Business Combination: Purchase of Shares Example (Less than 100%

On December 31, 2020, the statements of financial position of Par Company and Sub Company are
as follows:
Par Company Sub Company
Cash 7,000,000 200,000
Accounts receivable 1,000,000 600,000
Inventory 1,300,000 800,000
Capital assets (net) 6,700,000 3,400,000
Total Assets 16,000,000 5,000,000

Current liabilities 3,000,000 200,000

Long-term liabilities 4,000,000 800,000
Common shares 5,000,000 1,000,000
Contributed surplus - 1,000,000
Retained earnings 4,000,000 2,000,000
Total Liabilities & Equity 16,000,000 5,000,000

For both companies, the fair values of their identifiable assets and liabilities are equal to their
carrying values except for the following fair values:

Par Company Sub Company

Inventories 1,000,000 600,000
Capital assets [net] 7,000,000 5,000,000
Long-term liabilities 3,800,000 1,100,000

On December 31, 2020, Par Company purchased 75% of the outstanding voting shares Sub
Company for $4.5 million in cash. Sub Company continues to operate as a separate legal entity.

Required:
Prepare a consolidated statement of financial position using each of the following methods:
(a) Identifiable Net Assets Method (also known as the Partial Goodwill Method and previously known as the Parent
(b) Fair Value Enterprise Method (also known as the Full Goodwill Method and previously known as the Entity Meth
Less than 100% Ownership - i.e., Non-Controlling Interest)

ously known as the Parent-Company Extension Method)

known as the Entity Method)
 Eliminations/Adjustments MEASURE GOODWILL
Description Par Company Sub Company Debits Credits Consolidated Purcahse Price 4,500,000 Parent % NCI % To Calculate NCI, Consider the following:
Cash 2,500,000 200,000 2,700,000 Fair Value of Investment 6,000,000 75% 25%
Accounts Receivable 1,000,000 600,000 1,600,000 Less Carrying Value of Sub's Identifiable Net Assets 4,000,000 1,000,000 1. NCI's Share of Sub's Net Assets
Inventory 1,300,000 800,000 200,000 1,900,000 Fair value adjustment (also known as acquisition differential) 2,000,000
Capital Assets FV Adjustment
6,700,000 3,400,000 1,600,000 11,700,000 Identifiable Net Assets Carrying Values Fair Values Allocated to INA
Goodwill 675,000 675,000 Cash 200,000 200,000 -
Investment in Sub 4,500,000 4,500,000 - Accounts Receivable 600,000 600,000 -
Total Assets 16,000,000 5,000,000 18,575,000 Inventory 800,000 600,000 (200,000)
Capital Assets 3,400,000 5,000,000 1,600,000
Current Liabilities 3,000,000 200,000 3,200,000 Current Liabilities (200,000) (200,000) -
Longterm Liabilities 4,000,000 800,000 300,000 5,100,000 Longterm Liabilities (800,000) (1,100,000) (300,000) 1,100,000 275,000 2. NCI's share of acquisition differential allocated to identifiable net assets
Common Shares 5,000,000 1,000,000 1,000,000 5,000,000 Goodwill 900,000 -
Contributed Surplus - 1,000,000 1,000,000 - Consolidation Goodwill Under the Identifable Net Asset Method only includes parents share 675,000
Retained Earnings 4,000,000 2,000,000 2,000,000 4,000,000 Non-Controlling Interest (exlcudes goodwill) 1,275,000
Non-Controlling Interest 1,275,000 1,275,000
Total Liabilities & Equity 16,000,000 5,000,000 18,575,000
Worksheet Balance Check 6,275,000 6,275,000 - ELIMINATE and RECOGNIZE
Note: The parent company statements did not include the investment acc. So that had to be updated first by - Eliminate parents investment account and subsidiary's share equity accounts
debiting Investment Acc and crediting cash - Eliminate intercompany transactions and balances
Investment in sub 4,500,000 - Eliminate Unrealized profits
Cash 4,500,000 - Recognize Realized profits
To record investment in sub
Eliminate parents investment account and subsidiary's share equity accounts AMORTIZE FAIR VALUE ADJUSTMENTS
- Elinimate Subsidiary Equity Accounts - Amortize FVAs
- Allocate Acquisition Differential (including goodwill or gain on bargain purchase) - Recognize imparments
- Establish Non-Controlling Interest - Recognize imparments
Common Shares 1,000,000
Contributed Surplus 1,000,000 Recognize NCI Share of Earnings
Retained Earnings 2,000,000
Inventory 200,000
Capital Assets 1,600,000
Longterm Liabilities 300,000
Goodwill 675,000
Non-Controlling Interest 1,275,000
Investment in Sub 4,500,000
JE Check -
 Eliminations/Adjustments MEASURE GOODWILL
Description Par Company Sub Company Debits Credits Consolidated Purcahse Price 4,500,000 Parent % NCI % To Calculate NCI, Consider the following:
Cash 2,500,000 200,000 2,700,000 Fair Value of Investment 6,000,000 75% 25%
Accounts Receivable 1,000,000 600,000 1,600,000 Less Carrying Value of Sub's NIA 4,000,000 1,000,000 1. NCI's Share of Sub's Net Assets
Inventory 1,300,000 800,000 200,000 1,900,000 Fair value adjustment (also known as acquisition differential) 2,000,000
Capital Assets 6,700,000 3,400,000 1,600,000 11,700,000 Carrying Values Fair Values FV Adjustment
Goodwill - - 900,000 900,000 Cash 200,000 200,000 -
Investment in Sub 4,500,000 - 4,500,000 - Accounts Receivabl 600,000 600,000 -
Total Assets 16,000,000 5,000,000 18,800,000 Inventory 800,000 600,000 (200,000)
Capital Assets 3,400,000 5,000,000 1,600,000
Current Liabilities 3,000,000 200,000 3,200,000 Current Liabilities (200,000) (200,000) -
Longterm Liabilities 4,000,000 800,000 300,000 5,100,000 Longterm Liabilities (800,000) (1,100,000) (300,000) 1,100,000 275,000 2. NCI's share of acquisition differential allocated to identifiable net assets
Common Shares 5,000,000 1,000,000 1,000,000 5,000,000 Goodwill 900,000 225,000 3. NCI's Share of goodwill
Contributed Surplus - 1,000,000 1,000,000 - Consolidation Goodwill Under the Fair Value Enterprise Method is the full amount
Retained Earnings 4,000,000 2,000,000 2,000,000 4,000,000 Non-Controlling Interest (includes goodwill) 1,500,000
Non-Controlling Interest - - 1,500,000 1,500,000
Total Liabilities & Equity 16,000,000 5,000,000 18,800,000
Worksheet Balance Check - - 6,500,000 6,500,000 - ELIMINATE and RECOGNIZE
Note: The parent company statements did not include the investment acc. So that had to be updated first by - Eliminate parents investment account and subsidiary's share equity accounts
debiting Investment Acc and crediting cash - Eliminate intercompany transactions and balances
Investment in sub 4,500,000 - Eliminate Unrealized profits
Cash 4,500,000 - Recognize Realized profits
To record investment in sub
Eliminate parents investment account and subsidiary's share equity accounts AMORTIZE FAIR VALUE ADJUSTMENTS
- Elinimate Subsidiary Equity Accounts - Amortize FVAs
- Allocate Acquisition Differential (including goodwill or gain on bargain purchase) - Recognize imparments
- Establish Non-Controlling Interest - Recognize imparments
Common Shares 1,000,000
Contributed Surplus 1,000,000 Recognize NCI Share of Earnings
Retained Earnings 2,000,000
Inventory 200,000
Capital Assets 1,600,000
Longterm Liabilities 300,000
Goodwill 900,000
Non-Controlling Interest 1,500,000
Investment in Sub 4,500,000
JE Check -