MODULE 1: MERGER

Surviving and Dissolved Company

COMPUTATION OF GOODWILL OR GAIN ON

BARGAIN PURCHASE AT ACQUISITION DATE

CONSIDERATIONS:

Consideration Transferred
● Cash xxx
● Non-cash assets (convert to
Its monetary value) xxx
● Shares (at MV per share) xxx
IMPROVED INFO
● Bonds (at trading price)
● Kahit di improved basta may facts and
xxx
circumstances
● PAG TOTALLY NEW LANG SA P/L
Contingent Consideration
● Pag tumaas contingent consi, tataas goodwill
● Contingent Cash Payments xxx
● Contingent Liabilities xxx
● Stock Price Contingency xxx

Total Considerations
xxx

LESS: FV of Net Identifiable Assets

of Acquired Company
(xxx)

Goodwill or (Gain on Bargain Purchase) xxx

COMPUTATION OF ASSETS, LIABILITIES, and ARC

SHE IMMEDIATELY AFTER MERGE ● Direct Cost - Fees - Expensed
● Indirect Cost - Salary or GenAd Expenses,
CARLA 24454 whether may merger o wala, employed
talaga sa entity
COMMON STOCK ● SIC - meron lang pag magiissue ka ng shares
Common Stock of Surviving at BV xxx ○ Bawas sa related premium
Add: Common stock Issued at Par xxx ● BIC - bawas sa premium, dagdag sa
Total Common Stock at AD xxx discount

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 SHE of dissolved
● Naeeliminate sa CONSO FS
CARLA 24454 ● Pero sa acquisition of stock, sa WP

APIC ● Pag acquired ba automatically na dissolved?

APIC of Acquirer at BV xxx NO
Add: APIC for Issued Stocks xxx
Less: SIC (xxx) GOODWILL
Add: Contingent Stocks xxx ● Merger - Assets of Acquirer
Total APIC at AD xxx ● Stocks - WP lang
● So di always true
CARLA 24454
FV of Net Identifiable Assets of Acquiree
RETAINED EARNINGS ● Goodwill is not included
RE of Acquirer at BV xxx ● It’s possible that the assets and the
Less: ARC (xxx) liabilities have no FV, just use the book value
Less: SIC ** (xxx) ● If an asset is not recognized in the book BUT
Add: Gain on Bargain Purchase xxx they are measurable at acquisition date,
TOTAL RE xxx include it in the total assets
● Computed as:
CARLA 24454 ○ FV of Assets ** - FV of Liabilities
** not including the goodwill
LIABILITIES
Liab of Acquirer at BV xxx ● Or SHE or acquiree - goodwill +
Add: Liab of Acquiree at FV xxx undervalued - overvalued excess
Add: PV of Liab issued less
any bond issue cost xxx
Add: Contingent Consideration at FV xxx SIC - net of income tax
Add: Costs not yet paid xxx
TOTAL LIABILITIES xxx

CARLA 24454

ASSETS
Assets of Acquirer at BV xxx
Add: Assets of Acquiree at FV xxx
Add: Goodwill resulting from merger xxx
Less: Cash payments (xxx)
TOTAL ASSETS xxx

** if ubos na yung SP from new issuance and old

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 issuance

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MODULE 2: CONSOLIDATION

Parent and Subsidiary

* The price paid includes CONTROL PREMIUM

COMPUTATION OF GOODWILL OR GAIN ON BARGAIN > Attributable to Parent ONLY
PURCHASE AT ACQUISITION DATE > NO part in the Working Paper (it is already
Included in the Inv in Subsidiary account)
AGGREGATE AMOUNT > Not included in the computation of NCI
> INCLUDED in computing prev held securities
** NCI
Price Paid * xxx
> If SILENT, use FV
Non-Controlling Interest ** xxx > Presented in the Consolidated FS (in SHE)
FV of Previously Held Securities*** xxx > Computed using either FAIR VALUE or
TOTAL Consideration xxx PROPORTIONATE SHARES
> Computation for Fair Value
LESS: FV of Net Identifiable Assets (xxx) Usually given, but at times we have to assume
To assume the FV:
Price Paid−Control Premium
GOODWILL OR (GAIN on BARGAIN x % of NCI
% of Parent Ownership
PURCHASE) xxx
ALWAYS CHECK if FV of NCI is greater than the
PROPORTIONATE SHARES. If FV < Prop Shares
Use Proportionate Shares
> Computation for Proportionate Shares
DETERMINATION and ALLOCATION SCHEDULE FV of NIA x % of NCI
FV of NIA can be computed through
Controlling Amount NCI FV of Identifiable Assets - FV of Liabilities or
BV of Equity - Pre-existing Goodwill +
Aggregate amt Price Paid NCI
Undervalued excess - Overvalued excess
Less: NIA NIA x Parent % NIA x NCI % *** FV of Previously Held Securities (do not remove CP)
Goodwill**** xxx xxx Price Paid
>
% of Parent Ownership
**** how you allocate the goodwill is the same as x % of Prev Held Securities
how you’ll allocate the impairment loss ● As if ngayon mo binili yung lahat ng shares
● Do not remove Control Premium sa Price Paid
● If may provided, Don’t assume, walang lower

● Recognized amount of NCI is included in the total

consideration in computing for the goodwill of
the gain
○ Di siya kasama sa consideration but sa
aggregate amount

Investment in Subsidiary Account

● Price Paid
● FV of Previously Held Securities
● Shown in the books of the Parent

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 ● Goodwill or Gain on acquisition is only shown in
the consolidated FV
GOODWILL
● Full goodwill pag di proportionate shares
● Otherwise Allocate using the D and A
Gain on Bargain Purchase
● Attributable ONLY sa PARENT

WORKING PAPERS WORKING PAPER

● TOOL used for the consolidation of the Financial
Working Paper # 1 - to eliminate SHE of Acquiree Statements
○ remove the book values that shouldn’t be
Ordinary Shares xxx seen in the consolidated FS
Share Premium xxx ○ Recognize the items not presented in the
Retained Earnings xxx books but need to be presented in the
Investment in Subsidiary xxx conso FS
NCINAS xxx ● WILL NEVER change the books
● No standard working paper numbering
Working Paper # 2 - to recognize FV differentials ● Same as eliminating entry or WPEE
● NO NCINAS account if 100% owned
Undervalued Excess (A) xxx
Overvalued Excess (A) xxx WP # 1
Investment in Subsidiary xxx ● ALWAYS PRESENT
NCINAS xxx ● SHE of the acquiree will never appear on the
Consolidated FS
Working Paper # 3 - to eliminate acquiree’s ● Eliminate SHE of subsidiary in FULL amount even
goodwill if di 100% owned
● At ACQUISITION DATE
Investment in Subsidiary xxx
NCI xxx WP # 2
Goodwill of Acquiree xxx ● NO WP 2 if the BV of the assets of the subsidiary
= FV
Working Paper # 4 - to recognize goodwill or gain ● Will not change the books of the subsidiary
on purchase bargain at acquisition date ● WP will only affect the consolidated FS
● At ACQUISITION DATE
Goodwill xxx ● Depende if ano yung greater impact
Investment in Subsidiary xxx ● Always define the excess
NCI xxx ● Overvalued Liability
Liab xxx
Investment in Subsidiary xxx Inv in Subsidiary xxx
Gain on Bargain Purchase *** xxx NCINAS
NCINAS ** xxx

** for OFFSETTING purposes ONLY

*** magiging RE sa succeeding years

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 CONSOLIDATED FINANCIAL STATEMENTS of
PARENT
and SUBSIDIARY at ACQUISITION DATE

use CARLA 24454 but don’t forget to add the NCI in

the SHE if the subsidiary is not 100% owned

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MODULE 3: CONSOLIDATED FS SUBSEQUENT TO INITIAL ACQUISITION

WORKING PAPER WP # 5
● Amortizing the Excess
Working Paper # 5 - to amortize the excess in WP2 ○ Always define the excess
● Merchandise
Undervalued excess: ○ Affects COGS
CGS/Expense xxx ○ PRODUCT COST - Will affect GROSS
Merch/Asset xxx PROFIT
** bababa net income ○ Amortize in YEAR 1 if SILENT
● Assets / Intangibles
Overvalued excess: ○ Affects Depreciation / Amortization -
Merch/Asset xxx OPEX
CGS/Expense xxx ● Depreciate based on REMAINING USEFUL LIFE
** aangat net income ● Land
○ Since land is not depreciable it has no
Succeeding Years: remaining life
CGS/Expense (this year) xxx ○ Pag nabenta tsaka mo iamortize in FULL
RE (Recognized x % ownership) xxx ○ Hindi kasama sa opex, sa GAIN or LOSS
NCINAS (Recognized x % of xxx ○ Gain or Loss on Sale Recognized
ownership)
○ Iba yung gain or loss sa book sa conso
Merch/Asset xxx ○ Possible ba na gain sa book tas loss sa
conso, vice versa? YES, theoretically
Liabilities (Special Case) ■ Eliminate mo muna gain or loss
Undervalued ● Affects CNI and NCINIS, will eventually affect
Liability xxx CONSO RE and CO NSO SHE
Interest Expense xxx ● Previous Years amortization - use RE as an entry
Overvalued ● Every year meron ka kahit wala ka na inaamortize
Interest Expense xxx ○ RE nalang + NCINAS
Liability xxx ● Liabilities
○ Almost all are monetary kaya bihira
Working Paper # 6 - Impairment of goodwill in WP4 magkagain or loss sa sale of liability
○ Debt restructuring
Impairment Loss/ OPEX xxx ■ BV is not = FV
Goodwill xxx ○ Special Situation
○ Interest Expense is adjusted
Working Paper # 7 - Dividends Declared ○ Bringing back what you recognizeed sa FS
sa books
Dividend Income (% of parent) xxx WP # 6
NCINAS (% of NCI) xxx ● Impairment of Goodwill
Dividend Declared xxx ○ OPEX
○ Same sa pag allocate nung goodwill at
Working Paper # 8 - NCINIS acquisition date
○ Allocated to parent
NCINIS xxx Goodwill of Parent
NCINAS xxx ■
TOTALGOODWILL
x impairment

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 COMPUTATION OF NCINIS (2) ● Written down by - Impairment
● Written down to - ending goodwill
Net Income of Subsidiary xxx

Add/Deduct WP adj.: WP # 7
Add: Overvalued amort xxx ● Dividends
Less: Undervalued amort (xxx) ○ Dividends Declared of Subsidiary x % of
Parent Ownership
Adjusted NI of subsidiary xxx ○ Cash/Dividend Receivable xxx
x % of NCI % Dividend Income xxx
xxx ● Intercompany Dividend or Intragroup Dividend is
Less: Allocated imp loss (xxx) eliminated through the WP but not in the books
NCINIS xxx ● Check if yung binigay na dividend revenue ay
attributable to parent na
AMORTIZATION OF EXCESS SCHEDULE ● Debit Dividend Declared ni Subsidiary
○ Wala SHE subsidiary at RE sa WP1 palang
Excess Year 1 Year 2 Year n ● If di pa paid lahat may extra working paper
Merchandise Under Dividend Payable
Asset (Over) Dividend Receivable
Intangibles xxx WP # 8
Land (xxx) ● We are not adjusting the Net Income of
*** amortize by remaining years, pro-rata if yung Subsidiary in the books, for computation
date of acquisition ay hindi January purposes lang yung pagkuha nung adjusted Net
*** everything affects Net Income Income
● Partial goodwill will not affect NCINIS
computation
SPECIAL ENTRY:
AMORTIZATION OF EXCESS (Assets)
RE of subsidiary xx ● If undervalued, dagdag sa expense less sa income
RE of Parent xx ● If overvalued, less expense, dagdag sa income
NCINAS xx

CONSOLIDATED STATEMENT OF COMPREHENSIVE Income from Ops ni Parent wala pa yung Dividend
INCOME (3) Income
● If net income na ni parent binigay kailangan pa
GOOD FORM: iless yung intercompany dividends
Sales xxx
Less: COGS xxx (with WP 5 adjustments) NCI
Gross Profit xxx ● If silent, pertains to NCINAS
Less: Expenses xxx (with WP5 and WP6 adj)
Add: Dividend Revenue xxx (WP7) CONSO DIVIDEND REVENUE
CNI xxx ● DIvidend Revenue of Parent and Subsidiary
● WP 7 - eliminate intercompany dividends
● DIVIDEND REVENUE OF PARENT IS ELIMINATED
May attributable kay NCI and Parent IN WP - False, Intercompany dividend lang
● Dividends declared by subsidiary TO parent
means that that is already the intercompany

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 FOR COMPUTATION PURPOSES: dividend
Net Income of Parent per books xxx
Net Income of Subsidiary per books xxx CONSO
Add: Overvalued amort xxx ● Combination of both parent and subsidiary
Less: Undervalued amort (xxx) ● If silent na net income hinahanap, total CNI
Less: Impairment of Goodwill (xxx) ● As a disclosure, you need to show how much
Less: Intercompany Dividend (xxx) contributable to controlling and to NCINIS
Add: Gain on Acquisition xxx ● Take note of the WP items, for consolidation
Add: Gain on Bargain purposes
Purchase xxx (Y1) ● Pag 100% owned, edi all CNI sayo
Add: Gain on sales xxx ● Wala at date of acquisition, sa subsequent lang
Less: Loss on Sales xxx
Add: RPBI xxx CONSO CGS
Less: UPEI xxx ● CGS of Parent (books) + CGS of Subsidiary (book)
Add: Unrealized loss xxx (Y1) ● WP # 5
Less: Unrealized gain xxx (Y1) ● Excess in merchandise
Add: Realized gain xxx ● Not the same with conso merchandise inv
Less: Realized Loss xxx
CONSO OPEX
TOTAL CNI xxx ● Year end
Less: NCINIS (xxx) ● Opex of parent per books
CNI attributable to Parent xxx ● Opex of subsidiary per books
● WP # 5 and WP # 6
● Included yung IMPAIRMENT LOSS
COMPUTATION OF UNDISTRIBUTED EARNINGS***
RE of Subsidiary at Current year xxx CONSO MERCHANDISE
Less: RE of Subsidiary at date of ( xxx) ● Depends on the date
Acquisition ● ACQUISITION DATE - Parent + Subsidiary + WP 2
= Increase in RE xxx ● SUBSEQUENT
Less: Cumulative Amortization (xxx) ○ Parent Merchandise - Year End
Undistributed Earnings Current Year xxx ○ Subsidiary Merchandise - Year End
○ WP # 2 and WP # 5
**** if di given NCINIS
RE of Parent at year end xxx IF CONSO REVENUE at ACQUISITION DATE yung
Add: gain on acquisition xxx hinahanap
Add: Undistributed Earnings xxx ● Parent lang + Any gain on bargain purchase

GAIN ON BARGAIN PURCHASE WILL ONLY AFFECT THE

CNI during year 1
COMPUTE THE CNI - TOTAL

CONSOLIDATED FINANCIAL STATEMENTS AFTER How would you know that an FS is after acquisition
INITIAL RECOGNITION ● You have an Investment in Subsidiary Account
● You have nominal accounts like CGS, Loss on Sale

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 CONSOLIDATED RE ● Payments at acquisition date are considered
RE of Parent beg xxx already
Add: CNI attributable to Parent xxx CRA
Less: Dividends Declared by Parent xxx ● Net income ni parent
CRE xxx ● Net income of subsidiary contributable to parent

NCINAS Separate FS in Parent

NCINAS at Acquisition Date xxx ● Can account the Inv in Subsidiary through:
Add: NCINIS this year xxx ○ Cost method
Less: Dividends Declared by ■ Highlights that the Parent and the
Subsidiary at % of NCI (xxx) Subsidiary are separate entities
NCINAS xxx ■ DIVIDENDS from subsidiary
● CASH xxx
CONSOLIDATED SHE DIvidend Income xxx
Ordinary Shares of Parent at BV xxx ○ Equity method
SP of Parent at BV xxx ■ CASH xxx
Consolidated Retained Earnings xxx Inv in Subsidiary xxx
NCINAS xxx ○ FV method
CSHE xxx ● Dividends, nasa FS if not stated as additional info

CONSOLIDATED LIABILITIES CONSOLIDATED FS

Total Liabilities of Parent xxx ● No Investment in Subsidiary account
Total Liabilities of Subsidiary xxx ● Sa conso she nakaemphasize yung pagkahati ng
CONSO LIAB xxx controlling and non-controlling
● Everytime na year-end yung tanong, yung FS at
CONSOLIDATED ASSETS year end sa books din yung gagamitin na values
Total Assets of Parent xxx ● Pano pag nagkaron ng changes sa separate
Total Assets of Subsidiary xxx books?
Less: Inv in Subsidiary account (xxx) ○ Adjusted na and correct
Add: Undervalued recognition xxx
Less: Overvalued recognition (xxx) CONSO EQPT or ASSET
Add: Overvalued amortization xxx ● ACQUISITION DATE - Parent + Subsidiary + WP 2
Less: Undervalued amortization (xxx) ● SUBSEQUENT
Add: Goodwill at acquisition date xxx ○ Parent at year end
Less: Impairment Loss (xxx) ○ Subsidiary at year end
CONSO ASSETS xxx ○ WP # 2 and WP # 5 , WP # 6
■ “Love Team”
DIVIDEND DECLARED IS NOT GIVEN ■ To recognize the amortization
RE beg xxx
Add: Income xxx If sa identifiable fair value net assets binigay - goodwill
Less: Dividends Declared (xxx) If sa identifiable book value of net assets - allocated
RE END xxx excess

GOODWILL
● Check if the parent has a previous goodwill
● And if there is a resulting goodwill (WP 6)
● The previous goodwill of the subsidiary is

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 eliminated in WP # 3
● Always check the DATE and whether the parent
has a previous goodwill and if there is impairment

MID-YEAR ACQUISITION OF SUBSIDIARY

● Pro-rata not only the amortization of excess but
also the net income of subsidiary
● Pag ending balance naman ng RE binigay
naadjust na yung net income and dividends
declared so need iworkback

Date of Acquisition (MID-YEAR)

● RE year end na
○ Add mo yung dividends
○ Deduct mo yung net income na di pa
naeearn at acquisition date so pag
september 1, tanggalin yung 4/12
● RE beg binigay
○ Add mo yung net income for 8 months

INTERCOMPANY SALE OF MERCHANDISE

Kelan realized yung profits?
WP # 9 - To Eliminate the intercompany sale of ● Sa book - pag nabenta
Merchandise during the Year ● Sa conso - once nabenta na ni buying affiliate

Sales xxx NO WP PAPER regarding cash kasi lagi siya maooffset

CGS xxx
USE FRACTIONS in computing the gp rate
WP # 10 - To eliminate the intercompany receivable
and payable PROFIT RECOGNITION
● Books of selling affiliate - when sold to buying
AP xxx affiliate
AR xxx ● Conso - when buying affiliate already sold the
goods to third paties
Selling Affiliate (P)
AR xx Intercompany sale of Merchandise
Sales xx ● PERPETUAL
CGS xx ● Transactions within the group
Merch Inv xx ● DOWNSTREAMS
**represents na bumili yung parent ng inv ○ Parent is the selling affiliate
from a supplier ○ Attributable only to the PARENT
■ Basta kay parent, kay parent
Buying Affiliate (S) lang
Merch Inv xx ■ Won’t affect NCINIS or NCINAS
AP xx ○ Affects CNI
AR xx ● UPSTREAMS

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 Sales xx ○ Subsidiary is the selling affiliate
** subsequently sold to outsiders ○ Attributable to both the PARENT and
SUBSIDIARY
WP # 11 - To Eliminate Unrealized Profit in Ending ■ Pag kay subsidiary, may share si
Inventory during the year parent
■ Affects NCINIS and NCINAS
CGS ○ Affects CNI
Merch End Inv ● Wag tawagin na seller kasi mas definite yung
selling affiliate
○ Selling affiliate emphasizes na
Intercompany Ending Inv of BA x Gross Profit Rate of intercompany yung transaction
SA ● Importante malaman kung sino yung part ng
** important yung upstreams and downstreams dito group
● Sa separate books the parent and the
WP # 12 - To Realize Profit Beginning Inventory subsidiary are different entities, but in the
CONSO FS, they are one, kaya need i-eliminate
RE
CGS WP # 9
● Di nagcclose ng nominal accounts,
Downstreams NAGEELIMINATE lang
RE ● These accounts are eliminated because they
CGS are intercompany transactions

Upstreams WP 10
RE ● No WP 10 if cash sales
NCINAS ● Yung matitira lang ay yung pagbili ng selling
CGS affiliate at pagbenta ng buying affiliante

NO WP # 11 AND WP # 12 IF NABENTA NI BUYING

CONSOLIDATED SALES AFFILIATE LAHAT NG MERCHANDISE

Sales of Parent per books xxx PROFITS WOULD ONLY BE REALIZED SA CONSO IF
Sales of Subsidiary per books xxx SOLD NA

Less: Intercompany sales WP11

During the year (xxx) ● Meron lang pag natira kay buying affiliate
● Your UPEI mo in year 1, yun yung RPBI mo in
Consolidated Sales xxx year 2
● UPEI
CONSOLIDATED COGS ○ Add sa cogs
○ Deduct sa gross profit
COGS of Parent per books xxx ○ Deduct sa cni
COGS of Subsidiary per books xxx
WP12
Add/Deduct: Amort of Excess xxx ● Meron lang if 2nd year onwards and if may upei
Less: intercompany sales ka from the previous year
During the year (xxx)
Less: RPBI* (xxx) ● RPBI

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 Add: UPEI** xxx ○ Deduct sa cogs
○ Add sa gross profit
Consolidated COGS xxx ○ Add sa gross profit

CONSO ASSETS or INV

Assets - Parent
Assets - Subsidiary

Less: UPEI

*kung dadagdagan profit, babawasan cogs

**kung babawasan profit dadagdagan cogs

INTERCOMPANY SALE OF FIXED ASSETS

Example WP 13
● Sa conso bawal ka magbenta sa sarili mo kaya
SA ipapakita mo na as if walang bentahan
1/1 Cash 90000 ● Realize sa remaining useful life
Gain 20000 ● Bakit credit equipment?
Eqpt 70000 ○ Gusto palabasin na as if si selling
affiliate parin yung may-ari
BA
1/1 Eqpt 90000 WP 14
Cash 90000 ● Divided by the remaining useful life
● Prorate pag hindi January 1
WP # 13 - To eliminate the intercompany sale of ● Bawal icredit yung gain kasi mahuhuli na
DEPRECIABLE Fixed assets nagbentahan, pero in substance nirerealize
yung gain
Gain 20000 ● In effect narealize yung gain kasi tumaas yung
Eqpt 20000 income, vice versa
● Bakit Acc dep and DepExp
WP # 14 - To recognize the realized gain or loss ○ Ibabawas or idadagdag mo yung
difference nung depreciation ni buying
GAIN: affiliate kay selling affiliate kasi dapat
Acc dep 4000 as if si selling affilliate parin yung
Dep Exp 4000 mayari
● YEAR 2
LOSS: ○ Yung dep exp magiging re
Dep Exp xxx ○ Pero yung acc dep magaaccumulate
Acc Dep xxx lang

Year 2

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 GAIN:
Acc dep 8000
Dep Exp 4000
RE
NCINAS

LOSS:
Dep Exp xxx
RE xxx
NCINAS
Acc Dep xxx

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