Business Combinstion

Question 1

In business combination, under what situation, the company can use acquisition method of actg?

Answer 1

Determine the acquiring entity
Determine the acquisition date of the business combination
Determine the cost of acquisition
And other elements like identify assets and liabilities acquired
Economy goodwill or gain from bargain purchase

Question 2

What entities are not excluded from using acquisition accounting for business combination?

Answer 2

JV
acquisition of assets that are not for business
Acquisition of business by a NPO
Combination business under common control
Combination between two NPOs

Acquisition actg requirement under GAAP is different from IFRS in many ways including the 
  definition of control
  FV measurement
  Contingencies
  Employee benefit obligations
  NCI
  Goodwill measurement 
And disclosure requirements

Question 3

The concept of business for business combination ASC 805 elements

Answer 3

Is an integrated set of activities and assets
Uses inputs and processes
No need to be in the form of separate legal entity
Is intended to provide economic benefits to owners or others

Question 4

Contingent consideration for business combination measurement and where to record them?

Answer 4

Usually record at FV unless acquirer still remain control after acquired, then record at CV

Bond record at CV at transfer, and the. At year end, the entity hold the bond will adjust to FV.

The CC after the acquisition date would treat as a liability or asset, the increase or decrease of that cost can create G/L. CC can be treated as equity as well, if equity, no G/L, and no remeasurement.

CC include in the acquisition cost

The cost of carrying out the acquisition should be expensed

Question 5

What can be an acquisition date in a business combination?

Answer 5

Before, on or after closing date are all fine

But usually the acquisition date is the closing date

Question 6

When a business combination complete in stages, the value of the combination should use? Does acquirer recognize G/L?

Answer 6

Use FV at the latest acquisition,

The difference of the FV and CV is the G/L

Question 7

The what types of the intangible asset would be recognized immediately before the business combination?

Answer 7

The intangible that brings future benefit from legal contractual rights and can be separately sold.

Question 8

What value to record NCI?

Answer 8

Separately determined based on the FV of the NCI. Does not have to be the acquired per share value because there might be a premium with control of an entity.

Question 9

How is the contingent consideration liability is recognized and measured subsequently after the acquisition?

Answer 9

Eco guise day FV and adjusted at FV at yr end, a change of FV will result in G/L in income in the period of change.

Question 10

How is the contingent asset is measured?

Answer 10

At the lower of
1) FV on acquisition date
Or 2) best estimates of future settlement Amt

If it’s an reacquired Right asset (the right to use the franchise name) would be amortized over the contractual period of the grants if the right.

Question 11

When pushdown accounting is elected, what account can’t be recorded at acquisition date FV?

Answer 11

C/S

Question 12

When a bargain purchase is occurred, what info need to be disclosed?

Answer 12

Amt of gain,
The income stmt line item that includes the gain
What are the basis that caused the gain

Question 13

What type of info must be disclosed for provisional amount for items recognized in business combination?

Answer 13

Reason for the actg to be incomplete

Amt of adj. made to the provisional amt during the period

Question 14

What accounts need extensive disclosure?

Answer 14

The existence of the NCI

And achieving controls in step acquisition

Question 15

What needs to be disclosed for goodwill from acquisition?

Answer 15

Factors mad up the goodwill,
And The amt of goodwill that is expected to be deducted for tax purpose

And amt of goodwill allocate to different reportable segments

Question 16

Under IFRS, what does not included in the acquisition cost?

Answer 16

Contingent assets

Need to disclose assumptions related to acquire contingencies

Question 17

VIE - what is it and who is in control?

Answer 17

VIE is set up for special purpose, the entity that can direct the resource is the primary/ controlled party, and there is only one primary beneficiary.

Question 18

What method the parent use on its book to account for its investment in a sub would effect what?

Answer 18

Consolidation process, but will not affect the finals consolidated f/s.

The consolidation report two or more legal entity into one economic entity because the sub is under the common control of the parent co.

• method affect process, preparation affect the legal entity status.*

Question 19

If P co owns A co 75%, and A co owns B co 60%, how much is P co own indirectly to B, and what kind of financial stmt P co can prepare?

Answer 19

P co can consolidate both A and B. P can use equity method for A co but can’t do it for B co, can only consolidat B co, so all three would be consolidated.

Question 20

When preparing the financial stmt, what kind of info the P co should have for the consolidating process?

Answer 20

BV
FV
COST OF THE INVESTMENT BY P co

Question 21

What accounts would be eliminated every time for consolidating process?

Answer 21

Investment in S

Question 22

Consolidating process happened on what? FS or other form?

Answer 22

On worksheet for preparing the consolidate financial stmt

Question 23

Not a characteristics of consolidated f/s after the date of consolidation

Answer 23

The method used by parent to carry its invest the in sub

Question 24

Goodwill recognized from previous combination on the balance sheet should include in intangible assets?

Answer 24

No not part of the intangible, just represent the cost over net assets acquired.

Question 25

What method used the investment in s would change?

Answer 25

Only equity method because the NI increase the investment, the dividend paid will decrease
H
But under cost method, the investment account always count the same

Question 26

After the acquisition date, would the bs and IS be the same still following an operating cycle?

Answer 26

No, both would all be different

Bs would have investment account, and NCI

IS would include the sub’s revenue and expense

Question 27

When using cost method to account the parent co investment in S, what would the parent co recognized from sub co at year end?

Answer 27

Only its share of sub co dividend declared as income for P co.

Question 28

When using equity method, what amount of investment in S is reversed when consolidated FS is prepared?

Answer 28

Reverse the whole beginning balance of investment in S. No change when using equity method

Subco investment reverse amount is SUB NI -dividend = reverse amt

Record for recognized NI revenue
dr. investment in S. Cr. revenue

Record for recognize dividend
Dr. Dividend receivable / cash. Cr. investment in S

Question 29

When parent do paid FV for the assets over BV from s co, what effect the excess depreciation expense would result in the parent co?

Answer 29

When FV is > BV, parent had paid more than s for the same assets, therefore, the excess depreciation parent has either decreases the investment in S or as a deduction of the p co portion Revenue from s co. So it decreases both p co inv. In s and equity revenue from sub.

Question 30

GAAP and IFRS differences at consolidation

1. Control
2. VIE
3. Align Actg policy
4. Actg period
5. NCI

Answer 30

ALL FOR IFRS
1. >50% including potential rights, right to appoint key personnel and right to make decisions

2. No define VIE, but have SPE
3. Actg policies have to align
4. Actg period has the same end date, need to adjust if not
5. Parent has choice to assign goodwill to NCI based on % purchase
   FV- NA bought = goodwill - (purchase price - NA % bought) = goodwill allocate to NCI

Question 31

Eliminating entry for interco bond transaction

Answer 31

Dr. B/P 
     Premium on BP
     Loss
            Cr.    investment in BP 
                     Premium on BP 

Or BP 
     Premium on BP
     Interest income 
     Loss
             Investment in BP 
             Premium on bond investment 
             Interest expense

Question 32

If there is a small investment before, and then bought more of other company shares resulted control, what value used to measure the previous investment?

Answer 32

The newest date investment that caused the control , which = FV on the control date

Question 33

What does interco sale of fixed assets at a profit or at a loss would cause the buying entity’s depreciation expense to decrease of increase?

Answer 33

At a profit

Overstate dep expense