Ch9 Indirect and Mutual Holdings

Affiliation Structures-Direct Holdings

Affiliation Structures-Indirect Holdings

Father-son-grandson (父子孫型) P directly owns an 80 % in S - A and indirectly owns a 56 % (80% * 70%) in S - B. Noncontrolling shareholders own the other 44 % of B— the 30 % held directly by noncontrolling holders of B stock plus 14 % held by the 20 % noncontrolling holders of A stock (20% *70%). P indirectly holds 56 % of S- B stock, so consolidation of S- B is clearly appropriate.

Father-son-grandson It is not the direct and indirect ownership of P that determines whether an affiliate should be consolidated. The decision to consolidate is based on whether a controlling interest in an affiliate is held within the affiliation structure. 控制能力才是決定是否要編制合併報表的關鍵 If S-A in the F-S-GS diagram of Exhibit 9-1 had owned 60 % of the stock of S-B, the P’s indirect ownership in S-B would have been 48 % (80% * 60%), and the noncontrolling shareholders’ interest would have been 52 % [40% + (20% * 60%)]. Consolidation of S- B would still be appropriate, because 60 % of B’s stock would be held within the affiliation structure.

Connecting affiliates (連結型) In the illustration of connecting affiliates, P holds 20 % of S-B stock directly and 32 % (80% * 40%) indirectly, for a total direct and indirect ownership of 52 %. The other 48 % of S-B is held 40 % by B’s noncontrolling shareholders and 8 % (20% * 40%) indirectly by A’s noncontrolling shareholders.

Mutual Holdings 相互持股

Mutual Holdings In diagram a , P owns 80 % of S-A, and S-A owns 10 % of P. Thus, 10 % of P’s stock is held within the affiliation structure and 90 % is outstanding. In diagram b, P is not a party to the mutual holding relationship, but S-A owns 40 % of S-B, and S-B owns 20% of S-A. The complexity involved in this latter case requires the use of simultaneous equations or other appropriate mathematical procedures to allocate incomes and equities among the affiliates.

間接持股之會計處理與合併程序 各投資公司可享有之被投資公司損益，係依被 投資公司之淨利乘以持股比例決定。 若被投資公司亦有股權投資，須以包含投資損益後 之淨利為準。

Father-Son-Grandson Structure p299 P acquires 80 % of the stock of S on 1/1, 2011, S acquires 70 % of the stock of T on 1/1, 2012. Both P’s investment in S and S’s investment in T are made at fair value equal to book value. Trial balances on 1/1, 2012,

Equity Method of Accounting for Father-Son-Grandson Affiliates

Equity Method of Accounting for Father-Son-Grandson Affiliates S’s net income for 2012 is $78,000 ($50,000 +$28,000) S’s Investment in T at 12/31, 2012, is $119,000 ($105,000 + $28,000 -$14,000 ). P’s net income for 2012 is $162,400 ($100,000 + $62,400) P’s Investment in S at 12/31, 2012, is $238,400 ($200,000 + $62,400 income- $24,000 ). The controlling share of consolidated net income for 2012 is $162,400, equal to P’s equity method income.

父－子－孫型之會計處理與合併程序 無未攤銷差額 若各控制關係形成時，並無未攤銷差額，必須先就 子—孫關係決定投資損益，得到子公司包含投資損 益之淨利後，再決定父公司之投資損益及淨利。 合併程序亦相對單純，即將前述章節所介紹之合併 程序，分別就父—子關係、子—孫關係各作一次即 可。

Computational Approaches for Consolidated Net Income

Computational Approaches for Consolidated Net Income

p p p301

Consolidation Workpaper—Equity Method

父－子－孫型之會計處理與合併程序 子－孫關係先形成且有未攤銷差額 合併工作底稿以父—子關係優先沖銷為原則，所產生之未攤銷差額中源自孫公司之部分，再與子—孫關係之未攤銷差額一併分攤及攤銷。 請參考ch9_補充ppt.

INDIRECT HOLDINGS— CONNECTING AFFILIATES STRUCTURE p302 252,000 162,000 (240,000) (150,000)

Equity Method of Accounting for Connecting Affiliates During 2013, P , S , and T had earnings from their own operations of $70,000, $35,000, and $20,000 and declared dividends of $40,000, $20,000, and $10,000, respectively. P’s separate earnings of $70,000 included an unrealized gain of $10,000 from the sale of land to S during 2013. S’s separate earnings of $35,000 included unrealized profit of $5,000 on inventory items sold to P for $15,000 during 2013 that remained in P’s 12/31, 2013, inventory. A schedule computing controlling interest share and noncontrolling interest share of consolidated net income for the Pet-Sal-Tie affiliation for 2013 is shown in Exhibit 9-3 .

Equity Method of Accounting for Connecting Affiliates

Equity Method of Accounting for Connecting Affiliates

Equity Method of Accounting for Connecting Affiliates

Equity Method of Accounting for Connecting Affiliates

Noncontrolling interest-check

Mutual Holdings

Mutual Holdings—Parent Stock Held By Subsidiary There are two generally accepted methods of accounting for parent stock held by a subsidiary—the treasury stock approach and the conventional approach. The treasury stock approach(庫藏股票法) considers parent stock held by a subsidiary to be treasury stock of the consolidated entity. Accordingly, we maintain the investment account on the books of the subsidiary on a cost basis and deduct it at cost from stockholders’ equity in the consolidated balance sheet. The conventional approach(傳統法) is to account for the subsidiary investment in parent stock on an equity basis and to eliminate the subsidiary investment account against the parent equity accounts in the usual manner. Although both approaches are acceptable, they do not result in equivalent consolidated financial statements. In particular, the consolidated retained earnings and noncontrolling interest amounts usually differ under the two methods.

母子公司相互持股－庫藏股票法 庫藏股票法 庫藏股票法將子公司對母公司之投資視為集團此單一經濟個體買回庫藏股票，子公司對此投資採成本法處理，於合併資產負債表中則將其成本自合併權益總數扣除。 依IAS 32「金融工具：表達」之規定，企業再取回其本身之權益工具，不論是由該企業本身或合併集團之其他成員取得並持有，皆為庫藏股且應自權益中減除。因此，庫藏股票法為IFRSs下所採用之方法。

母子公司相互持股－庫藏股票法 採用庫藏股票法，應注意下列重點： (1) 確定子公司對母公司之投資係採成本法處理，否 則在合併工作底稿上應先作調整。 (2) 子公司之淨利不受母公司投資損益及淨利之影響。 但母公司除依子公司已實現淨利認列投資收益外，尚須就子公司得自母公司之股利收入金額，調整減少投資收益。 因此，母公司之投資收益淨額為依子公司已實現淨利認列之投資收益扣除其分配給子公司之股利後之餘額。

Treasury Stock Approach P acquired 90 % in S on 1/1, 2011, for $270,000, when S’s capital stock was $200,000 and its retained earnings $100,000. S purchased 10 % in P on 1/5, 2011, for $70,000, when P’s capital stock was $500,000 and its retained earnings $200,000. Trial balances for P and S on 12/31, 2011, before either company recorded its investment income, were as follows (in thousands):

Consolidation in the year of Acquisition If we use the treasury stock approach, S has no investment income for 2011, and P’s share of S’s $30,000 income ($80,000 sales − $50,000 expenses) is $27,000 ($30,000 * 90%). Exhibit 9-5 shows a consolidation workpaper for P and S for 2011. Note that S’s investment in P is reclassified as treasury stock and deducted from stockholders’ equity in the consolidated balance sheet.

Consolidation In Subsequent Years

The consolidated balance sheets in Exhibits 9- 5 and 9-6 for the treasury stock approach consolidated 100 % of P’s capital stock and retained earnings and deducted the cost of S’s 10 % investment in P from the consolidated stockholders’ equity.

IFRS/GAAP 差異(見補充) IFRS 下 母公司本身帳上必須做 因此在合併沖銷分錄時,不需再處理庫藏問題(然而 在合併沖銷分錄時,應將投資母公司和上述 投資子公司(非控制權益)對沖 3. 在GAAP/IFRS 下,合併B/S最後股東權益的數 字仍然相同(非控制權益數字不同) IFRS 就發放予子公司之股利，於帳上沖減「投資收 益」 並貸記「資本公積—庫藏股票交易」。

Conventional Approach Under the conventional approach, we consider parent stock held by a subsidiary as constructively retired, and the capital stock and retained earnings applicable to the interest held by the subsidiary do not appear in the consolidated financial statements.

傳統法 傳統法係將子公司持有母公司之股份視為推定收回， 子公司對母公司之投資採用權益法處理，並依沖銷母 公司對子公司之投資的方式，沖銷相對之權益。 因推定收回股份而導致之母公司權益減少，宜於母公 司帳上處理。

Conventional Approach p309

Conventional Approach We base the reduction of the Investment in Sal account on the theory that parent stock purchased by a subsidiary is returned to the parent and constructively retired. Constructive retirement establishes consistency between capital stock and retained earnings for the parent’s outside stockholders (90%) and parent net income, dividends, and earnings per share, which also relate to the 90 % outside stockholders of the parent.

Allocation of Mutual Income When we use the conventional method of accounting for mutually held stock, the income of the parent on an equity basis cannot be determined until the income of the subsidiary has been determined on an equity basis, and vice versa. We accomplish the allocation of income to the affiliates and to outside stockholders in two steps. First, we compute the incomes of P and S on a consolidated basis, which includes the mutual income held by the affiliates. Next, we multiply these amounts by the percentage ownership held within the affiliated group and the noncontrolling interest percentage to determine consolidated net income on an equity basis and noncontrolling interest share.

Allocation of Mutual Income

Allocation of Mutual Income P’s net income on an equity basis is obtained by multiplying the value determined for P in the equation by the 90 % interest outstanding => P’s net income on an equity basis = 90 % of $84,615, or $76,154, Noncontrolling interest share is obtained by multiplying the value determined for S by the noncontrolling interest percentage. =>Noncontrolling interest share = 10 % of $38,462, or $3,846 . However, we still assume that S accounts for its investment in P under the cost method. The equity method has been applied by P.

The $26,154 income from S = 90 % of S’s $38,462 income on a consolidated basis - 10 %of P’s $84,615 income on a consolidated basis = [(38,462 * 90%) - (84,615* 10%)]. An alternative calculation that gives the same result deducts Par’s separate earnings from its net income ($76,154 - $50,000).

Computation P=50,000+0.9xS S=30,000+0.1xP P+S=80,000+0.9xS+0.1xP(double counting) 0.9P+0.1S=80,000 0.9P=80,000-0.1S 0.9P=50,000+income from S Income from S=0.9P-50,000 P=50,000+0.9S P-0.1P=50,000+0.9S-0.1P P-0.1P-50,000=Income from S =0.9S-0.1P

Consolidation under the Equity Method p311/312 The workpaper shows the investment in S (90%) is $226,154 (the $270,000 initial investment + $26,154 investment income - $70,000 reduction for the constructive retirement of P’s stock). Entry a eliminates the $70,000 investment in P (S’s books) and increases P’s Investment in S account to $296,154. This entry reflects the constructive retirement of P stock that was credited to P’s Investment in S account. Entry b eliminates investment income of $26,154 and reduces the investment account to its $270,000 cost at 1/5, 2011. (回復到期初) Entry c eliminates the reciprocal investment in S and equity of S amounts and establishes the noncontrolling interest in Sal at $30,000 (10% of $300,000) at the beginning of 2011.(對沖)

Consolidation under the Equity Method p311/312 Note that net income, capital stock, and retained earnings in the separate statements of P are equal to the controlling share of consolidated net income, consolidated capital stock, and consolidated retained earnings. This equality would not have existed without the entry to record the constructive retirement of stock on P’s books.

Consolidation in Subsequent Years

Consolidation in Subsequent Years

CONVERSION TO EQUITY METHOD ON SEPARATE COMPANY BOOKS

At acquisition, P’s retained earnings were $200,000, and they were adjusted downward to $180,000 for the constructive retirement of 10 % of P’s stock. We compute the correct amount of consolidated retained earnings at 12/31, 2012= $180,000 +$144,099 = $324,099. Noncontrolling interest in S at 1/1, 2011 = $30,000 ($300,000 equity *10%). We compute the noncontrolling interest at 12/31, 2012 =$30,000 + $6,901= $36,901