CH13 consolidated SOFP Flashcards
What is the cost of the business combination (the investment in the parent company’s single entity accounts)?
The total of the fair values of the consideration transferred to gain control.
What can the consideration transferred include?
It can include cash, other assets, and liabilities assumed by the acquirer.
Fill in the blank: The cost of the business combination is what the parent company paid to purchase its _______.
shareholding in the subsidiary.
True or False: The consideration transferred only includes cash.
False
Goodwill calc!
Consideration transferred is the same as …?
the investment sitting in the parent company’s single entity accounts. This line gets cancelled on consolidation and then reappears in the first line of your GW calc.
What kind of value(s) are we trying to calculate for consideration transferred?
The fair values
GW calc - types of consideration and treatment
Cash
Equity instruments
Deferred consideration
Contingent consideration
Should the top line of the GW calc (consideration transferred) include acquisition related costs?
NO!!! They are expensed thru PorL (internationally)
How do you record the value of net assets in the GW calc if their CV on the SOFP is below MV?
MUST record net assets as the MV of its individual net assets by taking their CV and adjusting for any FV differences.
This is why the sub’s assets and liabilities should be recognised at FV at the date of acq.
Sometimes assets and liabilities that the subsidiary has not recognised in its single entity accounts are
recognised on consolidation, such as some internally-generated intangibles and contingent liabilities.
This usually requires adjustments at the acquisition date (known as fair value adjustments).
How do you deal with intangible assets on acquisition?
- Internally generated intangible assets cannot be recognised on the sub’s accounts. Ie. CV = 0
- Parent may be willing to pay for that asset.
- If they can reliably value it, they must recognise it on consolidation as its own separate intangible
- This creates a FV difference
do you amortise GW?
NOOOO - you annually review it for impairment
Sometimes assets and liabilities that the subsidiary has not recognised in its single entity accounts are
recognised on consolidation, such as some internally-generated intangibles and contingent liabilities.
This usually requires adjustments at the acquisition date (known as fair value adjustments).
How do you deal with contingent liabilities on acquisition?
Example:
- company looks good on FS, but disclosure notes states that there is a 20% chance of having to pay 50mil in damages.
- The acquiring company should FV the risk at acquisition. Eg. FV the risk at 10mil.
- This creates a FV downlift - adjusts the real MV of the net assets of the sub to reflect the risk.
When making FV adjustments, WHEN must the conditions exist in order that they should be adjusted for?
At the acquisition date. I.e. reorganisations, redundancies, future losses post acquisition should NOT form part of the FV adjustments.
Net assets are always equal to …?
equity
net assets table
SC?
SC does not change
where do net assets table figures go?
- Total ‘at acq’ (net assets/equity at acq) goes to GW calc
- Post acq (change) column total is split: we take our share to the various reserves - RE and we give the NCI their share in the NCI working.
Does each sub need its own GW calc?
Yes
Does each sub need its own net assets table?
Yes
Should each sub have its own NCI calc?
Yes
NCI calc
Should each sub have its own RE calc?
Calc?
No - it is one big party that everyone comes to. Always starts with the host (all the REs of the parent)
Standard workings for consolidated SOFP - brief
- Establish group structure and dates
- Net assets table
- GW calc
- NCI at y/e calc
- Cons REs
