

Impairment loss - previous years (cumulative)

Net unrealized gain/loss on sale (depreciable asset) - before adjustment of current year

Subsidiary Retained Earnings - beginning of current year Less: Subsidiary Retained Earnings - date of acquisition Amortization ( cumulative amortization )

Net unrealized (gain)/loss on sale (depreciable asset) - before adjustment of current year

Add: Consolidated net income attributable to parent- current year Less: Dividends declared - parent only current year

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Unrealized (gain)/loss on sale (non-depreciable assets) Total

Multiply by: Noncontrolling interest %

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. Subsidiary Retained Earnings - beginning of current year Less: Subsidiary Retained Earnings - date of acquisition Amortization ( cumulative amortization )

Net unrealized (gain)/loss on sale (depreciable asset) - before adjustment of current year

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xxx (xxx) (xxx) (xxx) Downstream sales (xxx) xxx xxx (xxx) (xxx) (xxx) (xxx) Upstream sales (xxx) xxx xxx xxx (xxx) xxx (xxx) xxx xxx xxx (xxx) xxx (xxx) xxx xxx xxx xxx (xxx) (xxx) (xxx)

(xxx) Upstream sales only (xxx)

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x% xxx

xxx (xxx)

xxx

(xxx) Upstream sales only xxx xxx x% xxx xxx (xxx) (xxx) (xxx) Downstream sales (xxx) xxx xxx xxx xxx (xxx) xxx (xxx) Downstream sales xxx xxx xxx xxx xxx (xxx) (xxx) (xxx)

(xxx) Upstream sales only (xxx)

xxx % xxx

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(xxx) xxx

(xxx) Upstream sales only xxx xxx % xxx xxx xxx (xxx) xxx (xxx) (xxx) xxx xxx xxx xxx xxx xxx (xxx) (xxx) (xxx) (xxx) xxx xxx xxx xxx xxx xxx xxx xxx xxx

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xxx xxx xxx xxx (xxx) (xxx) (xxx) (xxx) xxx xxx xxx xxx xxx xxx xxx xxx

Accumulated Depreciation - amount prior to intercompany sales (original or old value) - January 1, current xxx xxx xxx

xxx xxx xxx