Formulas for Business Combination

Business Combination Formulas Chapter 15 1.)

Noncontrolling interest

Priority 1 = Fair value of NCI given to the problem but it should not be lower than the NCI - measured at Non-controlling interest's proportionate share of Subsidairy's identifiable net assets @ Fair Value. If fair value of NCI given to the problem is lower than NCI measured at proportionate share of Subsidiary's identifiable net assets use the latter. Compuation of NCI measured in proportionate share of Subsidiary's identifiable net assets. Subsidiary net assets at Fair Value Multiply by: Noncontrolling interest Fair value of NCI proportionate share in Subsidiary identifiable net assets

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Priority 2 = If Fair value of NCI is not given or unknown Acquistion cost Divided by: Controlling interest Total fair value of business Multiply by: Noncontrolling interest Fair value of Noncontrolling interest

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Note: But again the computed Fair value of Noncontrolling interest should not be lower than than the fair value of NCI in proportionate share in Subsidiary's identifiable net assets. Note: We apply whichever is higher rule: Part of the new provision, NCI should not have an amount that is lower than the fair value of NCI measured in proportionate share in Subsidiary's identifiable net assets. We use whichever is higher.

2.)

Result of acquisition Acquisition cost (Consideration paid) FMV of NCI FMV of old investment in same company acquired ( less than 50%), included Contingent liabiilty Total Less: FMV of Subsidiary Net Assets (100%) Goodwill/Gain from acquisition

3.)

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Consolidated total Assets Parent total assets (book value) Subsidairy total assets (fair value) exclusive of goodwill, if any Goodwill - result from acquisition Payment - taken from the assets of the acquirer

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Consolidated total assets 4.)

Consolidated retained earnings Parent retained earnings before acquisition Add: Gain from acquistion, if any Total Less: Expenses (Direct cost, indirect cost) Consolidated retained earnings

5.)

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Consolidated additional paid in capital Parent additional paid in capital Add: New issued share to acquire subsidiay - excess of par Total Less: Stock issue cost, if any Consolidated additional paid in capital

7.)

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Consolidated common stock Parent common stock before acqquisition Add: New issued shares to acquire subsidairy @ Par value Consolidated Common Stock

6.)

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Consolidated stockholders' equity Consolidated common stock Consolidated additional paid in capital Consolidated retained earnings Noncontrolling interest Consolidated stockholders' equity

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@ Fair Value.

CONSOLIDATED STATEMENT BUSINESS COMBINATION FORMULAS Chapter 16 1.) Consolidated net income Parent net income Less: Dividends income received from Subsidiary Parent income from it's own operation Less: Impairment loss on goodwill, if any Parent adjusted net income Add: Subsidiary adjusted net income Subsidiary reported net income +/- Amortization - impairment loss on goodwill, if any Consolidated net income 2.) Income from subsidiary Subsidiary reported net income +/- Amortization - impairment loss on goodwill, if any Subsidiary adjusted net income Multiply: Controlling interest Income from subsidiary 3.) Consolidated net income attributable to parent Parent net income Less: Dividends income received from Subsidiary Parent income from it's own operation Less: Impairment loss on goodwill, if any Parent adjusted net income Add: Income from subsidiary #2 Consolidated net income attributable to parent 4.) NCI in net income of Subsidiary/ Consolidated net income attributable to NCI Subsidiary reported net income +/- Amortization - impairment loss on goodwill, if any Subsidiary adjusted net income Multiply: Noncontrolling interest NCI in net income of Subsidiary 5.) Consolidated retained earnings Parent retained earnings - January 1, current year

Add: Gain from acquistion, if any Consolidated net income attributable to parent - #3 Total Less: Dividends declared - parent only Consolidated retained earnings - December 31, current year

Consolidated retained earnings formula if involves more the one previous year passed Parent Reported Retained Earnings - January 1, current year Less: Impairment loss - previous year if any Parent Adjusted Retained Earnings - January 1, current year Add: Undistributed Subsidiary adjusted net income in previous year/s Subsidiary Retained Earnings - January 1 current year Less: Subsidiary Retained Earnings - date of acquisition Undistributed Subsidiary unadjusted cumulative earnings (net income) Less: Amortization ( cumulative amortization ) Impairment of goodwill - previous year if any Undistributed Subsidiary adjusted net income Less: NCI share in the income undistributed adjusted cumulative earnings Consolidated Retained Earnings - January 1, current year Add: Consolidated net income attributable to parent - current year #3 Total Less: Dividends declared - parent only Consolidated Retained Earnings - ending

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6.) Noncontrolling interest First Year Noncontrolling interest - January 1, current year - computed using formula chapter 15 Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI Total Less: Dividends declared x Noncontrolling interest Noncontrolling interest - December 31 current year Note: You must noted the initial Noncontrolling interest amount on the date of acquisition. Because that is always your beginning balances. Computation of Noncontrolling interest more then one previous year passed Noncontrolling interest - at the date of acquisition ( initial ) Add: NCI share in the income undistributed adjusted cumulative earnings Subsidiary Retained Earnings - January 1 current year Less: Subsidiary Retained Earnings - date of acquisition Undistributed Subsidiary unadjusted cumulative earnings (net income) Less: Amortization ( cumulative amortization ) Impairment of goodwill - previous year if any Undistributed Subsidiary adjusted net income Multiply by: Noncontrolling interest Noncontrolling interest - January 1, current year

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Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI Total Less: Dividends declared x Noncontrolling interest Noncontrolling interest - December 31 current year

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Current Year

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Because that is always your

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Current Year

CONSOLIDATED STATEMENT BUSINESS COMBINATION FORMULAS

Chapter 17 1.) Consolidated Sales Parent Sabsidiary Total Less: Intercompany sales (Downstream sales + Upstream sales) Consolidated Sales 2.) Consolidated cost of goods sold First Year Parent Subsidiary Total Intercompany sales (Downstream sales + Upstream sales) Amortization of excess (inventory), if any Unrealized gross profit in ending inventory Cosolidated cost of goods sold Second Year Parent Subsidiary Total Intercompany sales (Downstream sales + Upstream sales) Amortization of excess (inventory), if any Realized gross profit in beginning inventory Unrealized gross profit in ending inventory Cosolidated cost of goods sold 3.) Consolidated Inventory Parent Subsidiary Add: Excess of inventory FMV over BV during acquisition that are remained unsold, if any Total Less: Unrealized gross profit in ending inventory (Downstream + Upstream) Consolidated inventory 4.) Consolidated net income First Year Parent net income from own operation, exclusive of dividends income received from Subsidiary Impairment loss, if any

Unrealized profit in ending inventory (Downstream sale) Parent adjusted net income Add: Subsidiary adjusted net income Subsidiary reported net income +/- Amortization Impairment loss, if any Unrealized profit in ending inventory (Upstream sale) Consolidated net income Second Year Parent net income from own operation, exclusive of dividends income received from Subsidiary Impairment loss, if any Realized profit in begining inventory Downstream sales Unrealized profit in ending inventory Parent adjusted net income Add: Subsidiary adjusted net income Subsidiary reported net income +/- Amortization Impairment loss, if any Realized profit in begining inventory Upstream sales Unrealized profit in ending inventory Consolidated net income

5.) Income from subsidiary First Year Subsidiary reported net income +/- Amortization Impairment loss, if any Unrealized profit in ending inventory (Upstream sale) Subsidiary adjusted net income Multiply by: Controlling interest Income from subsidiary Second Year Subsidiary reported net income +/- Amortization Impairment loss, if any Realized profit in begining inventory Unrealized profit in ending inventory Subsidiary adjusted net income Multiply by: Controlling interest Income from subsidiary

Upstream sales

6.) Consolidated net income attributable to parent First Year Parent net income from own operation, exclusive of dividends income received from Subsidiary Impairment loss, if any

Unrealized profit in ending inventory (Downstream sale) Parent adjusted net income Add: Income from subsidiary Consolidated net income attributable to parent Second Year Parent net income from own operation, exclusive of dividends income received from Subsidiary Impairment loss, if any Realized profit in begining inventory Downstream sales Unrealized profit in ending inventory Parent adjusted net income Add: Income from subsidiary Consolidated net income attributable to parent 7.) NCI in net income of Subsidiary/ Consolidated net income attributable to NCI First Year Subsidiary reported net income +/- Amortization Impairment loss, if any Unrealized profit in ending inventory (Upstream sale) Subsidiary adjusted net income Multiply by: Noncontrolling interest NCI in net income of Subsidiary/Consolidated net income attributable to NCI Second Year Subsidiary reported net income +/- Amortization Impairment loss, if any Realized profit in begining inventory Unrealized profit in ending inventory Subsidiary adjusted net income Multiply by: Noncontrolling interest NCI in net income of Subsidiary

Upstream sales

8.) Consolidated retained earnings Parent retained earnings - January 1, current year Add: Gain from acquistion, if any Consolidated net income attributable to parent Total Less: Dividends declared - parent only Consolidated retained earnings - December 31, current year

Consolidated retained earnings formula if involves more the one previous year passed Parent Reported Retained Earnings - January 1, current year Less: Impairment loss - previous years if any Unrealized profit in ending inventory - recent previous year

Parent Adjusted Retained Earnings - January 1, current year Add: Undistributed Subsidiary adjusted net income in previous year/s Subsidiary Retained Earnings - January 1 current year Less: Subsidiary Retained Earnings - date of acquisition Undistributed Subsidiary unadjusted net income Less: Amortization ( cumulative amortization ) Impairment of goodwill - previous year if any Unrealized profit in ending inventory - recent previous year Undistributed Subsidiary adjusted net income Less: NCI share in the income undistributed adjusted cumulative earnings Consolidated Retained Earnings - January 1, current year Add: Consolidated net income attributable to parent - current year #3 Total Less: Dividends declared - parent only Consolidated Retained Earnings - ending

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6.) Noncontrolling interest First Year Noncontrolling interest - January 1, current year - computed using formula chapter 15 Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI Total Less: Dividends declared x Noncontrolling interest Noncontrolling interest - December 31 current year Note: You must noted the initial Noncontrolling interest amount on the date of acquisition. Because it is always your beginning balance. Computation of Noncontrolling interest more then one previous year passed Noncontrolling interest - at the date of acquisition ( initial ) Add: NCI share in the income undistributed adjusted cumulative earnings Subsidiary Retained Earnings - January 1 current year Less: Subsidiary Retained Earnings - date of acquisition Undistributed Subsidiary unadjusted cumulative earnings (net income) Less: Amortization ( cumulative amortization ) Impairment of goodwill - previous year if any Unrealized profit in ending inventory - recent previous year Undistributed Subsidiary adjusted net income Multiply by: Noncontrolling interest Noncontrolling interest - January 1, current year Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI Total Less: Dividends declared x Noncontrolling interest Noncontrolling interest - December 31 current year

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Note: Why we adjust Retained earnings and Noncontrolling interest beginning with the unrealized profit in ending inventory recent previous year?

Because we corrected net income of the current year with the unrealized profit in ending inventory recent previou year, which is now realized profit in beginning inventory for the current year.

See the computation of adjusted net incomes for Parent and Subsidairy, we included realized profit in beginning inventory to get adjusted net income. Make this a constant procedure. Because, I agree there is other way. How? Don’t include realized profit in beginning in the computation of adjusted net income and unrealized profit in ending recent previous year in adjusted retained earnings beginning to offset errors o to counter balance. But again may I suggest to use the formula above constantly because it is seldom in problem to have only Consolidated Retained Earnings as requirement normally consolidated net income is also part of the requirement, with that you must included realized profit in beginning inventory.

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Current Year

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n. Because it is always your

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nrealized profit in ending inventory

Current Year

in ending inventory recent previous

luded realized profit in cedure. Because, I agree there utation of adjusted net income arnings beginning to offset errors or nstantly because it is seldom in mally consolidated net income is beginning inventory.

CONSOLIDATED STATEMENT BUSINESS COMBINATION FORMULAS

Chapter 18 1.) Consolidated net income Year of sale (plant asset) - First year (Inventory) Parent net income from own operation, exclusive of dividends received from subsidairy Impairment loss Unrealized profit in ending inventory Net unrealized gain/loss on sale (depreciable asset) Unrealized gain/loss on sale (non-depreciable assets) Parent adjusted net income Add: Subsidiary adjusted net income Subsidiary reported net income +/- Amortization Impairment loss Unrealized profit in ending inventory Net unrealized gain/loss on sale (depreciable asset) Unrealized gain/loss on sale (non-depreciable assets) Consolidated net income Second Year (plant asset) - Second year (inventory) Parent net income from own operation Impairment loss Realized profit in begining inventory Unrealized profit in ending inventory Realized gain/loss on sale (annual depreciation) Parent adjusted net income Add: Subsidiary adjusted net income Subsidiary reported net income +/- Amortization Realized profit in begining inventory Unrealized profit in ending inventory Realized gain/loss on sale (annual depreciation - excess) Consolidated net income 2.) Income from subsidiary Year of sale (plant asset) - First year (Inventory) Subsidiary reported net income +/- Amortization Impairment loss Unrealized profit in ending inventory Net unrealized gain/loss on sale (depreciable asset) Unrealized gain/loss on sale (non-depreciable assets) Subsidiary adjusted net income

Multiply by: Controlling interest Income from subsidiary Second Year (plant asset) - Second year (inventory Subsidiary reported net income +/- Amortization Realized profit in begining inventory Unrealized profit in ending inventory Realized gain/loss on sale (annual depreciation) Subsidiary adjusted net income Multiply by: Controlling interest Income from subsidiary 3.) Consolidated net income attributable to parent Year of sale (plant asset) - First year (Inventory) Parent net income from own operation, exclusive of dividends received from subsidairy Impairment loss Unrealized profit in ending inventory Net unrealized gain/loss on sale (depreciable asset) Unrealized gain/loss on sale (non-depreciable assets) Parent adjusted net income Add: Income from subsidiary Consolidated net income attributable to parent Second Year (plant asset) - Second year (inventory) Parent net income from own operation Impairment loss Realized profit in begining inventory Unrealized profit in ending inventory Realized gain/loss on sale (annual depreciation) Parent adjusted net income Add: Income from subsidiary Consolidated net income attributable to parent 4.) NCI in the net income of Subsidairy Year of sale (plant asset) - First year (Inventory) Subsidiary reported net income +/- Amortization Impairment loss Unrealized profit in ending inventory Net unrealized gain/loss on sale (depreciable asset) Unrealized gain/loss on sale (non-depreciable assets) Subsidiary adjusted net income Multiply by: Noncontrolling interest Minority interest in net income Second Year (plant asset) - Second year (inventory Subsidiary reported net income

+/- Amortization Realized profit in begining inventory Unrealized profit in ending inventory Realized gain/loss on sale (annual depreciation) Subsidiary adjusted net income Multiply by: Noncontrolling interest Minority interest in net income 5.) Consolidated Retained Earnings Year of sale of plant assets No adjustment in Retained earnings on intercompany sales of plant assets, they are adjustment in consolidated net income in the year of sales. Second year or More than one previous year passed: Consolidated retained earnings formula if involves more the one previous year passed Parent Reported Retained Earnings - beginning / January 1 Gain on acquisition - on the date of acquisition Impairment loss - previous years (cumulative) Unrealized profit in ending inventory - recent previous year Net unrealized gain/loss on sale (depreciable asset) - before adjustment of current year Unrealized gain/loss on sale (non-depreciable assets) Parent Adjusted Retained Earnings - beginning / January 1 Add: Undistributed Subsidiary adjusted net income Subsidiary Retained Earnings - beginning of current year Less: Subsidiary Retained Earnings - date of acquisition Undistributed Subsidiary unadjusted net income Amortization ( cumulative amortization ) Impairment loss - previous years (cumulative) Unrealized profit in ending inventory - recent previous year Net unrealized (gain)/loss on sale (depreciable asset) - before adjustment of current year Unrealized (gain)/loss on sale (non-depreciable assets) Total Less: NCI share in the income undistributed adjusted cumulative earnings Consolidated Retained Earnings - beginning/January 1 Add: Consolidated net income attributable to parent- current year Total Less: Dividends declared - parent only current year Consolidated Retained Earnings - ending

6.) Noncontrolling interest Year of sale of plant assets No adjustment in Retained earnings on intercompany sales of plant assets, they are adjustment in consolidated net income in the year of sales. Computation of Noncontrolling interest more then one previous year passed Noncontrolling interest - at the date of acquisition ( initial ) Add: NCI share in the income undistributed adjusted cumulative earnings

Subsidiary Retained Earnings - beginning of current year Less: Subsidiary Retained Earnings - date of acquisition Undistributed Subsidiary unadjusted net income Amortization ( cumulative amortization ) Impairment loss - previous years (cumulative) Unrealized profit in ending inventory - recent previous year Net unrealized (gain)/loss on sale (depreciable asset) - before adjustment of current year Unrealized (gain)/loss on sale (non-depreciable assets) Total Multiply by: Noncontrolling interest % Noncontrolling interest - January 1, current year Add: NCI in net income of Subsidiary/Consolidated net income attributable to NCI Total Less: Dividends declared x Noncontrolling interest Noncontrolling interest - December 31 current year

7.) Plant and equipment on consolidated - Old cost or Cost prior to intercompany sales 8.) Accumulated Depreciation Accumulated Depreciation - amount prior to intercompany sales (original or old value) - January 1, current Add: Depreciation for year - computed in original depreciation (OLD) Total 9.) Total gain on sale of plant assets when asset sold intercompany is sold to outsider. Actual gain in selling it to outsider Add: Remainining unrealized gain on sale of assets Total gain Note: Please observed the sign if it is unrealized loss, deduct.

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Downstream sales

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Upstream sales only

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Upstream sales only

Downstream sales

Downstream sales

Upstream sales only

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Upstream sales only

uary 1, current

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