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Consolidated Retained Earnings, January 1, 20x4

- The document discusses accounting for non-controlling interests (NCI) in a consolidated financial statement where the parent company owns 80% of a subsidiary. - It provides examples of calculating NCI at acquisition and in subsequent years, including the allocation of net income, dividends paid to NCI, and impairment losses on goodwill. - The document also provides an example of the parent company's equity method entries to record its investment in the subsidiary and investment income earned in the consolidation process.

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Lala Ford
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76 views

Consolidated Retained Earnings, January 1, 20x4

- The document discusses accounting for non-controlling interests (NCI) in a consolidated financial statement where the parent company owns 80% of a subsidiary. - It provides examples of calculating NCI at acquisition and in subsequent years, including the allocation of net income, dividends paid to NCI, and impairment losses on goodwill. - The document also provides an example of the parent company's equity method entries to record its investment in the subsidiary and investment income earned in the consolidation process.

Uploaded by

Lala Ford
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Since NCI share of goodwill is not recognized, no adjustment is required for the

impairment loss on goodwill and impairment losses are not shared with NCI.
On date of acquisition the retained earnings of parent should always be considered as
the consolidated retained earnings, thus:
Consolidated Retained Earnings, January 1, 20x4
Retained earnings – Parent Company, January 1, 20x4 (date of
acquisition)........P300,000

On subsequent to date of acquisition, consolidated retained earnings would be


computed as follows:

The goodwill recognized on consolidation purely related to the parent’s share. NCI is
measured as a proportion of identifiable assets and goodwill attributable to NCI share is
not recognized. The NCI on January 1, 20x4 and December 31, 20x4 are computed as
follows:
Alternatively, NCI on December 31, 20x4 may also be computed as follows:

Non-controlling interest (partial-goodwill), January 1, 20x4................................. P


75,000
Add: NCINI- 20x4................................................................................................
8,450
Less: Dividends – Son, 20x4 (P30,000 X 20%).................................................. 6,000
Non-controlling interest (partial-goodwill), December 31, 20x4.......................... P
77,450

Second Year after Acquisition


Assume the following information available for Perfect and Son Company for the year
20x5:
Parent Company Equity Method Entry
The following are entries recorded by the parent in 20x5 in relation to its subsidiary
investment:

Thus, the investment balance and investment income in the books of Perfect Company
are as follows:
Consolidation Workpaper – Second Year after Acquisition
The schedule of determination and allocation of excess presented above provides
complete guidance for the worksheet eliminating entries:
The separate financial statements of the two companies, the eliminating entries, and the
consolidated totals for the financial statements on December 31, 20x5 as follows:
Figure 5-10: Worksheet for Consolidated Financial Statements, December 31,
20x5. Equity Method (Partial-goodwill)
80%-Owned Subsidiary
December 31, 20x5 (Second Year after Acquisition)
The consolidated net income, consolidated retained earnings, and non-
controlling interests on December 31, 20x5 is the same with Illustration 5-4
except only in the computation of consolidated retained earnings.
The consolidated net income, retained earning and non-controlling interests which can
be verified in Figure 5-19 can also be computed as follows:
For firms using the complete equity method, the controlling interest in consolidated net
income will always equal the net income reported by the parent. Thus it is not necessary
to reconcile the two. The consolidated retained earnings will equal the retained earnings
reported by the parent at any point, assuming the parent has correctly adjusted for any
and all I realized (and subsequently realized) intercompany profit.
Therefore, regardless of the method used in the separate financial statements of parent,
the consolidated balance (which is under equity method) is always the same.
Illustration 5-7: 80%-Owned Subsidiary: Equity Method, Full-goodwill, With
Goodwill Impairment Loss Recognized in the books of Subsidiary
From the trial balance presented in Illustration 5-6, the following summary for 20x4
results of operations are as follows:

The amount of goodwill, analysis of over/undervaluation, amortization schedule,


goodwill impairment loss and intercompany sales and profit are the same with
Illustration5-4.
The resulting ownership situation can be viewed in the schedule of determination and
allocation of excess.
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Date of Acquisition – January 1, 20x4
The over/under valuation of assets and liabilities are summarized as follows:

The buildings and equipment will be further analyzed for consolidation purposes as
follows:
A summary or depreciation and amortization adjustments is as follows:

The goodwill impairment loss of P3,125 based on 100% fair value would be allocated to
the controlling interest and the NCI based on the percentage of total goodwill each
equity interest received. For purposes of allocating the goodwill impairment loss, the
full-goodwill is computed as follows:

In this case, the goodwill was proportional to the controlling interest of 80% and non-
controlling interest of 20% computed as follows:
The unrealized and gain on intercompany sales for 20x4 are as follows:

First Year after Acquisition


Parent Company Equity Method Entry
The following are entries recorded by the parent in 20x4 in relation to its subsidiary
investment:

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