Advanced financial accounting PowerPoint presentation in this presentation will discuss a consolidation process where we have a parent subsidiary relationship and the subsidiary sells additional shares to the parent. So we have a situation where we have the subsidiary selling additional shares to the parent, what’s going to be the effect on the Consolidated Financial Statements get ready to account with advanced financial accounting. We’re talking about a situation here where the subsidiary is going to sell additional shares to the parent and the price is going to be equal to the book value of the existing shares. In that case, it’s going to increase the parents ownership percent, because the parent now has more stocks and no one else got more stocks. Therefore, their percent ownership is increasing. The increase in the parents investment accounts will equal the increase in the stockholders equity of the subsidiary the book value of the non controlling interest is not changed and the normal consolidation entries will be made based on the parents and new ownership percent. So obviously when we do The consolidation entries, we’re going to be basing them on the new ownership percent, that’s going to be the more simple kind of situation where we have the price equal to the book value. What if there’s a sale of additional shares to the parent at an amount of different than the book value, so we still have shares going from the subsidiary to the parent, but now the amount is different than the book value. This increases the carrying amount of the parents investment by the fair value of the consideration. So in other words, the carrying amount of the parents investment in the subsidiary is going to go up by that what was paid for it that consideration given whether that be cash at the fair value of something other than cash. At consolidation, the amount of a non controlling interest needs to be adjusted to reflect the change in its interest in the subsidiary.
So we’re going to have the consolidation process within consolidation process, the amount of a non controlling interest is going to be adjusted to reflect that change and its investment in the subsidiary and an adjustment is made to the consolidated Additional paid in capital. And this again is one of the more kind of confusing components there’s going to be this adjustment to the additional paid in capital for the difference between any consideration given or received by the consolidated entity and the amount of the adjustment to the non controlling interest. When shares are sold at a price equal to book value of the common equity of common equity, the value of the non controlling interest in net assets will remain the same. When the shares are sold at an amount greater than book value of common equity. The value of the non controlling interest in net assets increases and when shares are sold at an amount less than book value of common equity, the value of the non controlling interest in net assets decreases