ADVANCED ACCOUNTING 2

Chapter 1:
Business Combinations
and
Chapter 3:
An Introduction to Consolidated Financial
Statements
Sources: “Advanced Accounting” by Beams, Anthony, Bettinghaus, and
smith and “Akuntansi Keuangan Lanjutan” by Golrida Karyawati

Prepared by: Hanna Wijaya, SE., MM.

ADVANCED ACCOUNTING 2

Chapter 1:
Business Combinations

Sources: “Advanced Accounting” by Beams, Anthony, Bettinghaus, and

smith and “Akuntansi Keuangan Lanjutan” by Golrida Karyawati

Prepared by: Hanna Wijaya, SE., MM.

 BUSINESS COMBINATION
Menurut PSAK 22 (Rev 2015), penggabungan usaha didefinisikan
sebagai penyatuan dua atau lebih perusahaan yang terpisah menjadi satu
entitas ekonomi, karena satu perusahaan menyatu dengan (uniting with)
perusahaan lain atau memperoleh kendali (control) atas aktiva dan
operasi perusahaan lain.

Menurut PSAK 22 Rev 2015 (adopsi dari IFRS 3), kombinasi bisnis
terjadi ketika entitas memperoleh pengendalian atas entitas lain yang
berupa bisnis. Yang dimaksud pengendalian adalah kekuasaan untuk
mengatur kebijakan keuangan dan operasi suatu entitas.
Entitas
Pengakuisisi Entitas Target

*) Perusahaan mengacu pada bentuk atau badan usaha.

*) Entitas diartikan sebagai badan yang terpisah dari pemiliknya dan menjalankan usahanya.
*) Bisnis merupakan substansi usaha tanpa memandang bentuk usaha.
 Reasons for Combinations

Tujuan kombinasi bisnis yaitu mendapatkan sinergi positif dari dua aktivitas
ekonomi (bisnis), bukan menggabungkan dua badan hukum.

 Cost advantage
 Lower risk
 Fewer operating delays
 Avoidance of takeovers
 Acquisition of intangible assets
 Others
1. Manfaat biaya (cost advantage), seringkali lebih kecil biaya yang dibutuhkan
perusahaan untuk memperoleh fasilitas yang diperlukan melalui penggabungan usaha
dibandingkan melalui pengembangan.
2. Risiko lebih rendah (lower risk), membeli lini produk dan pasar yang sudah ada
lebih kecil risikonya dibandingkan mengembangkan produk baru dan memasarkannya.
Penggabungan usaha ini kurang berisiko terutama ketika tujuannya adalah diversifikasi.
3. Mengurangi penundaan operasi (fewer operating delay), fasilitas-fasilitas pabrik
yang diperoleh melalui penggabungan usaha diharapkan dapat segera beroperasi dan
telah memenuhi peraturan standar lingkungan hidup, sedangkan bila melakukan
pembangunan baru, memerlukan waktu yang tidak cepat termasuk memperoleh izin
pemerintah.
4. Mencegah pengambilalihan (avoidance of takeovers), beberapa perusahaan
bergabung untuk mencegah pengakuisisian di antara mereka, karena perusahaan-
perusahaan yang lebih kecil cenderung lebih mudah diserang untuk diambil alih.
5. Akusisi harta tidak berwujud (acquisition of intangible asstes). Penggabungan
usaha melibatkan penggabungan sumber daya tidak berwujud maupun berwujud. Patent,
keahlian manajemen, customer database mejadi faktor-faktor yang memotivasi.
 Control / Pengendalian

Kombinasi bisnis hanya terjadi jika satu entitas

mengendalikan entitas lain.

A A

90% Indirect: A memiliki

Direct: A memiliki
hak pengendalian 90% hak pengendalian
90% terhadap B B 90%x80% = 72%
terhadap C
B 80%

C
 Types of Business Combinations

1. Penggabungan Horizontal
Penggabungan entitas-entitas yang berada dalam usaha yang sama
menjadi satu entitas yang lebih besar.

2. Penggabungan Vertikal
Penggabungan entitas dengan operasi berbeda namun berada
dalam satu proses yang berurutan. Keduanya mempunyai
hubungan yang saling menguntungkan, misalnya entitas yang
menjadi pemasok dan distributor.

3. Penggabungan Konglomerat
kombinasi penggabungan entitas-entitas yang memiliki usaha
berlainan dan tidak berkaitan.
 Legal Form of Combination

1. Merger
One corporation takes over all the operations of another business
entity and that other entity is dissolved.

A+B=A X+Y=X

+
atau
 Legal Form of Combination

2. Consolidation
A new corporation is formed to take over the assets and operations of
two or more separate business entities and dissolves the previously
separate entities.

E+F=D K+L=J

“Consolidation” is also an accounting term used to describe the process of

preparing consolidated financial statements for a parent and its subsidiaries.
 Accounting for Business Combinations
A parent-subsidiary relationship is formed when:
–Less than 100% of the firm is acquired, or
–The acquired firm is not dissolved.
 Record assets acquired and liabilities assumed using the fair
value principle.

 If equity securities are issued by the acquirer, charge

registration and issue costs against the fair value of the
securities issued, usually a reduction in additional paid-in-capital.

 Charge other direct combination costs (e.g., legal fees, finders’

fees) and indirect combination costs (e.g., management salaries)
to expense.
 Accounting for Business Combinations

The excess of cash, other assets, debt, and equity

securities transferred over the fair value of the net
assets (A – L) acquired is recorded as goodwill.

If the net assets acquired exceeds the cash, other

assets, debt, and equity securities transferred, a gain on
the bargain purchase is recorded in current income.
 Example: Pop Corp

Pop Corp. issues 200,000 shares of its $10 par value

common stock for Son Corp. Pop’s stock is valued at $16
per share. (in thousands)
Pop Corp. pays cash for 80,000$ in finder’s and
consulting fees and for $40,000 to register and issue its
common stock. (in thousands)
Investment expense (E, -SE) 80
Share premium - ordinary (-SE) 40
Cash (-A) 120
Son Corp. is assumed to have been dissolved. So, Pop
Corp. allocates the investment’s cost to the fair value of
the identifiable assets acquired and liabilities assumed.
The excess cost is goodwill
 An Introduction to
Consolidated Financial Statements
Business combinations through stock
acquisitions
 Acquire controlling interest in voting stock
 More than 50%

 May have control through indirect ownership

Business combination occurs once

 Acquisition of additional subsidiary stock is simply
additional investment
 The Parties

Non
Controlling
Interest

PARENT
10%

60%
90%
20%

B D

C
 The Parties
 A corporation becomes a subsidiary when another corporation
acquires controlling interest in its outstanding voting stock.
 In a 100 percent acquisition, the investee continues to operate
as a separate legal entity.
 Subsidiaries, or affiliates, continue as separate legal entities
and prepare their own financial reports.
 Consolidated Statements is prepared by the parent company
 Cost, Fair Value, and Book Value
3-18

Acquisition cost, fair values of identifiable net assets

and book values may differ.
 Allocate excess or deficiency of cost over book value and
determine goodwill, if any.
 When BV = FV
 Cost > BV, excess is goodwill
 Cost < BV, excess is a gain on the bargain purchase
 BV ≠ FV ≠ Cost
3-19

Difference between the book value of net assets (BV)

and the fair value of identifiable net assets (FV) is
assigned to the specific assets or liabilities
 E.g., undervalued or overvalued inventories, plant assets
 Unrecorded assets (patents) or liabilities (existing
contingencies)
Difference between FV and Cost is goodwill or a gain
on the bargain purchase
 Example – Pam Corp. Data
Pam Corp. acquires the net assets of Sun Co. in a
combination consummated on 12/27/2016.
The assets and liabilities of Sun Co. on this date at
their book values and fair values are as follows (in
thousands):
 Example – Pam Corp. Data (continued)
Blank Book Value Fair Value
Cash $ 50 $ 50
Net receivables 150 140
Inventory 200 250
Land 50 100
Buildings, net 300 500
Equipment, net 250 350
Patents 0 50
Total assets $1,000 $1,440
Accounts payable $60 $60
Notes payable 150 135
Other liabilities 40 45
Total liabilities $250 $240
Net assets $750 $1,200
 Acquisition with Goodwill
Pam Corp. pays $400,000 cash and issues 50,000
shares of $10 par common stock with a market
value of $20 per share for the net assets of Sun Co.

Total consideration at fair value (in thousands):

$400 + (50 shares x $20) $1,400

Fair value of net assets acquired: $1,200

Goodwill $ 200
 Entries with Goodwill
The entry to record the acquisition of the net assets:

Investment in Sun Co. (+A) 1,400 blank

Cash (-A) blank 400
Common stock, $10 par (+SE) blank 500
Additional paid-in-capital (+SE) blank 500
The entry to record Sun’s assets directly on Pam’s
books:
Entries with Goodwill (continued)
 Acquisition with Bargain Purchase
Pam Corp. issues 40,000 shares of its $10 par
common stock with a market value of $20 per
share, and it also gives a 10%, five-year note
payable for $200,000 for the net assets of Sun Co.

Fair value of net assets

acquired (in thousands) $1,200
Total consideration at fair value
(40 shares x $20) + $200 $1,000
Gain from bargain purchase $200
 Entries with Bargain Purchase
The entry to record the acquisition of the net assets:

Investment in Sun Co. (+A) 1,000 blank

10% Note payable (+L) blank 400
Common stock, $10 par (+SE) blank 400
Additional paid-in-capital (+SE) blank 200
The entry to record Sun’s assets directly on Pam’s
books:
Entries with Bargain Purchase (continued)
ADVANCED ACCOUNTING 2

Chapter 3:
An Introduction to Consolidated
Financial Statements

Sources: “Advanced Accounting” by Beams, Anthony, Bettinghaus, and

smith and “Akuntansi Keuangan Lanjutan” by Golrida Karyawati

Prepared by: Hanna Wijaya, SE., MM.

 100% Ownership
3-29

AN INTRODUCTION TO CONSOLIDATED FINANCIAL

STATEMENTS

Copyright ©2012 Pearson

Education, Inc. Publishing as
 100% Ownership
Acquisition Cost = Fair Value = Book Value

Sel’s Balance Sheet: BV=FV

Cash $10 Pen acquires 100% of Sel for
Other current assets 15 $40, which equals the book
Plant assets, net 40 value and fair values of the net
Total $65 assets acquired.
Accounts payable $15
Other current liabilities 10
Cost of acquisition $40
Capital stock 30
Retained earnings 10 Less 100% book value 40
Total $65 Excess of cost over book value $0
 Balance Sheets Separate Consolidated
Pen Sel Pen & Sub.
Cash $20 $10 $30
Other curr. assets 45 15 60
Plant assets, net 60 40 100
Investment in Sel 40 0 0
Total $165 $65 $190
Accounts payable $20 $15 $35
Other curr. liabilities 25 10 35
Capital stock 100 30 100
Retained earnings 20 10 20
Total $165 $65 $190
To consolidate, eliminate Pen's Investment account and Sel's capital stock and
retained earnings.
 100% Ownership
BV ≠ FV but Cost = FV
Piper acquires 100% of Sandy for $310.
Sandy BV FV
Cash $40 $40 BV = 100 + 145 = $245
Receivables 30 FV 30
= 385 – 75 = $310
Inventory 50 75 Cost – FV = $0 goodwill
Plant, net 200 240
Total $320 $385
Cost $310
Liabilities $75 $75
100% Book value 245
Capital stock 100
Excess of cost over BV $65
Retained earnings 145

Total $320
 Piper and Sandy (cont.)

Allocate to: Amt Amort.

Inventory 100%(+25) 25 1st yr
Plant 100%(+40) 40 10 yrs
Total $65

Piper's elimination worksheet entry:

Capital stock (-SE) 100
Retained earnings (-SE) 145
Inventory (+A) 25
Plant (+A) 40
Investment in Sandy (-A) 310
 100% Ownership
Example: BV ≠ FV and Cost ≠ FV
Salty BV FV Panda acquires 100% of Salty for $530.

Cash $100 $100 BV = 250 + 190 = $440

FV = 580 – 85 = $495
Receivables 40 40
Cost – FV = $35 goodwill
Inventory 250 250
Plant, net 130 190

Total $520 $580

Liabilities $80 $85
Cost $530
Capital stock 250
100% Book value 440
Retained earnings 190 Excess of cost over BV $90

Total $520
 Panda and Salty (cont.)
Allocate to: Amount Amort.
Plant 60 4 yrs
Liabilities -5 5 yrs
Goodwill 35
Total $90
Panda's elimination worksheet entry:
Capital stock (-SE) 250
Retained earnings (-SE) 190
Plant (+A) 60
Goodwill (+A) 35
Liabilities (+L) 5
Investment in Salty (-A) 530
 100% Ownership
Example: BV ≠ FV and Cost ≠ FV
Print acquires 100% of Sum for $185.
Sum BV FV
Cash $10 $10 BV = 75 + 105 = $180
Receivables 30 30 FV = 250 - 40 = $210
Inventory 80 90
Plant, net 100 120 Cost – FV = -$25:
Total $220 $250 Gain on bargain purchase
Liabilities $40 $40
Capital stock 75 Cost $185
Retained earnings 105 100% BV 180
Total $220 Excess of cost over BV $5
 Print and Sum (cont.)
Allocate to: Amt Amort.
Inventory 10 1st yr
Plant, land 20 -
Bargain purchase (25) Gain
Total $5
Print records the acquisition of Sum assuming a cash purchase as follows.
Note that the investment account is recorded at its fair value and the
bargain purchase is treated immediately as a gain.

Investment in Sum (+A) 210

Gain on bargain purchase (R, +SE) 25
Cash (-A) 185
 Worksheet Elimination Entry
Unamortized excess equals $30
• $10 for undervalued inventory
• $20 for undervalued land included in plant assets

Print’s elimination worksheet entry:

Capital stock (-SE) 75
Retained earnings (-SE) 105
Unamortized excess (+A) 30
Investment in Sum (-A) 210
Inventory (+A) 10
Plant (+A) 20
Unamortized excess (-A) 30
 Worksheet
blank Prime Sun Adjustments blank Consolidated
blank BV BV DR CR blank
Cash $30 $10 blank blank $40
Receivables 50 30 blank blank 80
Inventory 100 80 10 blank 190
Plant, net 450 100 20 blank 570
Investment in Sun 210 blank blank 210 0
Unamortized excess blank blank 30 30 blank
Total $840 $220 blank blank $880
Liabilities $270 $40 blank blank $310
Capital stock 200 75 75 blank 200
Retained earnings 370 105 105 blank 370
Total $840 $220 blank blank $880
blank blank blank 240 240 blank
Noncontrolling Interests
3-40

AN INTRODUCTION TO CONSOLIDATED FINANCIAL

STATEMENTS
 Noncontrolling Interest

Parent owns less than 100%

 Noncontrolling interest represents the minority shareholders
 Part of stockholders' equity
 Measured at fair value, based on parent's acquisition price

Parent pays $40,000 for an 85% interest

 Implied value of the full investee is $40,000/85% = $47,059.
 Minority share = 15%(47,059) = $7,059
 Example: Noncontrolling Interests
 Popo acquires 80% of Sine for $400 when Sine
had capital stock of $200 and retained earnings of
$175. Sine's assets and liabilities equaled their fair
values except for buildings which are undervalued
by $50. Buildings have a 10-year remaining life.

Cost of 80% of Sine $400 Allocate to:

Implied value of Sine (400/80%) $500 Building $50
Book value (200+175) 375 Goodwill 75
Excess over book value $125 Total $125
 Elimination Entry

Popo's elimination worksheet entry:

Capital stock (-SE) 200
Retained earnings (-SE) 175
Building (+A) 50
Goodwill (+A) 75
Investment in Sine (-A) 400
Noncontrolling interest (+SE) 100
An unamortized excess account could have been used for the excess
assigned to the building and goodwill.
 Popo Sine Adjustments Consol-
BV BV DR CR idated
Cash $50 $10 $60
Receivables 130 50 180
Inventory 80 100 180
Building, net 300 240 50 590
Investment in Sine 400 400 0
Goodwill 75 75
Total $960 $400 $1,085
Liabilities $150 $25 $175
Capital stock 250 200 200 250
Retained earnings 560 175 175 560
Noncontrolling interest 100 100
Total $960 $400 $1,085
500 500
Subsequent Balance Sheets

AN INTRODUCTION TO CONSOLIDATED FINANCIAL

STATEMENTS
 Balance Sheets After Acquisition

In preparing a consolidated balance sheet

 Eliminate the parent's Investment in Subsidiary
 Eliminate the subsidiary's equity accounts (common stock,
retained earnings, etc.)
 Adjust asset and liability accounts for any unamortized excess
balance
 Record goodwill, if any
 Record Noncontrolling Interest, if any
 Popo and Sine (cont.)

Cost of 80% of Sine $400 Allocate to:

Implied value of Sine $500 Building $50 10 yrs
Book value 375 Goodwill 75 -
Excess $125 Total $125

Beginning Current year's Ending

unamortized amortization unamortized
excess excess
Building 50 (5) 45
Goodwill 75 0 75
Total 125 (5) 120
After 1 year: Popo Sine Popo Sine
Cash $40 $15 Liabilities $100 $50
Receivables 110 85 Capital stock 250 200
Inventory 90 100 Retained earnings 574 185
Building, net 280 235
Investment in Sine 404
Total $924 $435
Total $924 $435
Popo's elimination worksheet entry:
Capital stock (-SE) 200
Retained earnings (-SE) 185
Unamortized excess (+A) 120
Investment in Sine (80%) (-A) 404
Noncontrolling interest (20%) (+SE) 101
Building (+A) 45
Goodwill (+A) 75
Unamortized excess (-A) 120
After 1 year: Popo Sine Adjustments Consol-
BV BV DR CR idated
Cash $40 $15 $55
Receivables 110 85 195
Inventory 90 100 190
Building, net 280 235 45 560
Investment in Sine 404 404 0
Goodwill 75 75
Unamortized excess 120 120
Total $924 $435 $1,075
Liabilities $100 $50 $150
Capital stock 250 200 200 250
Retained earnings 574 185 185 574
Noncontrolling interest 101 101
Total $924 $435 $1,075
505 505
 Key Balance Sheet Items

 Investment in Subsidiary does not exist on the consolidated

balance sheet
 Equity on the consolidated balance sheet consists of the
parent's equity plus the noncontrolling interest.
 Noncontrolling interest is proportional to the Investment in
Subsidiary account when the equity method is used.
 $101 = $404 x .20/.80
Amortizations After Acquisition

AN INTRODUCTION TO CONSOLIDATED FINANCIAL

STATEMENTS
 Unamortized Excess
Excess assigned to assets and liabilities are
amortized according to the account

Balance sheet Amortization period Income statement

account account
Inventories and other Generally, 1st year Cost of sales and
current assets other expense
Buildings, equipment, Remaining life at Depreciation and
patents business combination amortization expense
Land, copyrights Not amortized
Long-term debt Time to maturity Interest expense
 Piper and Sandy (cont.)

Cost $310 Allocate to: Amt Amort.

100% BV 245 Inventory 25 1st yr
Excess $65 Plant 40 10 yrs
Total $65

Beginning Current year's Ending

unamortized amortization unamortized
excess excess
Inventory 25 (25) 0
Plant 40 (4) 36
Total 65 (29) 36
 Panda and Salty (cont.)

Cost $530 Allocate to: Amt Amort.

100% BV 440 Plant 60 4 yrs
Liabilities -5 5 yrs
Excess $90
Goodwill 35 -
Total $90
Beginning Current year's Ending
unamortized amortization unamortized
excess excess
Plant 60 (15) 45
Liabilities (5) 1 (4)
Goodwill 35 0 35
Total 90 (14) 76
 Print and Sum (cont.)

Cost $185 Allocate to: Amt Amort.

Inventory 10 1st yr
100% BV 180 Plant, land 20 -
Excess $5 Bargain purchase (25) Gain
Total $5

Beginning Current year's Ending

unamortized amortization unamortized
excess excess
Inventory 10 (10) 0
Land 20 0 20
Total 30 (10) 20
 Consolidated Income
Statements

AN INTRODUCTION TO CONSOLIDATED FINANCIAL

STATEMENTS
 Comprehensive Example, Data

 Pil acquires 90% of Sad on 12/31/2011 for $10,200

when Sad's equity consists of $4,000 common
stock, $1,000 other paid in capital, and $900
retained earnings. On that date Sad's inventories,
land, and buildings are understated by $100, $200,
and $1,000, respectively, and its equipment and
notes payable are overstated by $300 and $100.
Cost of 90% of Sad $10,200 Allocate to:
Implied value of Sad 10,200/.90 $11,333 Inventory $100 1st yr
Book value (4000+1000+900) 5,900 Land 200 -
Building 1,000 40 yrs
Excess over book value $5,433
Equipment (300) 5 yrs
Note payable 100 1st yr
Goodwill 4,333 -
Total $5,433
Unamortized Current Unamortized
excess 1/1/12 amortization excess
12/31/12
Inventory 100 (100) 0
Land 200 0 200
Building 1,000 (25) 975
Equipment (300) 60 (240)
Note payable 100 (100) 0
Goodwill 4,333 0 4,333
Total 5,433 (165) 5,268
 Pil Sad Consol.*
Sales $9,523.50 $2,200.00 $11,723.50
Income from Sad 571.50 $0.00
Cost of sales (4,000.00) (700.00) (4,800.00)
Depreciation exp - bldg (200.00) (80.00) (305.00)
Depreciation exp - equip (700.00) (360.00) (1,000.00)
Other expense (1,800.00) (120.00) (1,920.00)
Interest expense (300.00) (140.00) (540.00)
Net income $3,095.00 $800.00
Total consolidated income $3,158.50
Noncontrolling interest share 63.50
Controlling interest
* Cost of sales, share
building depreciation, and interest expense are increased by$3,095.00
$100, $25,
and $100, and equipment depreciation is $60 lower than the sum of Pil and Sad.
 Key Income Statement Items

 The Income from Subsidiary account is eliminated.

 Current period amortizations are included in the appropriate
expense accounts.
 Noncontrolling interest share of net income is proportional to
the Income from Subsidiary under the equity method.
$571.50 x .10/.90
= $63.50