Section 31 - Business Combination and Consolidation

Question 1

Under the Economic Entity Concept, how are acquiree’s assets and liabilities value?

Answer 1

Fair Value at date of acquisition

Question 2

When is consolidated F/S required?

Answer 2

When acquirer obtain 50% or more of ownership over acquiree.

EXCEPTION: Control is temporary or when majority ownership does not have control (bankruptcy, foreign bureaucracy)

Question 3

How are cost incurred in a business acquisition treated?

Answer 3

Expensed in period incurred (NOT capitalized)

Accounting, legal, valuation, consulting, professional

Question 4

How are cost of issuing and registering stocks issued in a business acquisition treated?

Answer 4

Cost of issuing equity securities reduce APIC

Cost of debt securities are capitalized and amortized as debt issue costs

Question 5

What are the entry to combine equity for a business acquisition on a worksheet?

Answer 5

1) Equity accounts of acquiree (CS, APIC, RE) debited to removed 100% of its account balances
2) Investment in acquiree is credited to remove account
3) Noncontrolling interest is credited (market price on acquisition date X number of shares held by non-controlling parties)
4) Debit FV cost differ from BV of equipment (if any)
5) Recognize Goodwill or Gain

Question 6

How is Goodwill or Gain calculated?

Answer 6

FV of consideration transferred (cost to acquirer)
+FV of previously held equity interests in acquiree
+FV of noncontrolling interest
-FV net identifiable assets of acquiree
=Goodwill or Gain

Question 7

What is the JE to consolidate on WORKSHEET?

Answer 7

C/S
APIC
R/E
Equipment (assets to FMV)
Goodwill
   Investment
   Noncontrolling interest (@FMV)

Question 8

What are the Intercompany Transactions that need to be eliminated through J/E?

Answer 8

1) Dividends paid from parent to sub
2) Sales of inventory from one to another
3) Sales of PPE from one to another
4) Purchases by one of the BONDS issues by another

Question 9

What is the J/E to eliminate Dividends paid by acquiree?

Answer 9

Dividends payable

Dividends receivable

Question 10

What are the J/E to eliminate intercompany sales of inventory?

Answer 10

Eliminate inter-company sale-purchase
Sales
Cost of sales

Eliminate inter-company receivable-payable
AP
AR

Eliminate inter-company profit in ending inventory (sales price-cost price)
Cost of sales
Inventory

Question 11

What are the J/E to eliminate intercompany sales of PPE?

Answer 11

Fix on worksheet at year-end
Gain
PPE
Accumulated Depreciation

Fix over depreciation
Accumulated Depreciation
Depreciation Expense

Question 12

What is the J/E to eliminate intercompany purchase of Bond?

Answer 12

Eliminate on worksheet
Bonds Payable
Investment in Bonds
Gain on retirement (ordinary or extraordinary gain/loss)

Question 13

Under IFRS, when can a subsidiary be exempt from F/S consolidation?

Answer 13

Under certain restrictive circumstances

Question 14

Under IFRS, can a noncontrolling interest be measured in another value aside from fair value?

Answer 14

Yes, the PROPORTIONATE SHARE of value of subsidiary’s identifiable assets and liabilities ONLY IN CERTAIN RESTRICTIVE CIRCUMSTANCES

Question 15

Under IFRS, when is VIE consolidated reassessed?

Answer 15

Only if circumstances change..

GAAP - regular basis