* IFRS 3 defines Business Combination as "Acquirer (parent) obtains CONTROL over the acquiree (subsidiary)” * use ACQUISITION METHOD ONLY * Steps to consider under acquisition method: 1. Identify the ACQUIRER, 2. Determine the ACQUISITION DATE 3. Determine the Consideration 4. Recognize & Measure the identifiable assets acquired, fiabilities assumed, any NCI in the acquiree 5. Recognize & Measure any resulting Goodwill or Gain on Bargain Purchase on business combination * FV of Consideration & Net Assets acquired shall be measured @ ‘their ACQUISITION DATE FAIR VALUES * Such Fair Values are subject to ONE (1) - YR MEASUREMENT PERIOD from Acquisition Date, Changes in Values within that period are called MEASUREMENT PERIOD ADJUSTMENTS affecting ‘GW(GBP). Thus, generally, shall be accounted for RETROSPECTIVELY © BASIC FORMULA FY of Consideration Given Up (#) Non- Controlling Interest (NCI) (+) FV of Previously Held Interest Initial Carrying Amount {-] FV of Net Assets Acquired Goodwill (Gain on Barg. Purc.) Additional Notes s Asset Acquisition (a) Merger: A+B=Aor8 {b) Consolidation: A+B =C © Stock Acquisition —_ (a) wholly owned (100%) (b) partially owned (< 100% but > 50%)1, Cash or Other Non Cash Assets * DECREASES CONSO ASSET on Acquisition Date Consolidation © lournal Entry: Investment in Subsidiary 20% Cash / Other Assets or 2. Equity interest * INCREASES CONSO EQUITY on Acquisition Date Cansolidation * Journal Entry: Investment in Subsidiary 200K Share Capital oor Share Premium coor 3, Contingent Consideration * at FAIR VALUE or If not measured reliably, at PRESENT VALUE * Its Provisional Amount must be obtained from those facts and circumstances EXISTING on acquisition date. Otherwise, CHANGE IN VALUE within or beyond the measurement period shall reflect to PROFIT or LOSS, thus, NO EFFECT to GW(GBP) * On Acquisition Date * On Acquisition Date ™ recognize CONTINGENT ~ Contingent Liability NOT LIABILITY (FIN. LIAS) whether RECOGNIZED probable or possible * Changes invalue WITHINthe =| * Changes in value WITHIN the measurement period: measurement period: ~ Adjust GW (GBP) ~ DOES NOT offect GW (GBP) record only additional shores © Changes in value BEYOND the | ‘ssuonce. Thus, original amount measurement period: NOT remeasured: ~ Adjust Contingent Entry: APIC 200K Cansideration to Profit or Loss SC Joa]~ arises in < 100% interest acquisition but > 50% interest of Sub's Ordinary Shares (partially owned subsidiary) INITIAL MEASUREMENT OF NCI FV of Net Assets Acquired xxx (*) NCI% % Proportionate Share of NCI 1000 OR; FV of Consideration (EXCL. control premium) 100K (see note) {e) NCI% / Acquired % % Implied Fair Value of NCI (unless given) soo NOTE: FV of Consideration INCLUDES the following (IN CASE OF STEP ACQUISITION) (a) FV of consideration for NEWLY ACQUIRED INTEREST {b) FV of Previously Hefd interest PS on FYNAA > FV of NCI ® Prop Share of NCI automatically FV of NCI> PS on FYNAA © Fair Value of NCI OR; + Prop Share of NCI (whichever is oppropriate) Good Gain on BP « if PARTIAL - affects CI to PARENT (CONSO RE} Only * UF TOTAL - affects BOTH CNI to PARENT (CONSO RE) and NCINI (NCINAS) NOTE : NCI is presented SEPARATELY in CONSO EQUITY on Acquisition Date Consolidatian~ part of Total Consideration / initial CA of Investment in Subsidiary In case of ACHIEVED IN STAGES ACQUISITION (STEP ACQUISITION) FV of Previous Investment * bed {-) CA of Previous Investment ** (e00) Gain or Loss on Remeasurement ox * (Sub FV of NA ot the time Control is achieved x Previous Interest (9) Held = FV of Previous Investment) ** CA os of the dote control Is achieved Entry: investment in Subsidiary @ FV XOX Loss on Remeasurement 7000 Previous Investment @ CA or Gain on Remeasurement xox note: GL on Remeasurement is presented in PROFIT or LOSS. Thus, this AFFECTS CONSO EQUITY on Acquisition Dote Consolidation * Generally, at Acquisition Date, Sub's Identifiable Assets acquired and Liabilities assumed by the parent shall be adjusted to their ACQUISITION DATE FAIR VALUES * Exception : NCA Held for Sale of Sub shall be measured at the LOWER of Book Value & F¥- COD * GOODWILL OF SUBSIDIARY shall be REDUCED TO ZERO (0)* In. case of ASSET ACQUISITION, GW(GBP) shall be recognized at acquisition date since consolidation is AUTOMATIC * Incase of STOCK ACQUISITION, GW(GBP) shall be recognized upon CONSOLIDATION ONLY GOODWILL shall be presented as NON CURRENT ASSET @ Balance Sheet ~ INCREASES CONSO ASSETS at Acquisition Date not amortized but subject to impairment test at least annually GAIN ON BARGAIN PURCHASE ~ shall be presented as part of PROFIT OR LOSS @ Income Statement ~ at Acquisition Date Consolidation, this AFFECTS CONSO RE thus, CONSO EQUITY FLOW: PL-IE SUMMARY - CONSO RE - CONSO EQUITY DIRECT COSTS Capitalized Expensed (PL) * INDIRECT COSTS Expensed (PL) Expensed (PL) These costs are assumed paid in cash, thus, DECREASES CONSO ASSETS at Acquisition Date Consolidation * STOCK ISSUANCE COSTS {in case equity Interest Is part of consideration) 1. Debit to SHARE PREMIUM FROM ORIGINAL ISSUANCE 2. Credit / Debit to SIC ACCOUNT ( contra equity account of the ff:) a. Other SP - other issuance b. Retained Earnings * Listing Fee - EXPENSED AS INCURRED (Profit or Loss)* at the acquisition date ONLY the BALANCE SHEET shall be consolidated. Assets Book Value Fair Value Uabilities Book Value Fair Value Equity Book Value NcI CONSOLIDATED ASSETS Parent Total Assets at Acquisition date 2001 {-) Considerations Given Up (Cash or NCA) (xxx) (-) Payment to Acq Date Costs (xx) {+} Goodwill on business combination cad Parents Adjusted TA @ Book Values x (+) Subs Adjusted TA @ Fair Values CONSOLIDATED ASSETS at Acq Date note: "Investment In Subsidiary" account of Parent shall be ELIMINATED upon consolidation CONSOLIDATED LIABILITIES Parent Total Liability at Acqusition Date 0K (+) Contingent Consideration (if asset) 0K Parent Adjusted TL @ Book Value RX {+) Subs Adjusted TL @ Fair Values 00% CONSOLIDATED LIABILITIES at Acq Date xx CONSOLIDATED EQUITY Parent Equity at Acquisition Date 00 (+) Shares Issued as Consideration at TRV KX (Equity) (+) Gain on Bargain Purchase xox (PL) () Acq Date Costs (ox) (PLY () Stock Issuance Costs (ocr) — (Equity) {+/-] Remeasurement GL of Prev. Int. Held sxxx(xxx) (PL) (+/-) Others presented at P/L xoox(so0)_ (PL) Parent Adjusted Equity @ Book Value 50 (+) Non Controlling Interest of Sub 2001 CONSOLIDATED EQUITY at Acq Date 00 note: “Equity Accounts” of Subsidiary shall be ELIMINATED upon consolidationTWO COLUMN METHOD TOTAL PARENT NCI Fair Value of Consideration Given Up 100 0K rox* (-) Fair Value of Subs Net Assets 00) (rox) xxx) Total Goodwill (Partial Gainon Barg Pur) xoolxax) —x0cr(m0t)_ xxxfoxx) * Apply the rule on NCT CNI PARENT NCI * PARENT'S ADJUSTED NET INCOME (100%) (80%) (20%) Reported Net Income (Cost Methad) OK 20K (+) Gain on Bargain Purchase 2K 20% (-) Acquisition Cost of BC {year of BC) (x00) (poxx) (-) Dividend Income from Sub (200) (20x) (+/-) Effects of Downstream Transactions xx{ox) 200%(000) = SUBSIDIARY'S ADJUSTED NET INCOME Reported Net Income (Book Value) XX 20% x (+/-) Effects of Amortization of Difference of BY & FV of Sub's Assets & Liabilities rooxbox) rocrfsom) — xxx{rom) (+/-) Effects of Upstream Transactions yoodpeer) —sax(x00r) —s80x[200¢) (+/) Effects of Sub - Sub Transactions yaodper) —s00r(200") — 200¢(001) (-) Impairment Loss of Total Goodwill xxx) x9ex| 00x) = CONSOLIDATED COMPREHENSIVE INC. 2006 200% 200% Observation: Parent (1-5) affects CMI to Parent Only. Sub (1-4) affect BOTH CNI to Parent & NCINI NOTE: Use TWO COLUMN METHOD ONLY IF the following ore PRESENT: 1, Control Premium OR; 2. Express Fair Volue for NCIwewne = PARENT'S ADJUSTED NET INCOME Reported Net Income (Cost Method) 7000 (+) Gain on Bargain Purchase 700 {-) Acquisition Cost of BC [year of BC) (xxx) {-] Dividend Income from Sub (xxx) {-} Impairment Loss of Partial/Total GW (xxx) (+/-) Effects of Downstream Transactions* _sox(xox) XK = SUBSIDIARY'S ADIUSTED NET INCOME Reported Net Income (Book Value) 00% (+/-) Effects af Amortization of Difference of BV & FV of Sub's Assets & Liabilities goor(ocr) (+/-) Effects of Upstream Transactions* xxx) (+/] Effects of Sub - Sub Transactions. 2002000) {-} Impairment Loss of Total Goodwill (x00) 000 = CONSOLIDATED COMPREHENSIVE INCOME XXX CNI Attributable to Parent (squeezed) XK CNI Attriburable to NCI (Sub’s Adjusted NI x NCI %) XR = CONSOLIDATED COMPREHENSIVE INCOME OX " EFFECTS OF DOWNSTREAM & UPSTREAM TRANSACTIONS. Inventories (+) Realized GP (Beg Invty*GPR) (-) Unrealized GP | End Invty* GPR) Non-Depreciable Assets {-) Unrealized GL (year of intercompany sale) {+) Realized GL (when sold te outsider) Depreciable Assets {-) Unrealized GL (year of intercompany sale) (+) Realized GL (piecemeal realization/when sold) NET EFFECT NOTES: INTERCOMPANY TRANSACTION ( GRANT LOAN) This results to INTEREST INCOME on the Grantor-affiliate & INTEREST EXPENSE on the Grontee-offiliate, Thus, upon consolidation, the effect of grant oon shall be ELIMINATED(CONSOLIDATED SALES Reported Sales of Parent 000 (+) Reported Sales of Sub RK Total Sales 00K {-) Intercompany Sales related to INVENTORY [US & DS} (ox) 1008 (CONSOLIDATED COST OF SALES Reported COS of Parent Bo s.9 (+) Reported COS of Sub pond Total Cost of Sales 20K {-) Intercompany COS related to INVENTORY [US & DS] 00%) wo CONSOLIDATED GROSS PROFIT 10x OR; Reported GP of Parent 3008 NOTE: INVENTORY (+) Reported GP of Sub 20% __ BAIANCES refers to Total Gross Profit mK those acquired thru (+) Realized GP - Beg Invty 200 intercompany (-) Unrealized GP - End Invty (pox) transaction and {-) Realized GL - Beg Invty (ox) taken from record of the BUYING (+) Unrealized GL - End Invty 200 CONSOLIDATED GROSS PROFIT _xxx affiliate Consolidated RE of Parent, Beginning y00c (+) CNI Attributable to Parent XK Consolidated RE of Parent, Ending XXX, Nan-Contealling Interest, Beginning wo (+) CNI Attributable to NCI [NCINI) OC (-) Dividends Declared by Sub to NCI (mx) Non-Controlling Interest, Ending XXX,= Revanue Recognition at the Point In Time A, SALE OF MERCHANDISE INVENTORY Inataitment Acct Receivables, Beginning (-) Repossessions (Write Offs (-) Collections (excluding interests) Installment Acct Recelvablen, Ending = TRUE MARKET VALUE / NRV: Extimated Selling Price vo (-) Cost to Salt (ee) (-) Reconditioning Costa (wee) (-) Normal Profit Margin (at GPR of the year of repossession) [xxcx) Trot Market Value / NRW = NOTE: Ure the formulo cbove ONLY, when the FAIR VALUE is NOTGIVEN note 1. REPOSSESSIONS tournal Entry: Repossessed Item (at NRV} Detarrad Gross Profit (at GPA) Loss on Repossessions (plug*} Installment Acct Rec. {at Gross) gag note 2. WRITE OFF Journal Entry: Deferred Gross Profit (at GPR) 2% Operating Expense (at Cost Ratio) roo Installment Acct Ree. {at Gross) note 3, COLLECTIONS {IAR, Bape GPR] [IAR Repo, Bal GPA) novel [AR W/O Bal= GPR] nore 2 [1AR Collection « GPR} now? JAR, End x GPR © GROSS PROFIT RATE instailemert Sales x {1 Dverdliom, tor Tin (rex) (4) Uncerallow, for Tin rer Adjusted 5 [A] x ‘Cort of Installment S Deferred Gross Profit] eee GPA a Bfa (plug®) ‘True MV / NR of Repo hem a {-) Unrecaowered Cost: [ISA (at Gross) = Cost Ratio] tex) Gain {Loss) on repossessions = NOTE: Gains on Repossession is NOT RECOGNIZED NOTE: Loss on Repossession and Impairment of IAR in case of write off, shall be presented in PROFIT/LOSS ~ Collections EXCLUDE interests collected. But INCLUDES down payment and Traded In items-at its KRV ~ Bare of REALIZED GP, which isa YEAR END ADJUSTMENT‘= INSTALLMENT SALES WITH TRADE INS plug") Journal Entry: Trade In Allow (actual) — ‘Traded in item (st NAY) cd ()Truetv {NAV of item foxx) Over-allowance {plug*) som Over (Under) Allowance _ surfer} Installment Acct Receivables (excess) om instatiment Sales {Adjusted Amt} mx (Note: Under-allowance plug") wx Installment Sales cd {+ Over-allowance or, foo) (4) Under-aliowance xx Adjusted Sates wer A SALE OF REAL PROPERTY » CASUAL SALE = AS AREAL ESTATE (!NVENTORY) Sales Price 008 Sater Price oo (4) Book Vat (-) Cost of Sates ) Com rox Deterred GP ‘Acc, Dep, if any bene) 2 Deferred GP soot [__srababitty ot collection [Method Used ronable Accrut e Remote Cost Recovery Mathod Neither of the two Installmant Mathod Mi ant of Salea Revenua In tnataliment Sales (1AS 18) 1. Curh (ut Face Valun) 2. Traded inventory ( Truw Market Vatu / FMV) 3. Noten Receivable (at either Present Value or Face Walue, whichever ppropriate) = Daferrad Grows Profit (DGP) is a CONTRA ~IAR ACCOUNT.LONG TERM CONSTRUCTION CONTRACT Revenue Recignitian Over Time Under IFRS 15, following are methods in computing the % of completion 1. Cost to Cost Method 2. Survey Methad 3. Input Method 4, Output Method A. PERCENTAGE OF COMPLETION METHOD (COST TO COST) ~ used if the outcome of the contract can be measured realiably If Expected GL Total Contract Price: initial Contract Price Variations (ex. bonus) {-) Total Estimated Cost: ‘Cost Incurred TO DATE Estimated Cost to Complete Expected Gross Profit (Loss) () % of Completion rate ‘Cumulative Gross Profit (Loss) {-) Cumulative GP(L), prior yrs Realized GP(L), current yr NOTE: TfecRtGt CAnrIsetien Pare ‘ost Incurred TO DATE is R Total Estimated Cost Pi In BOTH method, Expected Gross Loss shall be recognized immediately at its FULL AMOUNT, Thus, EXPECTED GROSS LOSS = CUM, GROSS LOSS ™ Voriations is included in the contract price IF: a. tis probable thot /t will result to revenue b. it con be meosured reliobly # PRESENTATION IN INCOME STATEMENT ‘Construction Revenue 3x [ Contrect Price » 8 of Completion J Cost of Construction (oc) _ Cost Incurred DURING THE YEAR Realized Gross PROFIT 30x_taken from solution rable above Construction Revenue xX [Contract Price 5 of Compfetion) Cost of Construction (xxx) _ SQUEEZED [Revenue + RGLoss } Realized Gross LOSS %xx_ token from solution rable above Note: POC rate to be used In getting the Construction Revenue, current ‘year to be presented in the Income Statement: ‘Cum, POC rate, DURING the year (-) Cum. POC rate, LAST YEAR POC rate, CURRENT YEAR@ RELATED ACCOUNT BALANCES CONSTRUCTION IN PROGRESS (CIP) - Current Asset * Beginning Balance * Realized GL during the yr * Cost Incurred during the yr | « Ending Balance Realized GP during the vr "Instances where CIP in BOTH METHODS ore equal or same: a. In the year of project completion, CIP = CONTRACT PRICE b, In the year there ts expected gross loss, (CPrice < Total Cost) ALTERNATIVE SOLUTION FOR CIP CASE 1. IF THERE IS EXPECTED GROSS PROFIT Solution A Cost Incurred TO DATE XK (+) Cumulative Gross Profit xXx, CIP, Ending Balance XXX, Solution B Contract Price WRX {x} % of completion % CIP, Ending Balance XxX CASE 2. IF THERE 15 EXPECTED GROSS LOSS Solution A Cost incurred TO DATE 500 {-) Cumulative Gross Loss xxx] CIP, Ending Balance 3008 PROGRESS BILLINGS (PB) - Current Liability * Ending Balance * Beginning Balance * Billings during the year * At date of completion, PB = CONTRACT PRICE ACCOUNTS RECEIVABLE * Beginning Balance * Mobilization Fee Billings during the year * Retention Fee * Collections * Ending Balance NOTE: ~ Under the SAME CONTRACT, CIP and PB may be OFFSET for presentation purpases in the Balance Sheet. if CIP End balance > PB End balance: * Difference = Due FROM Customer (CA) if PB End balance > CIP End balace * Difference = Due TO Customer (Ct)B. COST RECOVERY METHOD (ZERO PROFIT) If Expected GP If Expected GL Total Contract Price: Initial Contract Price Variations (ex. bonus) (-) Total Estimated Cost: | Cost Incurred TO DATE 700 eed Estimated Cast to Complete OL XxX pox) Expected Gross Profit (Loss) xxx hood) (x) To be Realized 0%. 100% ‘Cumulative Gross Profit (Loss) zero (00x) (-) Cumulative GP(L), prior yrs zero (ox) Realized GP(L), current yr 1 zero boo) NOTE ~ Under Cast Recovery Method, Profit shall only be recognized at the DATE OF COMPLETION. However, Profit may be realized if it is a result of the RECOVERY of Gross Loss previously recognized. (Or as long as, GP Is ZERO) ~ Some procedure for CIP and PB computations (T-ACCOUNT APPROACH) # PRESENTATION IN INCOME STATEMENT Consiruetion Revenue vox [Contract Price w POCK, current ye) Cost of Construction ic) Cost incurred DURING THE YEAR Realized Gross PROFIT zero taken from solution toble above Construction Revenue xo Controct Price « POC, current yr} ‘Cost of Construction SQUEEZED [ Revenue + RGloss J Realized Gross LOSS %x0c_ token from solution toble above Note: POC rate to be used in getting the Construction Revenue, current ‘year to be presented in the Income Statement: Cum, POC rate, DURING the year (-) Cum. POC rate, LAST YEAR POC rate, CURRENT YEAR NOTE: TOTAL ESTIMATED COST INCLUDES ALL COSTS that are SPECIFICALLY CHARGEABLE TO & ARE REINBURSEABLE BY CUSTOMER, regardiess of cost funtion (Ex. General/Admin Expense)* REVENUE RECOGNITION REVENUES INITIAL FRANCHISE FEE REVENUE (FF) CONTINGENT FRANCHISE FEE REVENUE (CFF) INTEREST REVENUE NOTE: Interest Income Total Franchise Revenue Initial Franchise Fee Contingent Franchise Fee Total Franchise FEE Revenue * REQUISITES: 1, With Substantial (at least 50%) Performance of services 2, Non = refundable 3. Period of return has expired * REQUISITES 1, With Substantial (at least 90%) Performance of services 2. Non - refundable 3, Period of return has expired 4, Sale of Franchise occurs Based an passage of time (under IAS 18) BE ERE * RECOGNITION OF i PROFIT IN FRANCHISE * REQUISITES: 1, Satisfaction of Performance Obligation * REQUISITES: 1. Satisfaction of Performance Obligation 2. Sale of Franchise occurs using Effective Interest Method (under IAS 18) Wh pallz When there's Collection « If interest Bearing FACE VALUE ee Value x NR * if Noninterest Beari PRESENT VALUESTEP 1: Determine If |FF shall be recognized STEP 2: If IFF is to be recognized, determine the method in recognizing GP STEP 3: Determine the period asked Cash (for Down Payment) (+) Notes Receivables (for Balance) Initial Franchise Fee (-) Direct Cost - Initial Service GROSS PROFIT (+) Contingent Franchise Fee (+) Interest Revenue Total Franchise Revenue {-) Indirect Cost - Initial Service (-) all Cost - Continuing Service NET INCOME OF FRANCHISOR Cash (for Down Payment) (+) Notes Receivables (for Balance) Initial Franchise Fee {-) Direct Cost - Initial Service DEFERRED GROSS PROFIT Cash (for Dawn Payment), year of sale Principal Collection of NR Total Collection (x) DGP rate REALIZED GROSS PROFIT (+) Contingent Franchise Fee (+) Interest Revenue Total Franchise Revenue {-} Indirect Cost - Initial Service {-) All Cost - Continuing Service NET INCOME OF FRANCHISOR x vox _ (see table) x (xxx) OK 2006 xox fsee table) (see table) Big 8 (xxx) 3000 (DGP 35) 2006 00K 2006 % 2000 xx wa _ (see table) (xxx) (xxx) 2008