CCFC 513 Lecture Notes - Lecture 11: Income Statement
25 Jun 2018
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CHAPTER 8: CONSOLIDATED CASH FLOWS AND CHANGES IN OWNERSHIP
Review from Chapter 8 Block Acquisitions
- Number of shares that P owns always remained constant
- 20% = significant influence / 50% = control
- Only apply entity theory on an acquisition that gives CONTROL (entity theory means
gross up of values)
- Once control is obtained, we have to do consolidated statements
There could be 2 scenarios causing change in ownership which will be explained in the
following:
8.2.1 Parent Sells Some of Its Holdings in Subsidiary
Parent might decide to sell some of its shares:
Total shares outstanding: 10,000
Beginning: 9,000/10,000 = 90%
P sells 1,000 shares
Ownership = 8,000/10,000 = 80%
Ownership decreases by 10%
Sales of assets other than inventory:
- Journal entry to be recorded:
Cash
XXX
Asset
XXX
Gain on disposal
XXX
** Loss would be a DEBIT
On January 1, Year 6, P sold 900 shares in S on the open market for $34,200
There are 10,000 shares of S outstanding
- After the sale, P ownership = (9,000 – 900) / 10,000 = 81%
P ownership went from 90% to 81% (decrease of 9%)
NCI ownership will go from 10% to 19%
- From a consolidated point of view, nothing has changed
Document Summary
Chapter 8: consolidated cash flows and changes in ownership. Number of shares that p owns always remained constant. 20% = significant influence / 50% = control. Only apply entity theory on an acquisition that gives control (entity theory means gross up of values) Once control is obtained, we have to do consolidated statements. There could be 2 scenarios causing change in ownership which will be explained in the following: 8. 2. 1 parent sells some of its holdings in subsidiary. Parent might decide to sell some of its shares: On january 1, year 6, p sold 900 shares in s on the open market for ,200. After the sale, p ownership = (9,000 900) / 10,000 = 81% P ownership went from 90% to 81% (decrease of 9%) Nci ownership will go from 10% to 19% From a consolidated point of view, nothing has changed. On january 1, year 6, s issues an additional 2,500 shares for ,000.
