AFM491 Chapter Notes - Chapter 04: Zip Code, Financial Statement, Book Value
3 Nov 2016
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Introduction
Consolidated f/s report the combined results of the parent and all its sub
LO1 NON¨CWHOLLY OWNED SUBSIDIARIES
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Page 2
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➢ Three questions arise when preparing consolidated f/s for <100%-owned sub
◼ How should the portion of the subsidiary¡¯ s assets and liabilities that was not acquired
by the parent be measured on the consolidated financial statements?
◼ How should NCI be measured on the consolidated financial statements?
◼ How should NCI be presented on the consolidated financial statements
➢ Following theories have developed over time and have been proposed as solutions to
preparing consolidated f/s for non-wholly owned sub
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Page 3
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➢ Entity theory → FV of sub as a whole method/full goodwill method
➢ Parent company theory = FV of NIA method or partial goodwill method
➢ All 4 has been or is currently required by GAAP
CONSOLIDATION THEORIES
➢ 4 theories differ in the valuation of the NCI and in how much of the sub;s
value pertaining to the NCI is brought onto the consolidated f/s
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ILLUSTRATION
➢ on June 30, Year 1, S Ltd. had 10,000 shares outstanding and P Ltd. purchases 8,000 shares
(80%) of S Ltd. for a total cost of $72,000.
➢ P’s j/e
◼ Investment in S 72K
⚫ Cash 72K
1) Proprietary theory views the consolidated from the standpoint of the shareholders of the
parent company
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Document Summary
Consolidated f/s report the combined results of the parent and all its sub. Lo1 non cwholly owned subsidiaries the pa(cid:396)e(cid:374)t a(cid:272)(cid:395)ui(cid:396)ed (cid:955)(cid:954)(cid:954)% of the su(cid:271) Cases (cid:449)he(cid:396)e the pa(cid:396)e(cid:374)t a(cid:272)(cid:395)ui(cid:396)es less tha(cid:374) (cid:955)(cid:954)(cid:954)% of the sha(cid:396)es. Pa(cid:396)e(cid:374)t"s sha(cid:396)e of the su(cid:271)"s a&l (cid:449)ill (cid:271)e (cid:373)easu(cid:396)ed at fv. P o(cid:271)tai(cid:374) (cid:272)o(cid:374)t(cid:396)ol o(cid:448)e(cid:396) s o(cid:374) ju(cid:374)e 3(cid:954) (cid:271)y payi(cid:374)g (cid:272)ash to the sha(cid:396)ehode(cid:396)s of s fo(cid:396) a po(cid:396)io(cid:374) of that (cid:272)o(cid:373)pa(cid:374)y"s (cid:272)/s. Non-controlling shareholders: sha(cid:396)es (cid:374)ot a(cid:272)(cid:395)ui(cid:396)ed (cid:271) ythe pa(cid:396)e(cid:374)t a(cid:396)e o(cid:449)(cid:374)ed (cid:271)y othe(cid:396) sha(cid:396)eholde(cid:396)s. The (cid:448)alue of the sha(cid:396)es at(cid:396)i(cid:271)uted to the no(cid:374)-(cid:272)o(cid:374)t(cid:396)olli(cid:374)g sha(cid:396)eholde(cid:396), (cid:449)he(cid:374) p(cid:396)ese(cid:374)ted o(cid:374) the (cid:272)o(cid:374)solidated f/s = nci. The nci (cid:396)ep a(cid:374) addiio(cid:374)al set of o(cid:449)(cid:374)e(cid:396)s (cid:449)ho ha(cid:448)e legal (cid:272)lai(cid:373) to the su(cid:271)"s (cid:374)et assets. Three questions arise when preparing consolidated f/s for <100%-owned sub. How should nci be presented on the consolidated financial statements. Following theories have developed over time and have been proposed as solutions to preparing consolidated f/s for non-wholly owned sub.
