10. Consolidation Flashcards
What is the formula for goodwill under the full goodwill approach?
Goodwill = Consideration_transferred + Fair_value_of_non-controlling_interest - Net_fair_value_of_identifiable_assets_and_liabilities
How is intragroup unrealized profit calculated?
Unrealized_profit = Intragroup_sale_price - Cost_of_goods_sold
What does the recoverable amount for goodwill impairment represent?
Recoverable_amount = max(Value_in_use, Fair_value_less_costs_of_disposal)
What is the purpose of equity accounting in consolidation?
To reflect the investor’s share of the associate’s net income and equity changes in their financial statements.
What are the accounting entries to record goodwill under the full goodwill approach?
Goodwill / Consolidation_adjustments
If the consideration transferred is $500,000, the fair value of the non-controlling interest is $200,000, and the net fair value of assets is $600,000, what is the goodwill using the full goodwill approach?
Goodwill = $500,000 + $200,000 - $600,000 = $100,000
A parent sells inventory to its subsidiary for $50,000, and the cost of goods sold was $30,000. What is the unrealized profit?
Unrealized_profit = $50,000 - $30,000 = $20,000
If an associate’s profit for the year is $40,000, and the investor owns 25%, what is the share of the associate’s profit recorded under the equity method?
Share_of_profit = $40,000 * 25% = $10,000
If an asset was revalued upwards by $100,000 during consolidation, what is the accounting entry for the revaluation?
Asset_account / Revaluation_surplus
A subsidiary’s inventory contains $10,000 of unrealized profit from intragroup sales. What is the elimination entry?
Unrealized_profit / Inventory
A parent company acquires 80% of a subsidiary for $800,000, and the net fair value of identifiable assets is $900,000. Calculate goodwill using the partial goodwill approach.
Goodwill =- $800,000 - (80% * $900,000) = $80,000
A subsidiary generates $100,000 in profit, with $40,000 distributed as dividends. The parent owns 60%. Calculate the equity value change under equity accounting.
Equity_value = Share_of_profit - Share_of_dividends = ($100,000 * 60%) - ($40,000 * 60%) = $60,000 - $24,000 = $36,000
An asset was revalued to $150,000 from $120,000 during consolidation. What is the adjustment entry for depreciation if the additional value is depreciated over 10 years?
Depreciation_expense / Accumulated_depreciation = $30,000 / 10 = $3,000 annually
A parent purchases goods costing $80,000 and sells them to a subsidiary for $100,000. At year-end, $50,000 worth of goods remain unsold. What is the unrealized profit elimination entry?
Unrealized_profit / Inventory = ($100,000 - $80,000) * ($50,000 / $100,000) = $20,000 * 50% = $10,000
If goodwill was initially recognized at $200,000 and its recoverable amount drops to $150,000, what is the impairment entry?
Impairment_expense / Goodwill = $200,000 - $150,000 = $50,000
What is the purpose of consolidated financial statements?
To present the financial position and performance of a group (parent and subsidiaries) as a single economic entity.
What defines the scope of consolidation?
It includes entities where the parent has control, joint arrangements, or significant influence over financial and operating decisions.
What are the key steps in the acquisition method of consolidation?
Identifying the acquirer, determining the acquisition date, measuring the consideration transferred, and recognizing identifiable assets, liabilities, and goodwill or bargain purchase.
What is the difference between full goodwill and partial goodwill?
Full goodwill considers both the parent and non-controlling interest in goodwill calculation, while partial goodwill considers only the parent’s share.
What does the term “uniformity of accounting policies” mean in consolidation?
All entities in the group must use consistent accounting policies for financial reporting.
Why are intragroup transactions eliminated during consolidation?
To avoid double counting and ensure financial statements reflect external transactions only.
What is goodwill impairment, and how is it tested?
Goodwill impairment occurs when the recoverable amount of goodwill is less than its carrying value. It is tested by comparing the carrying value to the recoverable amount.
What does equity accounting represent in consolidation?
It reflects the investor’s share of the associate’s net income and equity changes in their financial statements.
What is a bargain purchase in consolidation?
It occurs when the consideration transferred is less than the net fair value of identifiable assets and liabilities, resulting in a gain.
How are reporting date differences handled in consolidation?
Adjustments are made to align the subsidiary’s financial statements with the parent’s reporting period.
A parent company acquires a subsidiary for $1,000,000, and the net fair value of identifiable assets is $800,000. Calculate goodwill using the full goodwill approach if the non-controlling interest is $200,000.
Goodwill = $1,000,000 + $200,000 - $800,000 = $400,000
If a subsidiary’s total assets are $500,000, and the parent owns 60%, what is the amount included in the parent’s consolidated balance sheet?
Total assets = 100% of subsidiary’s assets = $500,000 (parent consolidates all assets of the subsidiary).
A parent sells goods costing $20,000 to a subsidiary for $25,000. At year-end, 40% of these goods remain unsold. Calculate the unrealized profit elimination.
Unrealized_profit = ($25,000 - $20,000) * 40% = $5,000 * 40% = $2,000
An associate reports a profit of $60,000, and the investor owns 30%. Calculate the share of profit recorded by the investor.
Share_of_profit = $60,000 * 30% = $18,000
If an asset was revalued upwards by $50,000 during consolidation, and the additional value is depreciated over 5 years, what is the annual depreciation adjustment?
Depreciation_expense / Accumulated_depreciation = $50,000 / 5 = $10,000 annually
A subsidiary declares dividends of $50,000. The parent owns 80%. What is the dividend adjustment in equity accounting?
Share_of_dividends = $50,000 * 80% = $40,000
A parent owns 75% of a subsidiary, and the subsidiary earns $100,000 in net profit. What is the amount attributable to the non-controlling interest?
Non_controlling_interest = $100,000 * 25% = $25,000
During consolidation, a building is revalued from $300,000 to $400,000. What is the revaluation entry?
Building / Revaluation_surplus = $100,000
If goodwill is initially $250,000, and its recoverable amount drops to $200,000, calculate the goodwill impairment and the adjustment entry.
Impairment_expense / Goodwill = $250,000 - $200,000 = $50,000
A parent acquires 70% of a subsidiary for $700,000, and the net fair value of assets is $900,000. Calculate goodwill using the partial goodwill approach.
Goodwill = (70% * $900,000) - $900,000 = $630,000 - $900,000 = -$270,000 (bargain purchase applies).
