BU487 Chapter Notes - Chapter 5: Retained Earnings, Controlling Interest, Equity Method
Chapter 5 - Consolidation Subsequent to Acquisition Date
Must differentiate between accounting in the internal records and reporting in the external financial
statements
Consolidated net income will be the same regardless of whether the parent used the cost method or the
equity method for its internal accounting records
The parent’s R/E reported in its internal records under the equity method should be equal to
consolidated R/E
Recoverable amount is the higher of fair value less costs of disposal and value in use
An asset is impaired if it’s carrying amount exceeds its recoverable amount
Impairment losses on assets other than goodwill can be reversed
Change in consolidated R/E = Net Income – dividends declared
Changes in NCI = Net income attributable to the NCI – dividends paid by the subsidiary to the NCI
Direct Approach
Consolidated Net Income = Income of P’s + Income of S’s +/- amortized AD +/- other
adjustments
Consolidation of Wholly Owned Subsidiary
Parent’s adjusted net income on consolidation = Net income from P’s – Dividend paid by S’s
oMust adjust the parent’s income from the dividends they received from their subsidiary
Sub’s adjusted net income on consolidation = Net income from S’s – total amortization amount
oAdjust S’s net income for AD amortization
Total Consolidated net income = P’s adjusted net income + S’s adjusted net income
Income Statement
oAdd in cost of sales (amortized amount for inventory) and goodwill impairment loss
(amortized amount for goodwill)
Balance Sheet
oAdd in inventory (if there’s any left over after amortized) and goodwill (the left-over
amount after amortized)
Consolidation of Non-Wholly Owned Subsidiary
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Document Summary
Chapter 5 - consolidation subsequent to acquisition date. Must differentiate between accounting in the internal records and reporting in the external financial statements. Consolidated net income will be the same regardless of whether the parent used the cost method or the equity method for its internal accounting records. The parent"s r/e reported in its internal records under the equity method should be equal to consolidated r/e. Recoverable amount is the higher of fair value less costs of disposal and value in use. An asset is impaired if it"s carrying amount exceeds its recoverable amount. Impairment losses on assets other than goodwill can be reversed. Change in consolidated r/e = net income dividends declared. Changes in nci = net income attributable to the nci dividends paid by the subsidiary to the nci. Consolidated net income = income of p"s + income of s"s +/- amortized ad +/- other adjustments.
