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Chapter 9: Indirect and Mutual Holdings
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| Page | 1/3 | | Date | 14.11.2022 | | Size | 0.59 Mb. | | #59951 |
| beams11 ppt09-EDIT Chapter 9 1: Indirect Holdings Indirect and Mutual Holdings Father-son-grandson Parent owns 80% of A, and through A, 56% of B (80% x 70%). Connecting Affiliates Parent owns 80% of A, 20% of B, 32% of B (80% x 40%). Parent owns a total of 52% of B.
Parent
Subsidiary A
Subsidiary B
70%
80%
Parent
Subsidiary A
Subsidiary B
20%
80%
40%
Equity Method for Father-Son-Grandson Holdings Anak menggunakan equity method untuk investasi di perusahaan cucu Controlling interest share of consolidated net income includes: - Share for direct holding of son
- Share for indirect holding of grandson (by father through son)
Example: Father-Son-Grandson On 1/1/11 Poe acquires 80% of Saw. On 1/1/12 Saw acquires 70% of Tub. Earnings and dividends for 2010:
|
Poe
|
Saw
|
Tub
|
Separate earnings
|
$100
|
$50
|
$40
|
Dividends
|
60
|
30
|
20
| Equity Method Entries
SAW APPLIES EQUITY METHOD (70%):
| | |
Cash (+A)
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14
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Investment in Tub (-A)
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14
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Investment in Tub (+A)
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28
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Income from Tub (R, +SE)
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28
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for dividends and for income
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POE APPLIES EQUITY METHOD (80%):
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Cash (+A)
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24
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Investment in Saw (-A)
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24
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Investment in Saw (+A)
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62.4
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Income from Saw (R, +SE)
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62.4
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for dividends and for income = 80% x (50+28)
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This allocation may look like the "step-down method" allocation presented in cost accounting texts. Mathematically it is!
Separate income
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Poe
100.0
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Saw
50.0
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Tub
40.0
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CI
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NCI
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Total
190.0
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Allocate:
Tub
70% Saw: 30% NCI
Saw
80% Poe: 20% NCI
Poe's
100% CI
|
62.4
(162.4)
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28.0
(78.0)
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(40.0)
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162.4
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12.0
15.6
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Consolidated net income
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162.4
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27.6
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190.0
| Allocation Results On separate income statements: Poe's net income = $162.4 Saw's "Income from Tub" = $28.0 Poe's "Income from Saw" = $62.4 For consolidated statements: Noncontrolling interest share = 12.0 + 15.6 = $27.6
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Poe
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Saw
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Tub
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CI
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NCI
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Total
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Separate income
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100.0
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50.0
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40.0
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190.0
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Allocate:
Tub
70% Saw: 30% NCI
Saw
80% Poe: 20% NCI
Poe
100% CI
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62.4
(162.4)
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28.0
(78.0)
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(40.0)
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162.4
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12.0
15.6
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Consolidated net income
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162.4
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27.6
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190.0
| Indirect holdings with connecting affiliates - Handle similar to Father-son-grandson, but
- Father has direct holdings in both Son and Grandson
Example: Pet holds 70% of Sal and 60% of Tie. Sal holds an additional 20% of Tie. Intercompany profit transactions: - Downstream: Pet sold Sal land with a gain of $10. This will be fully attributed to Pet.
- Upstream: Sal sold $15 inventory to Pet, and Pet holds ending inventory with unrealized profit of $5. This will be allocated between Pet and NCI.
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Pet
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Sal
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Tie
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Separate income
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$70
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$35
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$20
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Dividends
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40
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20
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10
| Calculating Investment Balances
Sal:
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Underlying equity
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Jan 1
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Dec 31
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Capital stock
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200
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200
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Retained earnings
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50
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69
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Goodwill
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12
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12
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Unrealized profit in inventory
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(5)
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Subtotal (split 70:30)
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276
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Unrealized profit on land
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(10)
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Total
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262
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266
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Split 70%:30%
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Investment in Sal (70%)
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183.4
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183.2
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* (70% x 276) - 10 = 183.2
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Noncontrolling interest (30%)
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78.6
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82.8
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* 30% x 276 = 82.8
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Tie:
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Underlying equity
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Jan 1
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Dec 31
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Capital stock
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100
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100
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Retained earnings
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80
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90
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Goodwill
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12
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12
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Total
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192
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202
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Split 60%:20%:20%
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Investment in Tie (60%)
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115.2
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121.2
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Investment in Tie (20%)
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38.4
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40.4
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Noncontrolling interest (20%)
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38.4
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40.4
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Pet
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Sal
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Tie
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CI
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NCI
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Total
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Separate income
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70.0
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35.0
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20.0
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125.0
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Unrealized $5 profit on inventory (upstream)
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(5)
| | | |
(5)
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Unrealized $10 gain on land (downstream)
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(10)
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(10)
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Allocate:
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Tie 60% Pet: 20% Sal: 20% NCI
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12.0
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4.0
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(20.0)
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4.0
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Sal 70% Pet: 30% NCI
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23.8
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(34.0)
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10.2
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Pet 100% CI
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(95.8)
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95.8
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Consolidated net income
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95.8
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14.2
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110.0
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Dividend distributions:
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Tie 60% Pet: 20% Sal: 20% NCI
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6
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2
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(10)
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2
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Sal 70% Pet: 30% NCI
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14
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(20)
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6
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Pet 100% CI
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(40)
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40
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Sal's Income from Tie = $4.0
Pet's Income from Tie = $12.0
Pet's Income from Sal = $23.8 - $10 unrealized gain = $13.8
Worksheet Entries
Sales (-R, -SE)
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15.0
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Cost of sales (-E, +SE)
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15.0
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Cost of sales (+E, -SE)
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5.0
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Inventory (-A)
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5.0
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Gain on land (-Ga, -SE)
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10.0
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Plant assets (-A)
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10.0
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Income from Tie (-R, -SE)
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16.0
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Dividends (+SE)
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8.0
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Investment in Tie (-A)
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8.0
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both Sal's 20% and Pet's 80%
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NCI share, Tie (-SE)
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4.0
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Dividends (+SE)
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2.0
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NCI, Tie (+SE)
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2.0
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Income from Sal (-R, -SE)
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13.8
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Investment in Sal (+A)
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0.2
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Dividends (+SE)
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14.0
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