3. Fair Value Adjustments and Mid-Year Acquisitions

Question 1

What is the difference between single company accounts and consolidated accounts in reference to fair value?

Answer 1

Most single company accounts use cost and ignore fair value, consolidated accounts MUST show subsidiaries assets and liabilities at fair value

Question 2

What are the three columns used in the working for fair value adjustment?

Answer 2

At acquisition, change and at reporting date

Question 3

From the working for fair value adjustment, where does the sum of the acquisition column go?

Answer 3

To subsidiaries net asset value in goodwill

Question 4

From the working for fair value adjustment, where does the sum of the changes column go?

Answer 4

To subsidiaries retained earnings value in retained earnings

Question 5

From the working for fair value adjustment, where does the sum of the at reporting date column go?

Answer 5

To consolidated non current assets

Question 6

What 5 things can make up the cost of combination?

Answer 6

1. Cash
2. Deferred consideration (present value)
3. Contingent consideration (fair value depending on probability of payment amounts)
4. Share-for-share exchanges
5. Quoted shares

Question 7

What cannot be included in the cost of combination?

Answer 7

Direct costs e.g. legal fees - written off as an expense

Question 8

What 2 things are excluded from a subsidiaries accounts but should be included in the consolidated accounts?

Answer 8

Intangible assets and contingent liabilities

Question 9

How are revaluation reserves treated when consolidating accounts?

Answer 9

1. Added to net assets for goodwill

2. The group is only entitled to its share of post acquisiton changes in reserves