4. Consolidated Financial Stmt Flashcards
When does consolidated financial stmt required?
When an entity has effective control - more than 50% ownership or is the principal beneficiary
Which one is more valued under consolidated stmt - economic substance or legal form?
Economic substance - more meaningful
Who are excluded from consolidated stmt?
Entities that can’t exercise effective control even if it has more than 50% ownership, registered investment companies, broker/dealers
Which part does the parent company’s accounting method (cost, equity) affect - process or actual stmts?
Consolidating process
Information required on stmts
Date of the business combination, BV and FV of assets/liab, FV of any controlling interests, FV of any equity controlling interest before acquisition
Inter company transactions that must be eliminated are
Receivables/payables, rev/expe, inventory, fixed assets, bonds
Accounting policies must be aligned at consolidation? G & I?
G: no
I: yes
Parent and subsidiary must have the same accounting periods? G & I
G: can be up to 3 mo apart
I: yes
What’s the key words to classify discontinued operation?
Strategic shift
Under IS, discontinued operation includes EPS?
Yes
On BS, what’s the account used to hold discontinued operations?
Held for sale
Consolidation at the date of acquisition: Consolidate BS and IS?
Only BS because there were no IS activities.
How to record investment in the subsidiary on the consolidated stmt. Why?
Eliminate. Because it can’t have an investment in yourself: equals the subsidiary equity (which cancels the investment amount) plus GW.
Consolidation subsequent to the acquisition date: What’s the only time cost method requires adjustment?
What’s eliminated under equity method?
When liquidating dividends is involved.
BS balance for investment in S and IS balance for income from S
Under cost method, what does parent recognize?
Only cash dividend received
What does reciprocity mean?
To bring the investment account in balance with the subsidiary’s retained earnings as of the beginning of the period being consolidated.
Formula for calculating NCI equity?
S’s NBV (includes adding NI if 2nd yr) + 100% of the differential in S’s FV - Depr/Amort of differential - GW impairment loss = S’s adjusted NBV x NCI% ownership of S = NCI equity
Formula for calculating NCI income?
S’s NI - Depr/amort of differential (only current year) - GW impairment loss = S’s adjusted NI x NCI% ownership of S - NCI income
Consolidation with less than 100% ownership: What amount would be reported on consolidated stmt? 100% or ownership %.
100% because NCI will be also noted, which balances the stmt.
Is estimated gain or loss recognized from discontinued operation?
Gain - no. Loss - yes.
Eliminating the parent’s investment account: Beg balance - 50, NI of S - 10, Divi - 2. What would be the balance to be eliminated?
50 (Beg balance) only
