Equity method:
The equity method dkeeps the record of the parent’s ownership interest that is multiplied by the reported net income of the subsidiary. This income will be added to parent’s investment account and the deduction in this method will be of the parent’s ownership interest multiplied by the reported losses of the subsidiary and parent’s ownership interest multiplied by the declared dividends of the subsidiary. All together equals the equity-adjusted balance.
Cost method:
The cost method basically retains the original cost of acquisition balance in the subsidiary account. As the income is earned by the subsidiary, no adjustments would be made.
To calculate:
The preparation of Fast Cool company and its subsidiary Fast Air company consolidated worksheet with supporting of schedule of amortisation and income.
Explanation of Solution
Fast Cool has acquired
To calculate and prepare determination and distribution of excess schedule some adjustment needs to be performed. Thus, these adjustments are in various steps:-
Step 1: Calculate total amortization amount
Particulars | Life | Fair Value | Book Value | Annual Amount | Current Year | Prior Year | Total |
Inventory | - | ||||||
Building | |||||||
Equipment | |||||||
Patent | |||||||
Mortgage Payable | |||||||
Purchase Contract | - | ||||||
Total Amortization | - | - |
After calculating amortization, Step 2 will be calculating internally generated net income for Fast Cool and Fast Air Company.
As per the information given in the question Fast Air sales
Now, calculation of internally generated net income is as follows:
Fast Air Company Income Distribution
Internally Generated Net Income(A) | Amortization for current year (B) | Adjusted income=(A)-(B) | Non-Controlling Interest Profit Share in Subsidiary (20%) | Controlling Interest Share(80%) |
Calculation of internally generated net income:
As per the information given in the question Fast Cool sales
Now, calculate internally generated net income,
Fast Air Company Income Distribution
Internally Generated Net Income | Non-Controlling Interest Profit Share in Subsidiary (20%) | Controlling Interest Share(80%) |
Step 3:
Fast Cool Company and Fast Air Company Worksheet for Consolidated Financial Statement
For year ended December 2016.
Particulars | Financial Statement | Elimination & Adjustments | Non- Controlling Interest | Controlling Interest Retained Earning | Consolidated | ||
Fast Cool | Fast Air | Debit | Credit | ||||
Income Statement | |||||||
Net Sales | - | - | - | - | |||
Cost of Goods Sold | - | - | - | - | |||
Depreciation of Building | - | - | - | ||||
Depreciation of equipment | - | - | - | ||||
Interest Expense | - | - | - | - | |||
Other Expenses | - | - | - | ||||
- | - | - | - | - | - | ||
Subsidiary Income | - | - | - | - | - | ||
Dividend Declared- Fast Cool | - | - | - | - | - | ||
Dividend Declared- Fast Air | - | - | - | - | |||
Net Income | - | - | - | - | |||
Consolidated Income | - | - | - | - | - | - | |
NCI (see income distribution schedule) | - | - | - | - | - | ||
Controlling Interest (see income distribution schedule) | - | - | - | - | - | ||
Consolidated Balance Sheet: | |||||||
Inventory, December 2016 | - | - | - | - | |||
Cash | - | - | - | - | |||
Account Receivable | - | - | - | - | |||
Investment in Fast Air | - | (2) | (1) | - | - | - | |
- | - | - | (3) | - | - | - | |
- | - | - | (4) | - | - | ||
Land | (4) | - | - | - | |||
Buildings | (4) | - | - | - | |||
Accumulated Depreciation | - | (5) | - | - | |||
Equipment | - | (4) | - | - | |||
Accumulated Depreciation | (5) | - | - | - | |||
Patent | - | (4) | - | - | |||
Purchase Contract | - | - | - | - | - | ||
Goodwill | - | (4) | - | - | - | ||
Current Liabilities | - | - | - | - | |||
Bond Payable | - | - | - | - | - | ||
Discount (premium) | - | - | - | (4) | - | - | - |
- | - | (5) | - | - | - | ||
Common Stock-Fast Cool | - | - | - | - | - | ||
Paid in capital in excess of Par- Fast Cool | - | - | - | - | - | ||
Retained Earnings-December 31,2016-Fast Cool | - | (4) | - | - | - | ||
- | - | (5) | - | - | - | ||
Common Stock- Fast Air | - | (3) | - | - | - | ||
Paid in capital in excess of Par- Fast Air | - | (3) | - | - | - | ||
Retained Earnings-December 31,2016-Fast Air | - | (3) | - | ||||
- | - | - | - | - | - | ||
- | - | - | - | - | - | ||
Total NCI | - | - | - | - | - | ||
Retained Earnings- Controlling Interest, December 31, 2016 | - | - | - | - | - | ||
- | - | - | - | - | - |
Working Notes:
- Current year Subsidiary income has been considered.
- Dividend Declared in current year.
- Elimination of controlling interest in subsidiary equity.
- Made adjustment as per the determination and distribution schedule.
- Amortization Adjustment has been made.
Consolidated non-controlling interest is
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