1. Chapter 6 Consolidation Subsequent To Acquisition (With Intercompany Profits)

2. 2© 2009 Clarence Byrd Inc Unrealized Profits Capital Assets with limited lives Capital Assets with unlimited lives Current Assets

3. 3© 2009 Clarence Byrd Inc UPSTREAM VS. DOWNSTREAM Upstream - Sales by the Sub to the Parent DownstreamDownstream - Sales by the Parent to the Sub

4. 4© 2009 Clarence Byrd Inc CICA Handbook Paragraph 1601.19 Unrealized intercompany gains or losses arising subsequent to the date of an acquisition on assets remaining within the consolidated group should be eliminated. The amount of elimination from assets should not be affected by the existence of a non- controlling interest. (January, 2011) This does not answer the question of how the elimination of upstream unrealized profits would be allocated between the controlling and non-controlling interests

5. 5 © 2009 Clarence Byrd Inc CICA Handbook (Elimination of upstream unrealized profits) Previous Handbook section dealt with but there are no corresponding recommendations under IAS No.27 (which Section 1601 reflects). Therefore there are 2 possible treatments of unrealized upstream profits. 100% of such profits must be eliminated by: Charging on a proportional basis to the controlling and non-controlling interests (Use this method in this course) Charging on a proportional basis to the controlling and non-controlling interests (Use this method in this course) Charging only the controlling interest Charging only the controlling interest

6. 6© 2009 Clarence Byrd Inc New In Chapter 6 The elimination of unrealized intercompany profits Downstream (parent to subsidiary sale) Downstream (parent to subsidiary sale) Upstream (subsidiary to parent sale) Upstream (subsidiary to parent sale) The realization of previously unrealized intercompany profits Downstream Downstream Upstream Upstream

7. 7© 2009 Clarence Byrd Inc Unrealized Profits Types of Unrealized Profits Intercompany land sales Intercompany land sales Intercompany inventory sales Intercompany inventory sales Intercompany sale of depreciable asset Intercompany sale of depreciable asset

8. 8© 2009 Clarence Byrd Inc New Procedures Step B-6(a) Step B-6(a) Procedure Eliminate 100 percent of all unrealized intercompany profits (losses) that are present in the single entity financial statements. There are three groups of such profits to consider: 1. Profits that were recognized in the single entity statements of the parent or subsidiary in a previous period, remain unrealized at the beginning of the current period, and are realized during the current period. Such profits will be deducted from the opening retained earnings of the company that recognized them in their single entity financial statements. Subsequently, they will be added back to income through an adjustment of current expenses or revenues. ………..

9. 9© 2009 Clarence Byrd Inc New Procedures Step B-6(a) Procedure Step B-6(a) Procedure Eliminate 100 percent of all unrealized intercompany profits (losses) that are present in the single entity financial statements. There are three groups of such profits to consider: ……….. 2. Profits that were recognized in the single entity statement of the parent or subsidiary in the current period and remain unrealized at the end of the current period. These profits will be removed from current income through an adjustment of the current expenses or revenues. Note that 100 percent of the profit will be removed, without regard to whether it is an upstream profit or a downstream profit. A portion of this profit may or may not be removed from the non-controlling interest (see Slide # 8) …………..

10. 10© 2009 Clarence Byrd Inc New Procedures Step B-6(a) Procedure Step B-6(a) Procedure Eliminate 100 percent of all unrealized intercompany profits (losses) that are present in the single entity financial statements. There are three groups of such profits to consider: 3. Profits that were recognized in the single entity statement of the parent or subsidiary in the current or a previous period, and remain unrealized at the end of the current period. These profits will be removed from both the opening and the closing retained earnings of the company that recognized them in their single entity financial statements. If some part of the profit is realized during the current period, this will be recognized through an adjustment of current expenses or revenues. In such cases, the adjustment to the opening retained earnings will differ from the adjustment to the closing retained earnings.

11. 11© 2009 Clarence Byrd Inc New Procedures Step B-6(b) Procedure Step B-6(b) Procedure Recognize the amount of previously unrealized intercompany profits or losses that have become realized during the period, either through the sale of the related asset or through usage of that asset. The amount that was previously unrealized from the consolidated point of view would be a deduction from the opening single entity retained earnings of the parent or subsidiary company. To the extent the profit has become realized during the period, it will be included in the current consolidated Net Income through an adjustment of an expense or revenue. Any amount of the profit that remains unrealized at the end of the period will be deducted from the closing retained earnings of the relevant parent or subsidiary. As was the case with Step B-6(a), 100 percent of the previously unrealized profit will be recognized, without regard to whether it is upstream or downstream. A portion of this profit may or may not be removed from the non-controlling interest (see Slide # 8)

12. 12© 2009 Clarence Byrd Inc Unrealized Profits – Sale of Land Example Patco owns 70 percent of the voting shares of Satco. On January 1, 2009, Satco sells Land with a cost of $200,000 to Patco for $250,000. On January 1, 2011, Patco sells the Land to an outside party for $325,000. In 2009, Patco records the Land at $250,000 and Satco records a Gain On Sale Of Land of $50,000. In 2011, Patco records a Gain of $75,000.

13. 13© 2009 Clarence Byrd Inc Unrealized Profits – Sale of Land Required Adjustment – 2009 (after recording the ‘purchase’) Gain On Sale Of Land $50,000 Land Land$50,000 This adjustment will reduce the Non-Controlling Interest in income by $15,000 [(30%)($50,000)] and the controlling interest in income by $35,000 [(70%)($50,000)]. If the transaction had been a downstream sale, the journal entry would be the same. However, consolidated Net Income would be reduced by the full $50,000, with no effect on the Non-Controlling Interest.

14. 14© 2009 Clarence Byrd Inc Unrealized Profits – Sale of Land Required Adjustment - 2010 Satco’s Opening Retained Earnings $50,000 Land Land$50,000 This adjustment will reduce the Non-Controlling Interest in the Balance Sheet by $15,000 [(30%)($50,000)] and consolidated Retained Earnings by $35,000 [(70%)($50,000)].

15. 15© 2009 Clarence Byrd Inc Unrealized Profits – Sale of Land Required Adjustments - 2011 Satco’s Opening Retained Earnings $50,000 Land Land$50,000 Land$50,000 Gain On Sale Of Land Gain On Sale Of Land$50,000 The first entry removes the gain from Satco’s opening Retained Earnings. The second adds it to 2011 income, with 30 percent going to the Non-Controlling Interest and 70 percent going to the controlling income. Patco’s entry to record its $75,000 gain is not affected.

16. 16© 2009 Clarence Byrd Inc Unrealized Inventory Profits Communicating the amount Amount is stated Amount is stated Gross profit as a percent of sales price Gross profit as a percent of sales price Gross margin as a percent of cost Gross margin as a percent of cost

17. 17© 2009 Clarence Byrd Inc Closing Inventory Profits Example Patco owns 70 percent of the voting shares of Satco. During 2009, Satco sells merchandise to Patco for $500,000. The merchandise is priced to provide Satco with a Gross Margin of 40 percent. On December 31, 2009, one-half of this merchandise is still in the Inventories of Patco.

18. 18© 2009 Clarence Byrd Inc Closing Inventory Profits Required Eliminations - 2009 Sales$500,000 Cost Of Goods Sold Cost Of Goods Sold$500,000 Cost Of Goods Sold [(40%)(1/2)($500,000)] [(40%)(1/2)($500,000)]$100,000 Inventories Inventories$100,000 As this was an upstream transaction, the second entry will reduce the Non-Controlling Interest by $30,000 [(30%)($100,000)] and controlling income by $70,000 [(70%)($100,000)].

19. 19© 2009 Clarence Byrd Inc Opening Inventory Profits 2009 profits will still be unrealized at beginning of 2010 As they are current assets, the profits will normally be realized during 2010 Remove from opening Retained Earnings and add to 2010 income

20. 20© 2009 Clarence Byrd Inc Opening Inventory Profits Required Elimination - 2010 Satco’s Opening Retained Earnings $100,000 Cost Of Goods Sold Cost Of Goods Sold$100,000 This entry will reduce Satco’s opening Retained Earnings by $100,000. This reduction will be split pro rata between the Non-Controlling Interest and consolidated Retained Earnings. It will increase the Non- Controlling Interest in income by $30,000 [(30%)($100,000)] and controlling income by $70,000 [(70%)($100,000)].

21. 21© 2009 Clarence Byrd Inc Unrealized Profits on Sales of Depreciable Assets Example Patco owns 70 percent of the voting shares of Satco. On January 1, 2009, Satco sells equipment to Patco for $225,000. The equipment, which has a remaining useful life of 3 years, has a carrying value of $150,000 on the books of Satco. Both companies using straight line amortization, with Patco charging $75,000 to expense in each of the years 2009 through 2011. The asset is retired on December 31, 2011.

22. 22© 2009 Clarence Byrd Inc Unrealized Profits on Sales of Depreciable Assets Realization Concepts With land and inventories, realization of intercompany profits occurs when the assets are sold outside of the consolidated entity. With depreciable assets, realization of intercompany profits occurs as the assets are used. Think of use as a sort of “piecemeal” sale of the depreciable asset.

23. 23© 2009 Clarence Byrd Inc Unrealized Profits on Sales of Depreciable Assets Required Eliminations - 2009 Gain On Sale $75,000 Depreciable Asset (Net) Depreciable Asset (Net)$50,000 Amortization Expense Amortization Expense25,000 This entry eliminates the gain, reduces the net value of the asset by $50,000 ($75,000 - $25,000), and reduces Amortization Expense from $75,000 to $50,000. As this was an upstream transaction, the entry will reduce the Non-Controlling Interest by $15,000 [(30%)($50,000)] and controlling income by $35,000 [(70%)($50,000)].

24. 24© 2009 Clarence Byrd Inc Unrealized Profits on Sales of Depreciable Assets Required Eliminations - 2010 Satco’s Opening Retained Earnings $50,000 Depreciable Asset (Net) Depreciable Asset (Net)$25,000 Amortization Expense Amortization Expense25,000 At this point, the unrealized gain is $50,000, an amount that must be removed from Satco’s opening Retained Earnings.

25. 25© 2009 Clarence Byrd Inc Unrealized Profits on Sales of Depreciable Assets Required Eliminations – 2011 Satco’s Opening Retained Earnings $25,000 Depreciable Asset (Net) Depreciable Asset (Net)Nil Amortization Expense Amortization Expense$25,000 At the end of 2011, the intercompany gain has been fully realized and no further entries will be required in 2011 and subsequent years.

26. 26© 2009 Clarence Byrd Inc Step C – Concepts Step A: Eliminate the non- controlling share of Retained Earnings At Acquisition Step B: Make adjustments to the balance since acquisition Step C: Allocate the balance since acquisition to Non-Controlling Interest and consolidated Retained Earnings

27. 27© 2009 Clarence Byrd Inc Preparing The Statements General Approach Add parent and subsidiary figures Add parent and subsidiary figures Add or subtract the Step A and Step B adjustments Add or subtract the Step A and Step B adjustments

28. 28© 2009 Clarence Byrd Inc Definitional Calculations Require modification because of the Chapter 6 addition of unrealized intercompany profits

29. 29© 2009 Clarence Byrd Inc Non-Controlling Interest Calculation - Balance Sheet Using the procedures Add: Step A Allocation Add: Step A Allocation Subtract: Non-controlling dividends Subtract: Non-controlling dividends Add: Non-controlling interest in income Add: Non-controlling interest in income Add: Step C allocation Add: Step C allocation Direct calculation easier Multiply the non-controlling interest percentage of ownership times the subsidiary’s common Shareholders’ Equity, plus or minus adjustments for upstream unrealized profits and fair value changes Multiply the non-controlling interest percentage of ownership times the subsidiary’s common Shareholders’ Equity, plus or minus adjustments for upstream unrealized profits and fair value changes

30. 30© 2009 Clarence Byrd Inc Application of the Equity Method Paragraph 3051.08 Investment income as calculated by the equity method should be the amount necessary to increase or decrease the investor's income to that which would have been recognized if the results of the investee's operations had been consolidated with those of the investor. (August, 1978) “One Line Consolidation”: All consolidation adjustments are treated as adjustments of investment income All consolidation adjustments are treated as adjustments of investment income No elimination of intercompany assets, liabilities, expenses, or revenues No elimination of intercompany assets, liabilities, expenses, or revenues

31. 31© 2009 Clarence Byrd Inc Summary Of Consolidation Procedures Step A-1 Procedure Step A-1 Procedure Eliminate 100 percent of the Investment In Subsidiary account. Step A-2 Procedure Step A-2 Procedure Eliminate 100 percent of all the acquisition date balances in the subsidiary’s shareholders’ equity (includes both contributed capital and retained earnings). Step A-3 Procedure Step A-3 Procedure Allocate any debit or credit differential to 100% of fair value change on identifiable assets and liabilities, and Goodwill (or Bargain Purchase Gain (BPG) if appropriate). The amount allocated to Goodwill or BPG is dependent on the measurement used for the Non-Controlling interest. Step A-4 Procedure Step A-4 Procedure Record Non-Controlling interest at the time of acquisition. Depending on management’s choice, the amount to be recorded will be either the non-controlling interest’s share of the fair value of the subsidiary’s identifiable net assets or, alternatively, the fair value of the non-controlling interest.

32. 32© 2009 Clarence Byrd Inc Summary Of Consolidation Procedures Step B-1 Procedure Step B-1 Procedure Eliminate 100 percent of all intercompany assets and liabilities. Step B-2 Procedure Step B-2 Procedure Give recognition to the post-acquisition realization of acquisition date fair value changes on assets and liabilities that have been used up or sold during the post-acquisition period. To the extent that this realization occurred in prior periods, recognition will require an adjustment of the opening retained earnings of the subsidiary. Alternatively, if the realization occurred in the current period, the adjustment will be to the subsidiary’s current period expenses, revenues, gains, or losses. Step B-3 Procedure Step B-3 Procedure Recognize current and cumulative goodwill impairment losses that have been measured since the acquisition of the subsidiary and the initial recognition of the goodwill balance. To the extent that the impairment took place during the current period, the measured amount will be charged to Goodwill Impairment Loss. To the extent that it occurred in prior periods, it will be charged to retained earnings.

33. 33© 2009 Clarence Byrd Inc Summary Of Consolidation Procedures Step B-4 Procedure Step B-4 Procedure Eliminate 100 percent of all intercompany expenses and revenues. Step B-5 Procedure. Step B-5 Procedure Eliminate 100 percent of subsidiary dividends declared. The controlling share of this amount will be deducted from the revenues of the parent company and the non-controlling interest’s share of this amount will be deducted from the Non- Controlling Interest in the consolidated Balance Sheet.

34. 34© 2009 Clarence Byrd Inc Summary Of Consolidation Procedures Step B-6(a) Step B-6(a) Procedure Eliminate 100 percent of all unrealized intercompany profits (losses) that are present in the single entity financial statements. There are three groups of such profits to consider: 1. Profits that were recognized in the single entity statements of the parent or subsidiary in a previous period, remain unrealized at the beginning of the current period, and are realized during the current period. Such profits will be deducted from the opening retained earnings of the company that recognized them in their single entity financial statements. Subsequently, they will be added back to income through an adjustment of current expenses or revenues. ………..

35. 35© 2009 Clarence Byrd Inc Summary Of Consolidation Procedures Step B-6(a) Procedure Step B-6(a) Procedure Eliminate 100 percent of all unrealized intercompany profits (losses) that are present in the single entity financial statements. There are three groups of such profits to consider: ……….. 2. Profits that were recognized in the single entity statement of the parent or subsidiary in the current period and remain unrealized at the end of the current period. These profits will be removed from current income through an adjustment of the current expenses or revenues. Note that 100 percent of the profit will be removed, without regard to whether it is an upstream profit or a downstream profit. If it is an upstream profit, its removal will reduce both controlling and the Non- Controlling Interest that is included in the consolidated Income Statement. …………..

36. 36© 2009 Clarence Byrd Inc Summary Of Consolidation Procedures Step B-6(a) Procedure Step B-6(a) Procedure Eliminate 100 percent of all unrealized intercompany profits (losses) that are present in the single entity financial statements. There are three groups of such profits to consider: ………... ………… 3. Profits that were recognized in the single entity statement of the parent or subsidiary in the current or a previous period, and remain unrealized at the end of the current period. These profits will be removed from both the opening and the closing retained earnings of the company that recognized them in their single entity financial statements. If some part of the profit is realized during the current period, this will be recognized through an adjustment of current expenses or revenues. In such cases, the adjustment to the opening retained earnings will differ from the adjustment to the closing retained earnings.

37. 37© 2009 Clarence Byrd Inc Summary Of Consolidation Procedures Step B-6(b) Procedure Step B-6(b) Procedure Recognize the amount of previously unrealized intercompany profits or losses that have become realized during the period, either through the sale of the related asset or through usage of that asset. The amount that was previously unrealized from the consolidated point of view would be a deduction from the opening single entity retained earnings of the parent or subsidiary company. To the extent the profit has become realized during the period, it will be included in the current consolidated Net Income through an adjustment of an expense or revenue. Any amount of the profit that remains unrealized at the end of the period will be deducted from the closing retained earnings of the relevant parent or subsidiary. As was the case with Step B-6(a), 100 percent of the previously unrealized profit will be recognized, without regard to whether it is upstream or downstream. If it is an upstream profit, the addition will increase both controlling and the Non-Controlling Interest in the consolidated Income Statement.

38. 38© 2009 Clarence Byrd Inc Summary Of Consolidation Procedures Step C Procedure Step C Procedure Eliminate the subsidiary’s adjusted Retained Earnings since acquisition and allocate the appropriate amounts of this balance to the Non- Controlling interest in the Balance sheet and to Consolidated Retained Earnings.

39. 39© 2009 Clarence Byrd Inc Summary Of Definitional Calculations Identifiable Assets And Liabilities Identifiable Assets And Liabilities The amount to be included in the consolidated Balance Sheet for any identifiable asset or liability is calculated as follows: 100 percent of the carrying value of the identifiable asset (liability) on the books of the parent company at the Balance Sheet date; plus 100 percent of the carrying value of the identifiable asset (liability) on the books of the subsidiary company at the Balance Sheet date; plus (minus) 100 percent of the acquisition date fair value increase (decrease) on the asset (liability); plus (minus) amortization or realization of the fair value increase (decrease) on the asset (liability) for the period since acquisition to the current Balance Sheet date; minus (plus) amortization or realization of the fair value increase (decrease) on the asset (liability) for the period since acquisition to the current Balance Sheet date; minus (plus) upstream and downstream intercompany profits (losses) that are unrealized as of the Balance Sheet date. upstream and downstream intercompany profits (losses) that are unrealized as of the Balance Sheet date.

40. 40© 2009 Clarence Byrd Inc Summary Of Definitional Calculations Goodwill Goodwill The Goodwill to be recorded in the consolidated Balance Sheet is equal to: the sum of the consideration paid for the controlling interest and the value assigned to the acquisition date non- controlling interest; minus the acquisition date fair value of the subsidiary’s identifiable net assets. Note – there are 2 different ways of measuring he acquisition date non- controlling interest.

41. 41© 2009 Clarence Byrd Inc Summary Of Definitional Calculations Non-Controlling Interest - Balance Sheet Non-Controlling Interest - Balance Sheet The Non-Controlling Interest can be measured in 2 different ways: 1. 1.Measured and recorded at an amount equal to its share of the acquisitions date fair values of the subsidiary’s identifiable assets 2. 2.Measure at fair value. This fair value can be imputed from the price paid for the controlling interest.

42. 42 © 2009 Clarence Byrd Inc Summary Of Definitional Calculations If approach 1 is used, Non-Controlling ownership percentage multiplied by:   The subsidiary’s Balance Sheet date Shareholder’s Equity; plus (minus)   The unamortized or unrealized balance of the acquisition date fair value changes; plus (minus)   Upstream intercompany profits (losses) that are unrealized as of the Balance Sheet date

43. 43 © 2009 Clarence Byrd Inc Summary Of Definitional Calculations If approach 2 is used, Non-Controlling ownership percentage multiplied by:   The subsidiary’s Balance Sheet date Shareholder’s Equity; plus (minus)   The unamortized or unrealized balance of the acquisition date fair value changes; plus (minus)   Upstream intercompany profits (losses) that are unrealized as of the Balance Sheet date; plus   Any balance of Goodwill

44. 44© 2009 Clarence Byrd Inc Summary Of Definitional Calculations Contributed Capital. Contributed Capital The Contributed Capital to be recorded in the consolidated Balance Sheet is equal to the contributed capital from the single entity Balance Sheet of the parent company.

45. 45© 2009 Clarence Byrd Inc Summary Of Definitional Calculations Retained Earnings Retained Earnings The Retained Earnings amount to be included in the consolidated Balance Sheet is calculated as follows: 100 percent of the Retained Earnings of the parent company; plus (minus) the parent company’s share of the subsidiary’s adjusted Retained Earnings (Deficit) since acquisition. The adjustments for upstream intercompany profits (losses) that are unrealized as of the Balance Sheet date, accumulated amounts of fair value changes that have been realized since the acquisition date through use or sale, and if the acquisition date non-controlling interest was recorded at fair value, the adjustments would include any goodwill impairment; minus If the acquisition date non-controlling interest was measure on the basis of identifiable assets only, any goodwill impairment would be subtracted in full against the sum of the first two items; minus (plus) any downstream intercompany profits (losses) that are unrealized as of the Balance Sheet date.

46. 46© 2009 Clarence Byrd Inc Summary Of Definitional Calculations - Revenue Revenue The amount of any revenue to be included in the consolidated Income Statement is calculated as follows: 100 percent of the amount reported in the parent company’s financial statements; plus 100 percent of the amount reported in the parent company’s financial statements; plus 100 percent of the amount reported in the subsidiary’s financial statements; 100 percent of the amount reported in the subsidiary’s financial statements; 100 percent of any intercompany amounts included in the parent or subsidiary figures; plus (minus) 100 percent of any intercompany amounts included in the parent or subsidiary figures; plus (minus) minus minus

47. 47© 2009 Clarence Byrd Inc Summary Of Definitional Calculations - Revenue the parent’s share of any fair value changes realized during the period through usage or sale of subsidiary assets (fair value amortization and amounts realized through the sale of subsidiary assets prior to the end of their economic life). It would be unusual for fair value realizations to be related to revenues. However, it could happen. For example, amortization of a fair value change on a long-term receivable would be treated as an adjustment of interest revenue; minus (plus)

48. 48© 2009 Clarence Byrd Inc Summary Of Definitional Calculations - Revenue 100 percent of any upstream or downstream unrealized intercompany profits (losses) that are included in the parent or subsidiary company revenues (e.g., gain on an intercompany sale of land during the current year); plus (minus) 100 percent of any upstream or downstream unrealized intercompany profits (losses) that were unrealized in a previous period, but have become realized during the current period (e.g., gain on an intercompany sale of land in a previous year, with the land being resold outside the consolidated entity during the current year).

49. 49© 2009 Clarence Byrd Inc Summary Of Definitional Calculations - Expense Expense The amount of any expense to be included in the consolidated Income Statement is calculated as follows: 100 percent of the amount reported in the parent company’s financial statements; plus 100 percent of the amount reported in the parent company’s financial statements; plus 100 percent of the amount reported in the subsidiary’s financial statements; 100 percent of the amount reported in the subsidiary’s financial statements; minus minus

50. 50© 2009 Clarence Byrd Inc Summary Of Definitional Calculations - Expense 100 percent of any intercompany amounts included in the parent or subsidiary figures; plus (minus) 100 percent of any intercompany amounts included in the parent or subsidiary figures; plus (minus) 100 percent of any fair value changes realized during the period through usage or sale of subsidiary assets; plus (minus) 100 percent of any fair value changes realized during the period through usage or sale of subsidiary assets; plus (minus)

51. 51© 2009 Clarence Byrd Inc Summary Of Definitional Calculations - Expense 100 percent of any upstream or downstream unrealized profits (losses) that are included in the parent or subsidiary company expenses (e.g., unrealized intercompany profits in the closing inventories would be added to the consolidated Cost Of Goods Sold); minus (plus) 100 percent of any upstream or downstream unrealized profits (losses) that are included in the parent or subsidiary company expenses (e.g., unrealized intercompany profits in the closing inventories would be added to the consolidated Cost Of Goods Sold); minus (plus) 100 percent of any upstream or downstream unrealized profits (losses) that were eliminated in a previous period because they were unrealized, but that have become realized during the current period (e.g., unrealized intercompany profits in the opening inventories would be subtracted from the consolidated Cost Of Goods Sold). 100 percent of any upstream or downstream unrealized profits (losses) that were eliminated in a previous period because they were unrealized, but that have become realized during the current period (e.g., unrealized intercompany profits in the opening inventories would be subtracted from the consolidated Cost Of Goods Sold).

52. 52© 2009 Clarence Byrd Inc Summary Of Definitional Calculations Goodwill. Goodwill Impairment Loss If the required annual test of goodwill for impairment determines that any impairment has occurred during the current period, this amount will be recorded as a Goodwill Impairment Loss.

53. 53© 2009 Clarence Byrd Inc Summary Of Definitional Calculations – Consolidated Net Income Consolidated Net Income Consolidated Net Income can be calculated as follows: 100 percent of the parent company’s Net Income, excluding dividends received from the subsidiary; plus (minus) 100 percent of unrealized downstream profits (losses) that are included in the parent’s income; plus (minus) 100 percent of any downstream profits (losses) that were unrealized in a previous period but have become realized during the current period; plus (minus)

54. 54© 2009 Clarence Byrd Inc Summary Of Definitional Calculations – Consolidated Net Income 100 percent of the adjusted Net Income of the subsidiary. This required adjustments to the subsidiary income are for: 100 percent of the amounts charges to income for fair value changes realized during the period through use or sale; If the acquisition date non-controlling interest has been recorded at fair value, 100 percent any goodwill impairment that has been recognized during the period; 100 percent of upstream unrealized profits (losses) that are included in subsidiary income; 100 percent of any upstream profits (losses) that were unrealized in a previous period, but have become realized during the current period; minus

55. 55© 2009 Clarence Byrd Inc Summary Of Definitional Calculations – Consolidated Net Income If the acquisitions date non-controlling interest was measured on the basis of identifiable assets only, 100 percent of any goodwill impairment recognized during the period.

56. 56© 2009 Clarence Byrd Inc Summary Of Definitional Calculations – Non-Controlling Interest (Income Statement) Non-Controlling Interest - Income Statement The non-controlling interest in the Consolidated Net Income of the Enterprise is an amount equal to the non-controlling interest’s ownership percentage of the adjusted Net Income of the subsidiary. The adjustments are the same as those listed in the definition of Consolidated Net Income

57. 57© 2009 Clarence Byrd Inc Summary Of Definitional Calculations – Non-Controlling Interest (Income Statement) Controlling Interest In Consolidated Net Income The controlling interest is equal to the Consolidated Net Income Of The Enterprise, less the Non-Controlling Interest The controlling interest is equal to the Consolidated Net Income Of The Enterprise, less the Non-Controlling Interest

58. Homework Chapter 6 -Question 1 to 5 Read Chapter 8 and 11 for next class 58© 2008 Clarence Byrd Inc