(4) Investments and Business Combinations Flashcards
Impariment loss rule under IFRS
An impairment loss is recorded for the excess of the carrying value of an intangible asset over its recoverable amount.
Recoverable amount definition under IFRS
Greater of the assets fair value less costs to sell and assets value in use.
Journal entry to record valuation of equity securities at year end, (note: this occurs when the FV of the equity securities is greater than the the cost)
Dr: Valuation account
Cr: Unrealized Gain on equity secutiry
Journal entry to record loss on equity security
Dr: Unrealized loss on equity security
Cr: Valuation account
How should direct costs of a business combination, other than issuance costs of equity securities and direct costs of registration should be treated.
They should be expensed.
What amount of dividend income should be reported in investors investors income statement:
Dividend in come should be recorded to the extent of of the share of indistributed earnings in equity up to date.
Define equity method
Method to account for investments if a sig influence (bwtween 20%-50% ownership) can excercised by the investor over the investee. Consolidated statements should be presented whi ownership is greater than 50%
common stock dividends recorded under the equity method
Under the equity mothed, common stock dividends are recorded as a reduction to the investment account. Preferred stock ownership does not allow the investor to exercise influence, so the preferred stock investment is accounted for using the fair value method and the preferred stock dividends of $60,000 are recorded as dividend revenue on the income statement.
When should goodwill be recorded when business acquires another:
Since the cash price equaled or exceeded the fair market value of identifiable assets, these assets will be reported at their fair market value at acquisition (not their previous carrying amount). Goodwill is not calculated using one particular asset acquired or liability assumed. Goodwill is the excess of the investment cost (acquisition price), plus the fair value of any noncontrolling interest, over the fair value of the identifiable net assets acquired.
Assuming there was commercial substance, at what amount should be recorded for land acquired in exchange for land and money?
In an exchange with commercial substance, the transaction is accounted for at the fair value of the asset received or the asset given up, whichever is more clearly evident, and a gain or loss is recognized on the exchange.
Which expenses related to business combinations should be included, in total, in the determination of net income of the combined corporation for the period in which the expenses are incurred?
Acquisition related costs are those costs the acquirer incurs to effect a business combination. he acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception; the costs to issue debt or equity securities shall be recognized in accordance with other applicable GAAP. Costs of registering and issuing any equity securities are treated as a reduction of the otherwise determined fair value of the equity securities.
How should acquisition costs be recorded?
Acquisition costs are those costs the acquirer incurs to effect a business combination, and include: finders’ fees; advisory, legal, accounting, valuation, and other professional or consulting fees; general administrative costs; and costs of registering and issuing debt and equity securities. Acquisition costs are expensed in the period in which the costs are incurred and the services are received.
