Advanced financial accounting. In this presentation we’re going to discuss intercompany transactions. So typically we have a situation where where we have a parent subsidiary relationship or thinking about a consolidation type of process within it. And then we have those intercompany transactions between the companies that need to be consolidated between parent and subsidiary, get ready to account with advanced financial accounting intercompany transactions, the intercompany transactions we’ll be focusing in on here and working some practice problems in on will include the intercompany receivables and payables need to be eliminated for consolidated financial statements.
Advanced financial accounting. In this presentation we’re going to take a look at a consolidation process when there is a book and fair value difference. In other words, we’ll have a consolidation. We have two companies, we have a parent subsidiary type of relationship, and the parent has a controlling interest of the subsidiary. Therefore consolidation is what we’re going to be doing. That means we’re going to take two separate sets of books combine them together as if they were one. And we had some complications with the fact that when the purchase took place, there was a difference between the book value and the fair value, what will be the effect of that difference on the consolidation process, elimination entry example. So when we consider this difference, we want to think about what’s going on with the parents books and the subsidiaries books and then what would be the process to consolidate them and what type of problems would be caused if there was a difference between the book and fair value of the net assets so the parents books investment accounts starts out containing the acquisition costs at the fair market value of net assets and goodwill, so we have, that’s basically what’s going to be on the parents books, right. And we’re thinking here typically have an equity method being used. So we have the parents books, we have the subsidiary books that we’re gonna have to consolidate together, and then do our elimination entries. And on the parents books, you’re accounting for the subsidiaries.
Advanced financial accounting. In this presentation we’re going to talk about consolidation calculations for less than wholly owned subsidiaries. So we have a parent subsidiary relationship, we’re going to be looking at the consolidation process to put the financial statements of the parents and the subsidiaries as if they are one entity, but we don’t have a wholly owned subsidiary. In other words, the parent does not own 100% of the subsidiary. How do we do the consolidation? in bad case, consolidation calculations less than wholly owned subsidiaries, that entities entire income and value must be reported per the current standards? So in other words, once again, we might think, well, on the income statement, maybe we would just report the part of the subsidiary that belongs to or is controlled by the parent, but that’s not typically the case. That’s not the case under generally accepted accounting principles.
Advanced financial accounting. In this presentation we’re going to talk about the concepts of direct and indirect control. If you’re ready to account with advanced financial accounting, we want to consider these concepts within the context of financial statements and consolidation. So you’ll recall that when we have consolidated financial statements, the idea is to put two financial statements together when one company has basically control over another company that being defined typically by having more than 51% interest because if you have more than 51%, then you have basically a voting share for you to vote on anything, then of course, you would win the vote at that point in time. So let’s consider then direct control and indirect control direct control when one company has a majority of another company’s stock common stock. So that would be a situation where you got a and b, one company has a majority interest over 51% control is pretty easy to see at that point. When you start to get into indirect control. This can get more complicated things can get more confusing here. So indirect control, one company’s common stock is owned by one or more other companies that are under common control. So this can get a lot more detailed structure in terms of what is going to constitute control. So for example, if we have direct control, then you have just simply a parent subsidiary type of relationship. And, you know, the parent has more than 51% of the subsidiary, interest common stock. So and that could happen if we have to, we could still have a little bit more complexity here, where we have two subsidiaries, right. But they’re both going to be consolidated in this case, because there’s 75% over 51% direct control is parent over as one direct control over as to here because it’s over the 51%. So both of these cases would be direct control.
Advanced financial accounting. In this presentation we’re going to talk about a consolidation for a non wholly owned subsidiary. So in other words, we have a parent subsidiary relationship, but the parent doesn’t own 100% of the outstanding common stock of the subsidiary but something other than 100%. In other words, over 51% controlling interest less than 100% get ready to account with advanced financial accounting. Non controlling interest often will be represented NCI non controlling interest. So notice if we have a parent subsidiary relationship we’re talking about there is some controlling interest, the controlling interest is the interest that’s going to be over 51%. However, if we don’t have 100% ownership, then we have the amount that’s not in control and that of course is going to be the non controlling interest. So non controlling interest. NCI controlling interest is needed for consolidation. Obviously, if we’re going to consolidate this thing, that means typically that A parent has some controlling interest over 51% a 100% is not needed. So 100% of ownership, in other words, by one parent to the other is not necessary for a consolidation to take place control is necessary, which is typically over 51% less than 100% ownership will result in a non controlling shareholder, those other than the parent.
Advanced financial accounting. In this presentation we’re going to take a look at the usefulness of consolidated financial statements. In other words, consolidated financial statements taking two or more companies where there’s a parent subsidiary relationship, putting them together representing financial statements as if those entities were one entity. What are the pros and cons of using consolidated financial statements? Get ready to account with advanced financial accounting idea of consolidated financial statements? In other words, why did we come up with the consolidated financial statements? So remember, we’re talking about a situation where there’s a parent subsidiary relationship, there’s a controlling interest, we have one company that has a controlling interest in over 51 interest in the other company. And then we’ve come up with this concept of showing the Consolidated Financial Statements showing the entity the parent and the subsidiary entities of which there’s a controlling interest as if they were one entity. Why do that? So when company creates or gets controlled Another company, that’s going to be the scenario we have. So we have a parent subsidiary relationship due to that fact due to one company having control than another company. You can think of that, of course in a stock situation owning for more than 51%. The result is a parent subsidiary relationship. So if we just have the two entities, it would look something like this.
Advanced financial accounting PowerPoint presentation. In this presentation we will discuss consolidated earnings per share, get ready to account with advanced financial accounting, consolidated earnings per share, how do we calculate the earnings per share for a consolidated entity, the basic calculation for the earnings per share will in essence be the same as for a single Corporation. So there’s not too much difference between the consolidated earnings per share calculations and the basic earnings per share for one entity one Corporation. So the basic earnings per share is is computed by deducting income to the non controlling interest and any preferred dividend requirement of the parent from the consolidated net income. So we’re going to take the net income and then we’re going to deduct income to the non controlling the non controlling interest and any preferred dividend requirement. In other words, we’re going to take the consolidated net income and then remove or deduct income to the non controlling interest and and in preferred dividend requirement, then we’re going to take that number, the amount resulting is divided by the weighted average number of the parents common shares outstanding during the period covered. So it’s a pretty straightforward calculation for the basic earnings per share, we do have practice problems on it. However, if you want to brush up on calculating the basic earnings per share, we have that there. diluted consolidated earnings per share is going to be a more complex calculation.
Advanced financial accounting PowerPoint presentation. In this presentation we will discuss consolidation and interim acquisition. In other words, we have a parent subsidiary relationship that parent owning a controlling interest over 51%. However, that controlling interest took place for a purchase of the common stock of the subsidiary that happened in the middle of the year. So prior to this, we’ve been talking about situations where we are doing consolidations for an entire year. And you may have question probably popped up in your head at some point in time as well what would happen if the purchase took place in the middle of the year now we have that mid year kind of purchase worse, especially concerned with that first year where the consolidation didn’t really happen. I mean, there wasn’t a consolidated ownership until sometime in the middle of the year, get ready to account with advanced financial accounting. So we’re talking about a situation where we have a consolidation but the consolidation happened in the middle of the years. We’re thinking about that first year, primarily What would happen? Well, if the consolidation didn’t take place in January in other words, the parent didn’t purchase the controlling interest in the subsidiary at the beginning of the year but happened at some point in the middle of the year what’s going to be the impact on the year in consolidation, which typically happens for the entire year? Well, the subsidiary is seen as being part of the consolidated entity from the time the stock is acquired, even if acquired in the middle of the year.
Advanced financial accounting PowerPoint presentation. In this presentation we’re going to discuss a consolidation that when there is a complex ownership structure, so more complex ownership structure comparing the direct ownership, which is what we’ve normally been dealing with, with structures such as multi level ownership and reciprocal ownership, get ready to account with advanced financial accounting. Normally, when we think about our consolidation structure, we’re dealing with a direct ownership situation which looks like this direct ownership type of situation, it gets more complex. Of course, if we have more complex type of ownership structures, such as a multiple multi level ownership structure where we have a parent owning a subsidiary, that basically we have an indirect ownership, let’s say in another subsidiaries, that’s going to be more complex for us to deal with or if we have a situation where we have reciprocal ownership, where the parent has ownership a controlling interest in s, but as also has some ownership in p, right. We’ve been dealing with basically P parent company owning portion of S. So if we talk about direct ownership we’re talking about the parent has, as has controlling interest in every subsidiary. So that’s going to be of course, this situation.
Advanced financial accounting PowerPoint presentation. In this presentation we will discuss a consolidation process where we have a subsidiary that purchases shares from the parent. So what’s going to be the effect on the consolidation process? When we have a subsidiary that purchases shares from a parent get ready to account with advanced financial accounting. We are talking about a situation here where this subsidiary is purchasing shares from the parent what’s the effect on the consolidation process? In the past, the parent has often recognized a gain or loss on the difference between the selling price and the change in the carrying amount of its investment. So in the past, it’s often been recorded as a gain or loss on parent companies that difference as a gain or loss on the parent company’s income statement.