Slide AKT 307 AKL 1 9
9-1
Baker / Lembke / King
Consolidation
Ownership
Issues
9
Electronic Presentation by
Douglas Cloud
Pepperdine University
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Ownership Issues
• Subsidiary Preferred Stock
• Changes in Parent’s Ownership in Subsidiary
due to:
–
–
–
–
Parent’s Purchase from Non affiliate
Parent’s Sale to Nonaffiliate
Subsidiary’s Sale to Nonaffiliate
Subsidiary’s Purchase from Nonaffiliate or Parents
• Multiple Ownerships
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-2
Subsidiary Preferred Stock Outstanding
9-3
PT
PTInduk
Indukpurchased
purchased80
80percent
percentof
ofthe
thecommon
common stock
stockof
ofPT
PTAnak
Anak
on
onDecember
December31,
31,20X0,
20X0,at
atits
itsbook
bookvalue
valueof
ofRp240,000,000
Rp240,000,000and
and
accounts
accountsfor
forthe
theinvestment
investmentusing
usingthe
thebasic
basicequity
equitymethod.
method.
PT
PTInduk
Indukearns
earnsincome
incomefrom
fromits
itsown
ownoperations
operationsof
of
Rp140,000,000
Rp140,000,000in
in20X1
20X1and
anddeclares
declaresdividends
dividendsof
ofRp60,000,000.
Rp60,000,000.
PT
PTAnak
Anakreports
reportsnet
netincome
incomeof
ofRp50,000,000
Rp50,000,000in
in20X1
20X1and
and
declares
declarescommon
commondividends
dividendsof
ofRp30,000,000.
Rp30,000,000.
On
OnJanuary
January1,1,20X1,
20X1,PT
PTAnak
Anakissued
issuedRp100,000,000
Rp100,000,000
of
of12
12percent
percentpreferred
preferredstock
stockat
atpar
parvalue,
value,none
noneof
of
which
whichisispurchased
purchasedby
byPT
PTInduk.
Induk.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Preferred Stock Outstanding
PT
PTInduk’s
Induk’s Income
Income from
from PT
PTAnak
Anak
PT Anak’ net income, 20X1
Less: Preferred dividends
(Rp100,000,000 x .12)
PT Anak’ income accruing to
common shareholders
PT Induk’s proportionate share
PT Induk’s income from PT Anak
McGraw-Hill/ Irwin
Rp50,000,000
(12,000,000)
Rp38,000,000
x
.80
Rp30,400,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-4
Subsidiary Preferred Stock Outstanding
Income
Income to
to Noncontrolling
Noncontrolling Interest
Interest
Preferred dividends of PT Anak
Rp12,000,000
Income assigned to PT Anak’
noncontrolling common shareholders
(Rp38,000,000 x .20)
7,600,000
Income to noncontrolling interest
Rp19,600,000
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-5
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Income from
Subsidiary
Dividends
Declared-Preferred
Common
Investment in
PT Anak
Eliminations
Debits
Credits
Consolidated
30,400
(60,000)
(12,000)
(30,000)
246,400
An
An entry
entry isis required
required to
to eliminate
eliminate
income
income from
from PT
PTAnak.
Anak.
McGraw-Hill/ Irwin
9-6
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Eliminations
Debits
Credits
Item
Income from
Subsidiary
Dividends
Declared—
Preferred
Common
Investment in
PT Anak
McGraw-Hill/ Irwin
30,400
(60,000)
246,400
(1)
(12,000)
(30,000)
Consolidated
30,400
(1)
24,000
(1)
6,400
9-7
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Income to Noncontrolling
Interest
Dividends
Declared-Preferred
Common
(60,000)
(12,000)
(30,000)
Eliminations
Debits
Credits
(1)
Consolidated
24,000
Noncontrolling
Interest
An
An entry
entry isis needed
needed to
to assign
assign income
income
to
to noncontrolling
noncontrolling interest.
interest.
McGraw-Hill/ Irwin
9-8
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Income to Noncontrolling
Interest
Dividends
Declared-Preferred
Common
Noncontrolling
Interest
McGraw-Hill/ Irwin
Eliminations
Debits
Credits
(2) 19,600
(60,000)
(12,000)
(30,000)
Consolidated
(19,600)
(2)
12,000
24,000
6,000
(2)
1,600
(2)
(1)
9-9
(60,000)
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Retained
Earnings, Jan. 1
300,000
Investment in
PT Anak
246,400
Common Stock
500,000
Noncontrolling
Interest
Eliminations
Debits
Credits
Consolidated
100,000
(1)
6,400
(2)
1,600
200,000
An
An entry
entry isis necessary
necessary to
to eliminate
eliminate the
the
beginning
beginning investment
investment in
in common
common stock.
stock.
McGraw-Hill/ Irwin
9-10
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Retained
Earnings, Jan. 1
300,000
Investment in
PT Anak
246,400
Common Stock
500,000
Noncontrolling
Interest
100,000
Eliminations
Debits
Credits
(3) 100,000
300,000
6,400
(3)240,000
(3) 200,000
500,000
(2)
(3)
McGraw-Hill/ Irwin
Consolidated
(1)
200,000
9-11
1,600
60,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Preferred Stock
Noncontrolling
Interest
Eliminations
Debits
Credits
Consolidated
100,000
(2)
(3)
1,600
60,000
An
An entry
entry isis necessary
necessary to
to eliminate
eliminate
subsidiary
subsidiary preferred
preferred stock
stock
McGraw-Hill/ Irwin
9-12
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Preferred Stock
Noncontrolling
Interest
McGraw-Hill/ Irwin
100,000
Eliminations
Debits
Credits
Consolidated
(4) 100,000
1,600
(3) 60,000
(4) 100,000
9-13
(2)
161,600
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Preferred Stock Held by Parent
PT Induk purchase 60% of PT Anak,
Rp100,000,000 par value, 12 % Preferred
Stock for Rp60,000,000.
Dividends on P/S is Rp12,000,000.
P/S Dividend recognized by
PT Induk
: Rp7,200,000
NCI
: Rp4,800,000
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-14
Subsidiary Preferred Stock Held by Parent
Elimination
Elimination entry
entry needed
needed in
in the
the workpaper
workpaper
prepared
prepared at
at the
the end
end of
of 20X1.
20X1.
E(5) Income from Subsidiary
30,400,000
Dividends Declared--Common
24,000,000
Investment in PT Anak
Common
6,400,000
Eliminate income from subsidiary.
(Rp50,000,000 Rp12,000,000) x .80
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-15
Subsidiary Preferred Stock Held by Parent
Elimination
Elimination entry
entry needed
needed in
in the
the
workpaper
workpaper prepared
prepared at
at the
theend
end of
of 20X1.
20X1.
E(6) Dividend Income--Preferred
7,200,000
Dividends Declared--Preferred
7,200,000
Eliminate dividend income from
subsidiary preferred.
Rp12,000,000 x .
60
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-16
Subsidiary Preferred Stock Held by Parent
9-17
Elimination
Elimination entry
entry needed
needed in
in the
the
workpaper
workpaper prepared
prepared at
at the
theend
end of
of 20X1.
20X1.
E(7) Income to Noncontrolling
Interest
12,400,000
Dividends Declared--Preferred
4,800,000
Dividends Declared--Common
6,000,000
Noncontrolling Interest
1,600,000
Assign income to noncontrolling
interest.
McGraw-Hill/ Irwin
Rp4,800,000 +Rp12,000,000
x .40
Rp7,600,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Preferred Stock Held by Parent
9-18
Elimination
Elimination entry
entry needed
needed in
in the
the
workpaper
workpaperprepared
preparedat
at the
theend
end of
of 20X1.
20X1.
E(8) Common Stock--PT Anak 200,000,000
Retained Earnings, January 100,000,000
Investment in PT Anak
Common
240,000,000
Noncontrolling Interest
60,000,000
Eliminate beginning investment in
common stock.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Preferred Stock Held by Parent
9-19
Elimination
Elimination entry
entry needed
needed in
in the
the
workpaper
workpaperprepared
preparedat
at the
theend
end of
of 20X1.
20X1.
E(9) Preferred Stock--PT Anak 100,000,000
Investment in PT Anak
Preferred
60,000,000
Noncontrolling Interest
40,000,000
Eliminate subsidiary preferred stock.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-20
PT Anak Points About the Eliminating Entries
PT Induk’s 60 percent share of PT Anak’
preferred stock is eliminated against the
preferred stock investment account. The
remaining preferred stock is included in the
noncontrolling interest account.
PT Induk’s dividend income from its
investment in PT Anak’ preferred stock is
eliminated against its share of PT Anak’
dividends declared.
Continued
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-21
PT Anak Points About the Eliminating Entries
The income assigned to the noncontrolling
interest includes income of PT Anak accruing
to both preferred and common shareholders
other than PT Induk. Similarly, the total
noncontrolling interest includes PT Anak’
stockholders’ equity amounts accruing to both
preferred and common stockholders other than
PT Induk.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Parent’s Purchase of Additional Shares
On
On January
January 1,
1, 20X0,
20X0, PT
PTAnak
Anak has
has Rp200,000,000
Rp200,000,000 of
of
common
common stock
stock outstanding
outstanding and
and retained
retained earnings
earnings of
of
Rp60,000,000.
Rp60,000,000. The
The following
following data
data relates
relates to
to PT
PTAnak:
Anak:
Period
Net Income
Dividends
20X0 Rp40,000,000
-020X1
50,000,000 Rp30,000,000
20X2
75,000,000
40,000,000
Ending Book Value
Rp300,000,000
320,000,000
355,000,000
PT
PTInduk
Induk purchases
purchases its
its 80
80 percent
percent interest
interest in
in PT
PTAnak
Anak in
in
several
several blocks.
blocks.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-22
Parent’s Purchase of Additional Shares
Ownership
Purchase Percentage
Date
Purchased
1/1/X0
12/31/X0
1/1/X2
20
10
50
80
Cost
Book
Value
Differential
Rp 56,000,000 Rp 52,000,000 Rp 4,000,000
35,000,000
30,000,000
5,000,000
185,000,000
160,000,000
25,000,000
Rp276,000,000 Rp242,000,000 Rp34,000,000
Note
Note that
that PT
PTInduk
Induk does
does not
not gain
gain
control
control until
until January
January 1,
1, 20X2.
20X2.
McGraw-Hill/ Irwin
9-23
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Parent’s Purchase of Additional Shares
Investment in PT Anak Stock
20X0
1/1 Purchase shares
12/31 Equity-method
income (20%)
12/31 Purchase shares
Balance
McGraw-Hill/ Irwin
56,000,000
8,000,000
35,000,000
99,000,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-24
Parent’s Purchase of Additional Shares
9-25
Investment in PT Anak Stock
20X1
Balance
99,000,000
12/31 Equity-method
income (30%) 15,000,000
Balance
105,000,000
McGraw-Hill/ Irwin
20X1
12/31 Dividends
received
9,000,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Parent’s Purchase of Additional Shares
9-26
Investment in PT Anak Stock
20X2
20X2
Balance
105,000,000 12/31 Dividends
1/1 Purchase shares185,000,000
received
12/31 Equity-method
income (80%) 60,000,000
Balance
318,000,000
McGraw-Hill/ Irwin
32,000,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Parent’s Purchase of Additional Shares
The
The consolidation
consolidation workpaper
workpaper prepared
prepared at
at
the
the end
end of
of the
the year
year includes:
includes:
E(12) Income from Subsidiary 60,000,000
Dividends Declared
32,000,000
Investment in PT Anak
Stock
28,000,000
Eliminate income from subsidiary.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-27
Parent’s Purchase of Additional Shares
9-28
The
The consolidation
consolidation workpaper
workpaper prepared
prepared at
at
the
the end
end of
of the
the year
year includes:
includes:
E(14) Income to Noncontrolling
Rp40,000,000
Rp40,000,000
Interest
15,000,000
xx.20
.20
Dividends Declared
Noncontrolling Interest
Assign income to noncontrolling
interest.
McGraw-Hill/ Irwin
8,000,000
7,000,000
Rp15,000,000
Rp15,000,000
--Rp8,000,000
Rp8,000,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Parent’s Purchase of Additional Shares
9-29
The
The consolidation
consolidation workpaper
workpaper prepared
prepared at
at
the
the end
end of
of the
the year
year includes:
includes:
E(14) Common Stock--PT Anak 200,000,000
Retained Earnings, January 120,000,000
Land
34,000,000
Rp105,000,000
++
Rp105,000,000
Investment in PT Anak
290,000,000
Rp185,000,000
Rp185,000,000
Rp320,000,000
Rp320,000,000
Noncontrolling
Interest
64,000,000
xx.20
.20
Eliminate beginning investment
balance.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Parent’s Sale of Subsidiary Shares to Nonaffiliate
• On Dec 31, 20X0, PT Anak has 20,000,000
common Shares outstanding with par value of
Rp200,000,000 and R/E of Rp100,000,000.
• PT Induk acquired 80%, buying 16,000,000
C/S at book value of Rp240,000,000.
• 20X1: PT Anak Net Income of
Rp50,000,000; dividends of Rp30,000,000
• Jan 1, 20X2: PT Induk sells 1,000,000 shares
of PT Anak to non-affiliate for Rp19,000,000.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-30
Parent’s Sale of Subsidiary Shares to Nonaffiliate
Investment Balance per Dec 31, 20X1:
Rp240,000,000 + Rp40,000,000 – Rp24,000,000
= Rp256,000,000.
Journal of Selling Shares:
Cash 19,000,000
Investment in SF Stock
16,000,000*
Gain of Sale
3,000,000
*(256,000,000 x 1/16)
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-31
Parent’s Sale of Subsidiary Shares to Nonaffiliate
Eliminating entries at Dec 31, 20X2
Gain on Sale of Investment Rp3,000,000
APIC
Rp3,000,000
Subsequent Eliminating entries
Retained Earnings
Rp3,000,000
APIC
Rp3,000,000
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-32
Subsidiary’s Sale of Additional Shares to
Nonaffiliate
9-33
• On Jan 1, 20X2, PT Anak issued 5,000,000 additional
shares at Rp20,000 per share, totaling Rp100,000,000.
• PT Induk proportion down to 64%, yet BV of investment
increase to Rp268,800,000.
• The increase is recorded as
Investment in PT Anak
Stock
Rp12,800,000
APIC
Rp12,800,000
• If less than book value?
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary’s Sale of Additional Shares to
Nonaffiliate
• If the 5,000,000 additional PT Anak shares
were all bought by PT Induk
• Total investment in PT Anak now is
Rp356,000,000
• PT Induk proportion share increase by 84%,
BV increase by Rp352,800,000.
• Yet, the price paid and increase in book value
differs by Rp100,000,000 – (Rp352,800,000 –
256,000,000) = Rp3,200,000.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-34
Subsidiary’s Purchase of Shares from Nonaffiliate 9-35
• Purchasing treasury shares
• On 1 Jan 20X2, PT Anak purchase 1,000,000
T/S from nonaffiliate for Rp20,000.
• PT Induk interest in PT Anak:
(16,000,000/19,000,000) – 84,21%.
• PT Induk’ investment BV in PT Anak :
84,21% x Rp300,000,000 = Rp252,630,000
• Different of BV: Rp256,000,000 Rp252,630,000 = Rp3,370,000
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary’s Purchase of Shares from Nonaffiliate 9-36
• Journal to record the BV decrease
R/E Jan 1
3,370,000
Investment in PT Anak Stock
3,370,000
• Eliminating entries
C/S – SF
200,000,000
R/E, Jan 1
120,000,000
T/S
20,000,000
Investment in PT Anak Stock 252,630,000
NCI
47,370,000
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary’s Purchase of Shares from Parents
• On 1 Jan 20X2, PT Anak repurchase 4,000,000 T/S
from parents for Rp20,000.
• PT Induk interest in PT Anak :
(12,000,000/16,000,000) = 75%.
• PT Induk’ investment BV in PT Anak : 75% x
Rp240,000,000 = Rp180,000,000
• Decrease of Investment BV: Rp256,000,000 Rp180,000,000 = Rp76,000,000
• Gain of Sale of investment: Rp80,000,000 –
Rp76,000,000= Rp4,000,000
• Eliminating entries?
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-37
Subsidiary’s Purchase of Shares from Parents
• Eliminating entries
Gain on Sale of Investment
APIC
4,000,000
4,000,000
C/S – SF
200,000,000
R/E, Jan 1
120,000,000
T/S
80,000,000
Investment in PT Anak Stock
180,000,000
NCI
60,000,000
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-38
Alternative Ownership Structures
A Company
B Company
C Company
(a) Direct Ownership
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-39
Alternative Ownership Structures
A Company
B Company
C Company
(b) Multilevel Ownership
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-40
Alternative Ownership Structures
A Company
B Company
(c) Reciprocal Ownership
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-41
Multilevel Ownership and Control
• This means that when consolidated
statements are prepared, the statements will
include companies in which the parent has
only an indirect investment along with
those in which direct ownership is held.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Multilevel Ownership and Control
• The amount of income and net assets to be
assigned to the controlling and
noncontrolling shareholders, and the
amount of unrealized profits and losses to
be eliminated, must be determined at each
level of ownership.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Multilevel Ownership and Control
• Consolidation proceeds from the lowest
level to the highest in these cases. In a
relatively few cases, a subsidiary may own
common shares of its parent. Usually those
common shares are treated as treasury stock
in consolidated financial statements.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Stock Dividends
• Subsidiary dividends payable in shares of
subsidiary’s common stock require slight changes
in the elimination entries used in preparing
consolidated financial statements.
• Because stock dividends are issued
proportionally to all common stockholders,
the relative interests of the controlling and
noncontrolling stockholders do not change
as
a result of the stock dividend.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Stock Dividends
• While the carrying amount of the investment on
the books of the parent also is unaffected by a
stock dividend, the stockholders’ equity accounts
of the subsidiary do change, although total
stockholders’ equity does not.
• The stock dividend represents a permanent
capitalization of retained earnings, thus decreasing
retained earnings and increasing capital stock and,
perhaps, additional paid-in capital.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Stock Dividends
• In the preparation of consolidated financial
statements for the period in which a stock
dividend is declared by the subsidiary, the stock
dividend declaration must be eliminated along
with the increased common stock and increased
additional paid-in capital, if any.
• The stock dividend declared cannot appear in
the consolidated retained earnings statement
because only the parent’s dividends are viewed
as dividends of the consolidated entity.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
10-48
Chapter Ten
The
End
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Baker / Lembke / King
Consolidation
Ownership
Issues
9
Electronic Presentation by
Douglas Cloud
Pepperdine University
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Ownership Issues
• Subsidiary Preferred Stock
• Changes in Parent’s Ownership in Subsidiary
due to:
–
–
–
–
Parent’s Purchase from Non affiliate
Parent’s Sale to Nonaffiliate
Subsidiary’s Sale to Nonaffiliate
Subsidiary’s Purchase from Nonaffiliate or Parents
• Multiple Ownerships
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-2
Subsidiary Preferred Stock Outstanding
9-3
PT
PTInduk
Indukpurchased
purchased80
80percent
percentof
ofthe
thecommon
common stock
stockof
ofPT
PTAnak
Anak
on
onDecember
December31,
31,20X0,
20X0,at
atits
itsbook
bookvalue
valueof
ofRp240,000,000
Rp240,000,000and
and
accounts
accountsfor
forthe
theinvestment
investmentusing
usingthe
thebasic
basicequity
equitymethod.
method.
PT
PTInduk
Indukearns
earnsincome
incomefrom
fromits
itsown
ownoperations
operationsof
of
Rp140,000,000
Rp140,000,000in
in20X1
20X1and
anddeclares
declaresdividends
dividendsof
ofRp60,000,000.
Rp60,000,000.
PT
PTAnak
Anakreports
reportsnet
netincome
incomeof
ofRp50,000,000
Rp50,000,000in
in20X1
20X1and
and
declares
declarescommon
commondividends
dividendsof
ofRp30,000,000.
Rp30,000,000.
On
OnJanuary
January1,1,20X1,
20X1,PT
PTAnak
Anakissued
issuedRp100,000,000
Rp100,000,000
of
of12
12percent
percentpreferred
preferredstock
stockat
atpar
parvalue,
value,none
noneof
of
which
whichisispurchased
purchasedby
byPT
PTInduk.
Induk.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Preferred Stock Outstanding
PT
PTInduk’s
Induk’s Income
Income from
from PT
PTAnak
Anak
PT Anak’ net income, 20X1
Less: Preferred dividends
(Rp100,000,000 x .12)
PT Anak’ income accruing to
common shareholders
PT Induk’s proportionate share
PT Induk’s income from PT Anak
McGraw-Hill/ Irwin
Rp50,000,000
(12,000,000)
Rp38,000,000
x
.80
Rp30,400,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-4
Subsidiary Preferred Stock Outstanding
Income
Income to
to Noncontrolling
Noncontrolling Interest
Interest
Preferred dividends of PT Anak
Rp12,000,000
Income assigned to PT Anak’
noncontrolling common shareholders
(Rp38,000,000 x .20)
7,600,000
Income to noncontrolling interest
Rp19,600,000
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-5
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Income from
Subsidiary
Dividends
Declared-Preferred
Common
Investment in
PT Anak
Eliminations
Debits
Credits
Consolidated
30,400
(60,000)
(12,000)
(30,000)
246,400
An
An entry
entry isis required
required to
to eliminate
eliminate
income
income from
from PT
PTAnak.
Anak.
McGraw-Hill/ Irwin
9-6
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Eliminations
Debits
Credits
Item
Income from
Subsidiary
Dividends
Declared—
Preferred
Common
Investment in
PT Anak
McGraw-Hill/ Irwin
30,400
(60,000)
246,400
(1)
(12,000)
(30,000)
Consolidated
30,400
(1)
24,000
(1)
6,400
9-7
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Income to Noncontrolling
Interest
Dividends
Declared-Preferred
Common
(60,000)
(12,000)
(30,000)
Eliminations
Debits
Credits
(1)
Consolidated
24,000
Noncontrolling
Interest
An
An entry
entry isis needed
needed to
to assign
assign income
income
to
to noncontrolling
noncontrolling interest.
interest.
McGraw-Hill/ Irwin
9-8
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Income to Noncontrolling
Interest
Dividends
Declared-Preferred
Common
Noncontrolling
Interest
McGraw-Hill/ Irwin
Eliminations
Debits
Credits
(2) 19,600
(60,000)
(12,000)
(30,000)
Consolidated
(19,600)
(2)
12,000
24,000
6,000
(2)
1,600
(2)
(1)
9-9
(60,000)
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Retained
Earnings, Jan. 1
300,000
Investment in
PT Anak
246,400
Common Stock
500,000
Noncontrolling
Interest
Eliminations
Debits
Credits
Consolidated
100,000
(1)
6,400
(2)
1,600
200,000
An
An entry
entry isis necessary
necessary to
to eliminate
eliminate the
the
beginning
beginning investment
investment in
in common
common stock.
stock.
McGraw-Hill/ Irwin
9-10
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Retained
Earnings, Jan. 1
300,000
Investment in
PT Anak
246,400
Common Stock
500,000
Noncontrolling
Interest
100,000
Eliminations
Debits
Credits
(3) 100,000
300,000
6,400
(3)240,000
(3) 200,000
500,000
(2)
(3)
McGraw-Hill/ Irwin
Consolidated
(1)
200,000
9-11
1,600
60,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Preferred Stock
Noncontrolling
Interest
Eliminations
Debits
Credits
Consolidated
100,000
(2)
(3)
1,600
60,000
An
An entry
entry isis necessary
necessary to
to eliminate
eliminate
subsidiary
subsidiary preferred
preferred stock
stock
McGraw-Hill/ Irwin
9-12
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Consolidation Workpaper--20X1 (in ‘000)
PT Induk
PT Anak
Item
Preferred Stock
Noncontrolling
Interest
McGraw-Hill/ Irwin
100,000
Eliminations
Debits
Credits
Consolidated
(4) 100,000
1,600
(3) 60,000
(4) 100,000
9-13
(2)
161,600
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Preferred Stock Held by Parent
PT Induk purchase 60% of PT Anak,
Rp100,000,000 par value, 12 % Preferred
Stock for Rp60,000,000.
Dividends on P/S is Rp12,000,000.
P/S Dividend recognized by
PT Induk
: Rp7,200,000
NCI
: Rp4,800,000
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-14
Subsidiary Preferred Stock Held by Parent
Elimination
Elimination entry
entry needed
needed in
in the
the workpaper
workpaper
prepared
prepared at
at the
the end
end of
of 20X1.
20X1.
E(5) Income from Subsidiary
30,400,000
Dividends Declared--Common
24,000,000
Investment in PT Anak
Common
6,400,000
Eliminate income from subsidiary.
(Rp50,000,000 Rp12,000,000) x .80
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-15
Subsidiary Preferred Stock Held by Parent
Elimination
Elimination entry
entry needed
needed in
in the
the
workpaper
workpaper prepared
prepared at
at the
theend
end of
of 20X1.
20X1.
E(6) Dividend Income--Preferred
7,200,000
Dividends Declared--Preferred
7,200,000
Eliminate dividend income from
subsidiary preferred.
Rp12,000,000 x .
60
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-16
Subsidiary Preferred Stock Held by Parent
9-17
Elimination
Elimination entry
entry needed
needed in
in the
the
workpaper
workpaper prepared
prepared at
at the
theend
end of
of 20X1.
20X1.
E(7) Income to Noncontrolling
Interest
12,400,000
Dividends Declared--Preferred
4,800,000
Dividends Declared--Common
6,000,000
Noncontrolling Interest
1,600,000
Assign income to noncontrolling
interest.
McGraw-Hill/ Irwin
Rp4,800,000 +Rp12,000,000
x .40
Rp7,600,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Preferred Stock Held by Parent
9-18
Elimination
Elimination entry
entry needed
needed in
in the
the
workpaper
workpaperprepared
preparedat
at the
theend
end of
of 20X1.
20X1.
E(8) Common Stock--PT Anak 200,000,000
Retained Earnings, January 100,000,000
Investment in PT Anak
Common
240,000,000
Noncontrolling Interest
60,000,000
Eliminate beginning investment in
common stock.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Preferred Stock Held by Parent
9-19
Elimination
Elimination entry
entry needed
needed in
in the
the
workpaper
workpaperprepared
preparedat
at the
theend
end of
of 20X1.
20X1.
E(9) Preferred Stock--PT Anak 100,000,000
Investment in PT Anak
Preferred
60,000,000
Noncontrolling Interest
40,000,000
Eliminate subsidiary preferred stock.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-20
PT Anak Points About the Eliminating Entries
PT Induk’s 60 percent share of PT Anak’
preferred stock is eliminated against the
preferred stock investment account. The
remaining preferred stock is included in the
noncontrolling interest account.
PT Induk’s dividend income from its
investment in PT Anak’ preferred stock is
eliminated against its share of PT Anak’
dividends declared.
Continued
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-21
PT Anak Points About the Eliminating Entries
The income assigned to the noncontrolling
interest includes income of PT Anak accruing
to both preferred and common shareholders
other than PT Induk. Similarly, the total
noncontrolling interest includes PT Anak’
stockholders’ equity amounts accruing to both
preferred and common stockholders other than
PT Induk.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Parent’s Purchase of Additional Shares
On
On January
January 1,
1, 20X0,
20X0, PT
PTAnak
Anak has
has Rp200,000,000
Rp200,000,000 of
of
common
common stock
stock outstanding
outstanding and
and retained
retained earnings
earnings of
of
Rp60,000,000.
Rp60,000,000. The
The following
following data
data relates
relates to
to PT
PTAnak:
Anak:
Period
Net Income
Dividends
20X0 Rp40,000,000
-020X1
50,000,000 Rp30,000,000
20X2
75,000,000
40,000,000
Ending Book Value
Rp300,000,000
320,000,000
355,000,000
PT
PTInduk
Induk purchases
purchases its
its 80
80 percent
percent interest
interest in
in PT
PTAnak
Anak in
in
several
several blocks.
blocks.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-22
Parent’s Purchase of Additional Shares
Ownership
Purchase Percentage
Date
Purchased
1/1/X0
12/31/X0
1/1/X2
20
10
50
80
Cost
Book
Value
Differential
Rp 56,000,000 Rp 52,000,000 Rp 4,000,000
35,000,000
30,000,000
5,000,000
185,000,000
160,000,000
25,000,000
Rp276,000,000 Rp242,000,000 Rp34,000,000
Note
Note that
that PT
PTInduk
Induk does
does not
not gain
gain
control
control until
until January
January 1,
1, 20X2.
20X2.
McGraw-Hill/ Irwin
9-23
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Parent’s Purchase of Additional Shares
Investment in PT Anak Stock
20X0
1/1 Purchase shares
12/31 Equity-method
income (20%)
12/31 Purchase shares
Balance
McGraw-Hill/ Irwin
56,000,000
8,000,000
35,000,000
99,000,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-24
Parent’s Purchase of Additional Shares
9-25
Investment in PT Anak Stock
20X1
Balance
99,000,000
12/31 Equity-method
income (30%) 15,000,000
Balance
105,000,000
McGraw-Hill/ Irwin
20X1
12/31 Dividends
received
9,000,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Parent’s Purchase of Additional Shares
9-26
Investment in PT Anak Stock
20X2
20X2
Balance
105,000,000 12/31 Dividends
1/1 Purchase shares185,000,000
received
12/31 Equity-method
income (80%) 60,000,000
Balance
318,000,000
McGraw-Hill/ Irwin
32,000,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Parent’s Purchase of Additional Shares
The
The consolidation
consolidation workpaper
workpaper prepared
prepared at
at
the
the end
end of
of the
the year
year includes:
includes:
E(12) Income from Subsidiary 60,000,000
Dividends Declared
32,000,000
Investment in PT Anak
Stock
28,000,000
Eliminate income from subsidiary.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-27
Parent’s Purchase of Additional Shares
9-28
The
The consolidation
consolidation workpaper
workpaper prepared
prepared at
at
the
the end
end of
of the
the year
year includes:
includes:
E(14) Income to Noncontrolling
Rp40,000,000
Rp40,000,000
Interest
15,000,000
xx.20
.20
Dividends Declared
Noncontrolling Interest
Assign income to noncontrolling
interest.
McGraw-Hill/ Irwin
8,000,000
7,000,000
Rp15,000,000
Rp15,000,000
--Rp8,000,000
Rp8,000,000
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Parent’s Purchase of Additional Shares
9-29
The
The consolidation
consolidation workpaper
workpaper prepared
prepared at
at
the
the end
end of
of the
the year
year includes:
includes:
E(14) Common Stock--PT Anak 200,000,000
Retained Earnings, January 120,000,000
Land
34,000,000
Rp105,000,000
++
Rp105,000,000
Investment in PT Anak
290,000,000
Rp185,000,000
Rp185,000,000
Rp320,000,000
Rp320,000,000
Noncontrolling
Interest
64,000,000
xx.20
.20
Eliminate beginning investment
balance.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Parent’s Sale of Subsidiary Shares to Nonaffiliate
• On Dec 31, 20X0, PT Anak has 20,000,000
common Shares outstanding with par value of
Rp200,000,000 and R/E of Rp100,000,000.
• PT Induk acquired 80%, buying 16,000,000
C/S at book value of Rp240,000,000.
• 20X1: PT Anak Net Income of
Rp50,000,000; dividends of Rp30,000,000
• Jan 1, 20X2: PT Induk sells 1,000,000 shares
of PT Anak to non-affiliate for Rp19,000,000.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-30
Parent’s Sale of Subsidiary Shares to Nonaffiliate
Investment Balance per Dec 31, 20X1:
Rp240,000,000 + Rp40,000,000 – Rp24,000,000
= Rp256,000,000.
Journal of Selling Shares:
Cash 19,000,000
Investment in SF Stock
16,000,000*
Gain of Sale
3,000,000
*(256,000,000 x 1/16)
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-31
Parent’s Sale of Subsidiary Shares to Nonaffiliate
Eliminating entries at Dec 31, 20X2
Gain on Sale of Investment Rp3,000,000
APIC
Rp3,000,000
Subsequent Eliminating entries
Retained Earnings
Rp3,000,000
APIC
Rp3,000,000
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-32
Subsidiary’s Sale of Additional Shares to
Nonaffiliate
9-33
• On Jan 1, 20X2, PT Anak issued 5,000,000 additional
shares at Rp20,000 per share, totaling Rp100,000,000.
• PT Induk proportion down to 64%, yet BV of investment
increase to Rp268,800,000.
• The increase is recorded as
Investment in PT Anak
Stock
Rp12,800,000
APIC
Rp12,800,000
• If less than book value?
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary’s Sale of Additional Shares to
Nonaffiliate
• If the 5,000,000 additional PT Anak shares
were all bought by PT Induk
• Total investment in PT Anak now is
Rp356,000,000
• PT Induk proportion share increase by 84%,
BV increase by Rp352,800,000.
• Yet, the price paid and increase in book value
differs by Rp100,000,000 – (Rp352,800,000 –
256,000,000) = Rp3,200,000.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-34
Subsidiary’s Purchase of Shares from Nonaffiliate 9-35
• Purchasing treasury shares
• On 1 Jan 20X2, PT Anak purchase 1,000,000
T/S from nonaffiliate for Rp20,000.
• PT Induk interest in PT Anak:
(16,000,000/19,000,000) – 84,21%.
• PT Induk’ investment BV in PT Anak :
84,21% x Rp300,000,000 = Rp252,630,000
• Different of BV: Rp256,000,000 Rp252,630,000 = Rp3,370,000
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary’s Purchase of Shares from Nonaffiliate 9-36
• Journal to record the BV decrease
R/E Jan 1
3,370,000
Investment in PT Anak Stock
3,370,000
• Eliminating entries
C/S – SF
200,000,000
R/E, Jan 1
120,000,000
T/S
20,000,000
Investment in PT Anak Stock 252,630,000
NCI
47,370,000
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary’s Purchase of Shares from Parents
• On 1 Jan 20X2, PT Anak repurchase 4,000,000 T/S
from parents for Rp20,000.
• PT Induk interest in PT Anak :
(12,000,000/16,000,000) = 75%.
• PT Induk’ investment BV in PT Anak : 75% x
Rp240,000,000 = Rp180,000,000
• Decrease of Investment BV: Rp256,000,000 Rp180,000,000 = Rp76,000,000
• Gain of Sale of investment: Rp80,000,000 –
Rp76,000,000= Rp4,000,000
• Eliminating entries?
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-37
Subsidiary’s Purchase of Shares from Parents
• Eliminating entries
Gain on Sale of Investment
APIC
4,000,000
4,000,000
C/S – SF
200,000,000
R/E, Jan 1
120,000,000
T/S
80,000,000
Investment in PT Anak Stock
180,000,000
NCI
60,000,000
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-38
Alternative Ownership Structures
A Company
B Company
C Company
(a) Direct Ownership
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-39
Alternative Ownership Structures
A Company
B Company
C Company
(b) Multilevel Ownership
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-40
Alternative Ownership Structures
A Company
B Company
(c) Reciprocal Ownership
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
9-41
Multilevel Ownership and Control
• This means that when consolidated
statements are prepared, the statements will
include companies in which the parent has
only an indirect investment along with
those in which direct ownership is held.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Multilevel Ownership and Control
• The amount of income and net assets to be
assigned to the controlling and
noncontrolling shareholders, and the
amount of unrealized profits and losses to
be eliminated, must be determined at each
level of ownership.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Multilevel Ownership and Control
• Consolidation proceeds from the lowest
level to the highest in these cases. In a
relatively few cases, a subsidiary may own
common shares of its parent. Usually those
common shares are treated as treasury stock
in consolidated financial statements.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Stock Dividends
• Subsidiary dividends payable in shares of
subsidiary’s common stock require slight changes
in the elimination entries used in preparing
consolidated financial statements.
• Because stock dividends are issued
proportionally to all common stockholders,
the relative interests of the controlling and
noncontrolling stockholders do not change
as
a result of the stock dividend.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Stock Dividends
• While the carrying amount of the investment on
the books of the parent also is unaffected by a
stock dividend, the stockholders’ equity accounts
of the subsidiary do change, although total
stockholders’ equity does not.
• The stock dividend represents a permanent
capitalization of retained earnings, thus decreasing
retained earnings and increasing capital stock and,
perhaps, additional paid-in capital.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Subsidiary Stock Dividends
• In the preparation of consolidated financial
statements for the period in which a stock
dividend is declared by the subsidiary, the stock
dividend declaration must be eliminated along
with the increased common stock and increased
additional paid-in capital, if any.
• The stock dividend declared cannot appear in
the consolidated retained earnings statement
because only the parent’s dividends are viewed
as dividends of the consolidated entity.
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
10-48
Chapter Ten
The
End
McGraw-Hill/ Irwin
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.