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Buscom Report

The document discusses intercompany transactions and their treatment in consolidated financial statements. It provides examples of dividends received from a subsidiary and the acquisition of bonds issued by a related party. For dividends, the treatment depends on how the investment is measured. For bonds, any difference between the acquisition cost and carrying amount is recognized in profit or loss and interest is eliminated in consolidation.

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47 views

Buscom Report

The document discusses intercompany transactions and their treatment in consolidated financial statements. It provides examples of dividends received from a subsidiary and the acquisition of bonds issued by a related party. For dividends, the treatment depends on how the investment is measured. For bonds, any difference between the acquisition cost and carrying amount is recognized in profit or loss and interest is eliminated in consolidation.

Uploaded by

Jashly Fuentes
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Intercompany dividends

When the investment in subsidiary is measured at cost or in

accordance with PFRS 9, dividends received from the subsidiary


are recognized in profit or loss.
When the investment in subsidiary is measured using the
equity method, dividends received from the subsidiary are
recognized as reduction to the carrying amount of the investment .

In any case, the dividends must be eliminated when the


consolidated financial statements are prepared. It is as if the parent
never received the dividends. Therefore:
a. If the dividends were recognized in profit or loss,
eliminate the dividend income in the consolidated statement
of profit or loss.
b. If the dividends were recognized as reduction
to the investment account, add back the dividends to the
investment account.

3. Loud Co. owns 75% interest in Soft Co. On acquisition date,


the carrying amount of Soft Co.'s net identifiable assets ".a'
P240,000, equal to fair value. Non-controlling interest
"measured using the proportionate share method.

In 20x1, Soft Co. declared P150,000 dividends. Se lected,.


information on the entities on December 31, 20x1 is shown bel°
Loila c 0. Soft LO.
-----7-
st a fernent
of financial positron accounts:
Share capital 1,200,000 300,000
Retair e a r nings 420,000 180,000
,62O,000 480,0(1)

Loud Co. Soft Co.


Statement of profit or loss accounts
960,000 390,000
Revenues
Expenses (360,000) (192,000)
Dividend income 112,500
Pro t or loss 712,500 198,000

Requirements: Compute for the following:


a. Non-controlling interest in the net assets of the
subsidiary as of year-end.
b. Consolidated retained earnings at year-end
c. Consolidated profit for the year broken down into
amounts attributable to the owners of the parent and
attributable to non-controlling interests.
Intercompany bond transaction
When a parent or a subsidiary acquires bonds issued by the other,
both the investment in bonds and the bonds payable are eliminated in
the consolidated financial statements.
The bonds payable are considered extinguished from the
point of view of the group. Therefore:
a. The difference between acquisition cost of the investment
in bonds and the carrying amount of the bonds payable on the
acquisition date is recognized as gain or loss in the
consolidated statement of profit or loss; and
b. Any interest expense and interest income recognized after
the intercompany transaction are eliminated in the consolidated
financial statements.

4. On January 1, 20x1, Walk Co. acquired 75% interest in Run Co.


On this date, Sing Co.'s net identifiable assets have a carrying
amount of P208,000, equal to fair value. Non-controlling
interest was measured using the proportionate share method.

On December 31, 20x1, Dance, Inc. purchased a l l of the


outstanding bonds of Sing Co. from the open market for P320,000.
There were no other intercompany transactions during the year,
The year-end individual financial statements show the following
information:
Walk Co. Run Co.
ASSETS
Investment in subsidiary (al cost) 234,000
investment in bonds 320,000
O s
64,000
ther asset 650,000
884,000 384,000
TOTAL ASSETS
LIABILITIES AND EQUITY
52,0(X)
Accounts payable
Bonds a ableW3 35200,000,000
M t a i 3 5 0 , 0 0 0
Share capital
• 182,00
Retained e 0
Total equitti 532,000
TOTAL LIABILITIES AND E ut— 8 8 4 , 0 0 0
384
,000
Walk Co. Run Co.
Revenues 390,000 156,000
(282,100) (130,000)
Operating expenses
Interest ex ense (3,000)
104,900 26,000
Pro 't or the ear

Requirements:
a. Compute for the gain (loss) on extinguishment of bonds to
be recognized in the 20x1 consolidated statement of profit or loss.
b. Compute for the consolidated total bonds payable.
c. Prepare a draft of the 20x1 consolidated statement of
financial position and statement of profit or loss.

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