F3 - Business Combinations

Question 1

State the criteria to consolidate subsidiaries.

Answer 1

• Consolidate when the parent is able to control the subsidiary. Usually this is indicated by greater than 50% ownership of the voting stock of the subsidiary.
• Do not consolidate when control is not with owners (as in bankruptcy of subsidiary).

Question 2

Identify the three levels of control and the appropriate accounting method for each.

Answer 2

No significant inluence

Cost method: Trading or available-for-sale securities, at fair value

Significant influence but 50% or less ownership

Equity method

Control

• Cost or equity method (internal accounting)
• Consolidated financial statements (external accounting)