NATURE OF CONSOLIDATED STATEMENTS

IFRS 10 requires that an entity that is a parent must present consolidated financial statements that
include all subsidiaries of the patent. Only three exceptions to this rule are available and these are:

(1) a parent need not present consolidated financial statements if all the following criteria are met:

(a) The parent itself is a wholly-owned subsidiary or it is a partially-owned subsidiary of another

entity and all of its owners, including those not normally entitled to vote, have been informed
about, and do not object to, the parent not presenting consolidated financial statements;
(b) Its debt and equity instruments are not traded in a public market;
(c) It did not file, nor is it in the process of filing, its financial statements with a securities
exchange commissions; and
(d) Its ultimate or intermediate parent produces consolidated financial statements that are
available for public use and comply with IFRS.

(2) Post-employment benefit plans or other long-term employee benefits plans to which IAS 10,
Employee Benefits, apply are excluded from the scope of IFRS 10.

(3) An investment entity need not present consolidated financial statements if it is required to measure
those subsidiaries at fair value through profit or loss in accordance with IFRS 9, Financial instruments (or
IAS 39, Financial Instruments: Recognition and Measurement until IFRS 9 comes into effect).

CONDITIONS FOR CONSOLIDATED STATEMENTS

Generally, statements are to be consolidated when a parent company owns over 50% of the voting
common stock of another company thereby having a controlling interest. However, control may be
achieved even with less than 51% of the voting common stock is owned by the parent. In such case, the
consolidated statements may be prepared in view of the unified managerial control.

CONTROL

IFRS 10 introduces a new single control model to identify a parent-subsidiary relationship by specifying
that “an investor controls an investee when the investor is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those returns through its power over
the investee”.

In this new control model, an investor controls an investee if and only if the investor has all of the
following three elements:

(a) Power over the investee (the Power);

(b) Exposure, or rights, to variable returns from its involvement with the investee (the Returns); and
(c) The ability to use its power over the investee to effect the amount of the investor’s returns (the Link
between Power and Returns).
Illustration 1
P Company and Subsidiary
Consolidation Working Paper
December 1, 2017

P Company S Company Elimination Consolidated

Debit Credit
Assets

Cash P130,000 P-0- P130,000

Accounts receivable 40,000 32,000 72,000
Inventory 50,000 20,000 70,000
Equipment -net 180,000 158,000 338,000
Investment in S Company 100,000 -
(1) 100,000
Total assets P500,000 P210,000 P610,000

Liabilities and Equity

Accounts payable P280,000 110,000 P390,000
Common stocks:
P Company 100,000 100,000
S Company 50,000 (1) 50,000
Additional paid-in capital:
P Company 80,000 P80,000
S Company 30,000 (1) 30,000
Retained earnings:
P Company 40,000 P40,000
S Company 20,000 (1 )20,000

Total Liabilities and Equity P500,000 P210,000 P100,000 P610,000

P100,000

Illustration 2
P Company and Subsidiary
Consolidated Statement of Financial Position
December 1, 2017

Assets
Current assets
Cash P 130,000
Accounts receivable 72,000
Inventory 70,000
Total Current Assets 272,000

Non-current Assets
Equipment 338,000

Total Assets P 610,000

Liabilities and Equity

Current liabilities
Accounts payable P 390,000

Stockholders’ Equity
Common stock 100,000
Additional paid-in capital 80,000
Retained earnings 40,000 220,000

Total Liabilities and Equity P 610,000

Illustration 3
P Company and Subsidiary
Consolidation Working Paper
December 1, 2017

P Company S Company Elimination Consolidated

Debit Credit
Assets
Cash P120,000 P-0- P120,000
Accounts receivable 40,000 32,000 72,000
Inventory 50,000 20,000 70,000
Equipment-net 180,000 158,000 338,000
Goodwill (1)10,000 10,000
Investment in S Company 110,000 (1)110,000
Total assets P500,000 P210,000 P610,000

Liabilities and Equity

Accounts payable P280,000 P110,000 P390,000
Common stock
P Company 100,000 100,000
S Company 50,000 (1)50,000
Additional paid-in capital
P Company 80,000 80,000
S Company 30,000 (1)30,000
Retained earnings
P Company 40,000 40,000
S Company 20,000 (1)20,000
Total Liabilities & Equity P500,000 P210,000 P110,000 P610,000

Consolidated Statement of Financial Position. The formal consolidated statement of financial position
resulting from the 100% acquisition of S Company taken from the consolidated column of the
consolidation working paper is presented below:

P Company and Subsidiary

Consolidated Statement of Financial Position
December 1, 2017

Assets
Current assets
Cash P 120,000
Accounts receivable 72,000
Inventory 70,000
Total Current Assets 262,000
Non-current assets
Equipment 338,000
Goodwill 10,000
Total non-current assets 348,000
Total assets P 610,000

Liabilities and Equity

Accounts payable P 390,000

Stockholders’ Equity
Common stock 100,000
Additional paid in capital 80,000
Retained earnings 40,000
Total stockholders’ equity 220,000
Total liabilities and equity P 610,000
Illustration 4
P Company and Subsidiary
Consolidation Working Paper
December 1, 2017

P S Eliminations Consolidated
Company Company Debit Credit
Assets
Cash P150,000 P -0- P150,000
Account receivable 40,000 32,000 72,000
Inventory 50,000 20,000 70,000
Equipment 180,000 158,000 338,000
Investment in S Company 80,000 (1)P80,000
Total Assets P500,000 P210,000 P630,000

Liabilities and Equity

Accounts payable P280,000 P110,000 P390,000
Common stock:
P Company 100,000 100,000
S Company 50,000 (1)50,000
Additional paid-in capital
P Company 80,000 80,000
S Company 30,000 (1)30,000
Retained earnings
P Company 40,000 (1)20,000 60,000
S Company 20,000 (1)20,000
Total liabilities and equity P500,000 P210,000 P100,000 P100,000 P630,000

Illustration 5
P Company and Subsidiary
Consolidation Working Paper
December 1, 2017

P S Elimination and Adjustments Consolidated

Company Company Debit Credit
Assets
Cash P168,000 P-0- P168,000
Accounts receivable 144,000 40,000 184,000
Inventory 160,000 100,000 (2)10,000 270,000
Land 200,000 80,000 (2)50,000 330,000
Building 840,000 300,000 (2)200,000 1,340,000
Equipment 400,000 80,000 (2)40,000 520,000
Investment in S Company 800,000 (1)256,000
(2)544,000
Goodwill (2)350,000 350,000
Total P2,712,000 P600,000 P3162,000

Liabilities and Equity

Accounts payable P160,000 P80,000 P240,000
Bonds payable 400,000 200,000 600,000
Common stock:
P Company 560,000 560,000
S Company 20,000 (1)20,000
Additional paid- in capital:
P Company 1,140,000 1,140,000
S Company 180,000 (1)180,000
Retained earnings:
P Company 452,000 452,000
S Company 120,000 (1)120,000
NCI to consolidated (1)64,000 170,000
(2)106,000
Total P2,712,000 P600,000 P1,970,000 P970,000 P3,162,000
Consolidated Statement of Financial Position. The formal consolidated statement of financial position resulting from
80% acquisition of S Company in exchange for 16,000 parent’s share has been taken from the consolidated column of
consolidation working paper (Illustration 5).

P Company and Subsidiary

Consolidated Statement of Financial Position
December 1, 2017

Assets
Current assets
Cash P 168,000
Accounts receivable 184,000
Inventory 270,000
Total 622,000
Non-current assets
Land 330,000
Building 1,340,000
Equipment 520,000
Goodwill 350,000
Total 2,540,000
Total assets P3,162,000

Liabilities and Equity

Liabilities
Accounts payable P 240,000
Bonds payable 600,000
Total liabilities 840,000

Stockholder’s Equity
Common stock 560,000
Additional paid in capital 1,140,000
Retained earnings 452,000
Total controlling equity 2,152,000
Non-controlling interest 170,000
Total equity 2,322,000
Total liabilities and equity P3,162,000

Illustration 6
P Company and Subsidiary
Consolidation Working Paper
December 1, 2017
P Company S Company Elimination & Adjustments Consolidated
Debit Credit
Assets
Cash P168,000 P-0- P168,000
Accounts receivable 144,000 40,000 184,000
Inventory 160,000 100,000 (2)10,000 270,000
Land 200,000 80,000 (2)50,000 330,000
Building 840,000 300,000 (2)200,000 1,340,000
Equipment 400,000 80,000 (2)40,000 520,000
Investment in S Company 400,000 (1)256,000
(2)144,000
Total P2,312,000 P600,000 P2,812,000

Liabilities and Equity P240,000

Accounts payable P160,000 P80,000 600,000
Bonds payable 400,000 200,000
Common stock: 480,000
P Company 480,000 (1)20,000
S Company 20,000
Additional paid-in capital 820,000
P Company 820,000
S Company (1)180,000
Retained earnings: 180,000 (2)96,000 548,000
P Company 452,000 (1)120,000
S Company 120,000 (1)64,000 124,000
NCI to consolidated (2)60,000
P620,000 P620,000 P2,812,000
Total P2,312,000 P600,000
TECHNIQUES IN THE CALCULATION AND ALLOCATION OF GOODWILL AND/OR GAIN ON
ACQUISITION

The following are the steps that will always work if used in the order shown below:

WITH GOODWILL: Assume the price paid by the parent is P600,000.

Step 1: Enter the value for column A2 (sum of fair values of company’s net identifiable assets). Then the appropriate
percentage of that value into column B2 and C2. These amounts are fixed regardless of the price paid by the parent.

(A) (B) (C)

Company Parent Price NCI Value
Implied FV (80%) (20%)
1. Company fair value
2. Fair value of net assets excluding goodwill 620,000 496,000 124,000
3. Goodwill

Step 2: Enter the price paid by the parent for the controlling interest in B1.
(A) (B) (C)
Company Parent Price NCI Value
Implied FV (80%) (20%)
1. Company fair value P600,000
2. Fair value of net assets excluding goodwill 620,000 496,000 124,000
3. Goodwill

Step 3: Compare B1, the price paid by the parent, and B2, the parent’s share of the fair value of the company’s net
identifiable assets. If B1 is more the B2, enter B3 the difference, which is the goodwill applicable to the parent. Then
complete C1. Normally, this amount will be proportionate to B1. It can be a different amount (based on estimated
fair value) but never less than C2. In this case it is assessed to be P180,000 even though the proportionate value
would be P150,000 for this example. Compute now the value of C3 and complete the remaining columns.

(A) (B) (C)

Company Parent Price NCI Value
Implied FV (80%) (20%)
1. Company fair value P780,000 P600,000 P180,000*
2. Fair value of net assets excluding goodwill 620,000 496,000 124,000
3. Goodwill P160,000 P104,000 P56,000

WITH GAIN ON A ACQUISITION: Assume the price paid by the parent is P450,000.

Step 1: Enter and allocate fair values.

(B) (B) (C)

Company Parent Price NCI Value
Implied FV (80%) (20%)
1. Company fair value
2. Fair value of net assets excluding goodwill 620,000 496,000 124,000
3. Gain on acquisition

Step 2: Enter the price paid by the parent.

(A) (B) (C)
Company Parent Price NCI Value
Implied FV (80%) (20%)
1. Company fair value P450,000
2. Fair value of net assets excluding goodwill 620,000 496,000 124,000
3. Gain on acquisition

Step 3: Calculate the gain applicable to the parent (B2 is more than B1) and complete the remaining columns.
(A) (B) (C)
Company Parent Price NCI Value
Implied FV (80%) (20%)
1. Company fair value P574,000 P450,000 P124,000
2. Fair value of net assets excluding goodwill 620,000 496,000 124,000
3. Gain on acquisition P(46,000) P(46,000) P -0-
Take note that C1 cannot be less than C2.
If the fair value of the NCI exceeded P124,000, the excess would be an offset to the gain on the controlling interest.
To illustrate, assume that NCI has a fair value of P130,000.

(A) (B) (C)

Company Parent Price NCI Value
Implied FV (80%) (20%)
1. Company fair value P580,000 P450,000 P130,00
2. Fair value of net assets excluding goodwill 620,000 496,000 124,000
3. Gain on acquisition P(40,000) P(46,000) P6,000

The working paper elimination entry to allocate the excess would be:
Investment in S Company 46,000
NCI 6,000
Retained earnings - P Company (gain on acquisition) 40,000

SUBSIDIARY’S PREEXISTING GOODWILL

If the acquired subsidiary has goodwill on its books at time of acquisition, that goodwill is ignored in the computation
and allocation of excess.

Illustration:

Assume the same example involving the 80% acquisition of S Company in Case 4 on page 78.Assume further that S
Company in its statement of financial position on page 77 (Illustration 14-8) has a goodwill of P50,000 and the
retained earnings balance is P170,000.

The revised statement of financial position of S Company on the date of acquisition would be as follows:

S Company
Statement of Financial Position
December 1, 2017

Assets Book Value Fair Value

Accounts receivable P 40,000 P 40,000
Inventory 100,000 110,000
Land 80,000 130,000
Building 300,000 500,000
Equipment 80,000 120,000
Goodwill 50,000
Total assets P650,000 P900,000

Liabilities and Equity

Accounts payable P 80,000 P 80,000
Bonds payable 200,000 200,000
Total liabilities P280,000 P280,000
Stockholders’ Equity:
Common stock, P1 par P 20,000
Additional paid in capital 180,000
Retained earnings 170,000
Total equity P370,000

Net assets P370,000 P620,000

Assume that P Company issued 16,000 shares of its P10 par value common stock for 80% (16,000 shares) of the
outstanding shares of S Company. The fair value of P Company’s stock is P50 and the fair value of the 20% NCI is
assessed to be P200,000. P Company also pays P50,000 in professional fees to accomplish the acquisition. P Company
would make the following entries:
(1) To record the acquisition of S Company stock:
Investment in S Company (16,000 shares x P50) 800,000
Common stock (16,000 shares x P10) 160,000
Additional paid in capital 640,000

(2) To record acquisition-related costs:

Retained earnings - P Co. (acquisition expense) 50,000
Cash 50,000
Computation and allocation of the goodwill:
Total Parent Price NCI Value
Fair Value (80%) (20%)
Company fair value P1,000,000 P800,000 P200,000
Fair value of net assets excluding goodwill 620,000 496,000 124,000
Goodwill P 380,000 P304,000 P 76,000

The Determination and Allocation of Excess Schedule is as follows:

Total Parent Price NCI Value
Fair Value (80%) (20%)
Fair value of subsidiary P1,000,000 P800,000 P200,000
Less book value of interest acquired:
Common stock P 20,000
Additional paid in capital 180,000
Retained earnings 170,000
Total equity P 370,000 P370,000 P370,000
Interest acquired 80% 20%
Book value P296,000 P 74,000
Excess P 630,000 P504,000 P126,000
Adjustment of identifiable accounts:
Inventory P110,000 FV - P100,000 BV P (10,000)
Land (P130,000 FV - P80,000 BV) (50,000)
Buildings (P500,000 FV - P300,000 BV) (200,000)
Equipment (P120,000 FV - P80,000 BV) (40,000)
Total P(300,000)
Goodwill P330,000

The working paper elimination entries based on the D & A of excess schedule are:
E (1) Common stock - S Company 20,000
Additional paid in capital - S Company 180,000
Retained earnings - S Company 170,000
Investment in S Company 296,000
Non- controlling interest (NCI) 74,000
E (2) Inventory 10,000
Land 50,000
Building 200,000
Equipment 40,000
Goodwill (P380,000 - P50,000) 330,000
Investment in S Company 504,000
Non- controlling interest (NCI) 126,000

The consolidation working paper with the corresponding changes is as follows:

P Company and Subsidiary
Consolidation Working Paper
December 1, 2017
P Company S Company Debit Credit Consolidated
Assets
Cash P168,000 P -0- P168,000
Accounts receivable 144,000 40,000 184,000
Inventory 160,000 100,000 (2)10,000 270,000
Land 200,000 80,000 (2)50,000 330,000
Building 840,000 300,000 (2)200,000 1,340,000
Equipment 400,000 80,000 (2)40,000 520,000
Investment in S Company 800,000 (1)296,000
(2)504,000 -
Goodwill 50,000 (2)330,000 380,000
Total P2,712,000 P650,000 P3,192,000

Liabilities and Equity

Accounts payable P160,000 P80,000 P240,000
Bonds payable 400,000 200,000 600,000
Common stock:
P Company 560,000 560,000
S Company 20,000 (1)20,000
Additional Paid in Capital
P Company 1,140,000 1,140,000
S Company 180,000 (1)180,000
Retained earnings
P Company 452,000 452,000
S Company 170,000 (1)170,000
NCI to consolidated (1)74,000
(2)126,000 380,000
Total P2,712,000 P650,000 P1,000,000 P1,000,000 P3,192,000