Flashcards in Section 31 - Business Combination and Consolidation Deck (15):
Under the Economic Entity Concept, how are acquiree's assets and liabilities value?
Fair Value at date of acquisition
When is consolidated F/S required?
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)
How are cost incurred in a business acquisition treated?
Expensed in period incurred (NOT capitalized)
Accounting, legal, valuation, consulting, professional
How are cost of issuing and registering stocks issued in a business acquisition treated?
Cost of issuing equity securities reduce APIC
Cost of debt securities are capitalized and amortized as debt issue costs
What are the entry to combine equity for a business acquisition on a worksheet?
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
How is Goodwill or Gain calculated?
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
What is the JE to consolidate on WORKSHEET?
Equipment (assets to FMV)
Noncontrolling interest (@FMV)
What are the Intercompany Transactions that need to be eliminated through J/E?
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
What is the J/E to eliminate Dividends paid by acquiree?
What are the J/E to eliminate intercompany sales of inventory?
Eliminate inter-company sale-purchase
Cost of sales
Eliminate inter-company receivable-payable
Eliminate inter-company profit in ending inventory (sales price-cost price)
Cost of sales
What are the J/E to eliminate intercompany sales of PPE?
Fix on worksheet at year-end
Fix over depreciation
What is the J/E to eliminate intercompany purchase of Bond?
Eliminate on worksheet
Investment in Bonds
Gain on retirement (ordinary or extraordinary gain/loss)
Under IFRS, when can a subsidiary be exempt from F/S consolidation?
Under certain restrictive circumstances
Under IFRS, can a noncontrolling interest be measured in another value aside from fair value?
Yes, the PROPORTIONATE SHARE of value of subsidiary's identifiable assets and liabilities ONLY IN CERTAIN RESTRICTIVE CIRCUMSTANCES