UNNES Laporan Keuangan Konsolidasi pada Akuisisi Metode Ekuitas 1

Summary

In this educational video, Muhammad Hafid from Universitas Negeri Semarang explains financial consolidation during acquisitions using the equity method. He distinguishes between business combinations such as mergers, consolidations, and acquisitions, emphasizing the correct terminology. The video details the process of recording investments in shares, dividends, and profits/losses in the parent company's financial statements. Hafid walks viewers through the consolidation process, including journal entries and work papers, with a practical example. The video concludes by offering further learning materials on this topic, aiming to provide clarity on the complexities of financial consolidation post-acquisition.

Takeaways

• 😀 Consolidation and acquisition are different business combinations: consolidation involves merging financials of parent and subsidiary companies, while acquisition involves one company purchasing another.
• 😀 The equity method is used for preparing consolidated financial statements after an acquisition, where the parent company adjusts its investment based on the subsidiary's earnings and losses.
• 😀 When an acquisition is made, the parent company records the shares bought at cost and adjusts the investment account for its share of the subsidiary's profits or losses over time.
• 😀 The consolidation process includes eliminating intercompany transactions and balances, such as sales, expenses, dividends, and unrealized profits.
• 😀 Minority interest (non-controlling interest) is presented separately in the consolidated financial statements and affects both the balance sheet and income statement.
• 😀 Under the equity method, the parent company recognizes changes in the value of its investment as the subsidiary generates profits or losses, and also adjusts for dividends paid by the subsidiary.
• 😀 The journal entries for acquiring shares in a subsidiary involve recording the investment at cost, and adjustments are made to account for the subsidiary’s earnings and dividends received.
• 😀 The cost method treats the acquisition of shares as an investment that is only adjusted for dividends and does not consider the subsidiary's income or losses.
• 😀 Consolidated financial statements are prepared by combining the parent and subsidiary's financials, eliminating intercompany transactions, and adjusting for any differential between purchase price and book value.
• 😀 When preparing consolidation entries, adjustments are made for equity ownership, intercompany profits, and the differences between the acquisition cost and the book value of the subsidiary’s assets.
• 😀 The presentation of consolidated financial statements includes eliminating minority interest, which reflects the portion of the subsidiary not owned by the parent company.

Q & A

What is the difference between consolidation, merger, and acquisition?

Consolidation occurs when two companies merge to form a new one. A merger is when two companies combine to form a single entity, but one continues while the other ceases to exist. An acquisition is when one company purchases a significant number of shares of another company, establishing a parent-subsidiary relationship.

What is the equity method in the context of consolidation?

The equity method is used when a parent company consolidates the financial statements of its subsidiary. The parent initially records the investment at acquisition cost and then adjusts it for its share of the subsidiary’s profits or losses, as well as any dividends received, to reflect the investment’s updated value.

How is the cost method different from the equity method in accounting for acquisitions?

Under the cost method, the investment in the subsidiary is recorded at acquisition cost and remains unchanged unless dividends are paid by the subsidiary. The equity method, on the other hand, adjusts the investment account for the subsidiary’s performance, including profits, losses, and dividends, reflecting a more dynamic relationship between the parent and subsidiary.

What is the purpose of eliminating intercompany transactions during consolidation?

Intercompany transactions, including profits, losses, and dividends, need to be eliminated during consolidation to avoid double-counting within the group. These eliminations ensure that only transactions with external parties are reflected in the consolidated financial statements.

What journal entry is made when a parent company acquires shares in a subsidiary?

When a parent company acquires shares in a subsidiary, the journal entry would typically involve debiting the investment account (e.g., 'Investment in Subsidiary') and crediting cash or another payment method for the acquisition cost.

How are dividends from the subsidiary recorded in the parent company’s financials under the equity method?

Under the equity method, dividends received from the subsidiary reduce the carrying amount of the investment account. The journal entry to record dividends would involve debiting 'Piutang Dividen' (dividend receivable) and crediting 'Investment in Subsidiary'.

What happens to the investment account if the subsidiary reports a profit or loss after the acquisition?

If the subsidiary reports a profit, the investment account in the parent company increases by the parent’s share of the profit. If the subsidiary reports a loss, the investment account decreases by the parent’s share of the loss.

Can you explain the elimination process with an example from the transcript?

For example, if PT besar acquires PT kecil, any balances between the two companies, such as intercompany sales or debts, must be eliminated. If PT kecil has a dividend announcement, the corresponding investment account in PT besar must be adjusted, and the dividends eliminated from the consolidated financial statements to avoid duplication.

Why is it important to eliminate unrealized profits between a parent and subsidiary?

Unrealized profits from transactions between a parent and subsidiary are eliminated because these profits are internal to the group and do not reflect the true economic reality of external transactions. Including unrealized profits would overstate the consolidated profit and assets.

What specific adjustments are made when using the equity method after one accounting period?

After one accounting period, adjustments under the equity method include increasing the investment account by the parent company’s share of the subsidiary’s profit and reducing it for any losses. Additionally, any dividends paid by the subsidiary are recorded as a reduction to the investment account.