ACCOUNTING FOR ACQUISITION Flashcards
Investment is valued at the FV of the consideration given or received under
Acquistion Method
What is the journal entry to record the acquisition for cash:
Debit: Investment in subsidiary
Credit: Cash
Acquisition method has two distinct accounting characteristics
- 100% of net assets acquired are recorded at FV with any unallocated balance remaining creating goodwill
- Subsidiary’s entire equity is eliminated
What adjustment an acquiring coporation during consolidation
- Common stock, APIC & R.Earing(CAR)
- Investment in Subsidiary is eliminated
- noncontrolling interest(NCI) is created
- Balance sheet of subsidiary is adjusted to FV
- Identifiable Intangible Asset of Subsidiary recorded at FV
- Goodwill(or Gain) is Required
What is the CAR Formula
Assets - Liability = equity
Assets - Liabilities = NBV
Assets - Liabilities = CAR
The determination of the difference b/w BV and FV must be computed as of
the acquisition date
US GAAP requires that both internal and external costs of acquiring a subsidiary be expensed -
as incurred.
Statement 160 of the Financial Accounting Standards Board stated that the noncontrolling interest represent ownership and must be reported within
stockholders’ equity
In consolidation, the subsidiary’s assets and liabilities are included initially a
fair value
The effect of the subsidiary’s revenues and expenses are only included for the period after
the acquisition.
NCI Formula
NCI= FV of subsidiary x NCI %
What is the preferred method under IFRS for calculating NCI
Partial Goodwill Method
Any difference b/w FV of subsidiary and BV acquired will require an adjustment to what three area
B.I.G
- Balance sheet adjustment
- Identifiable intangible asset
- Goodwill is recognized for any excess
What are the two categories in which identified intangible assets are separated
- Finite Life
2. Indefinite Life
Amortize over the remaining life and is subject to the two step impairment test
Finite Life
