Acquisition Method Flashcards
main principles
recognition principle
measurement principle
recognition principle
acquirer recognizes all of sub’s assets/liabilities including identifiable intangibles
measurement principle
acquirer measures each recognized asset/liability and any noncontrolling interest at its acquisition date FV
valuation
consolidate at 100% FV regardless if you own less than 100%
noncontrolling interest will get credit for implied FV based on purchase price
CAR IN BIG
eliminating journal entry
DR common stock (eliminate old sub’s)
DR apic (eliminate old sub’s)
DR retained earnings (eliminate old sub’s)
CR investment in subsidiary (eliminate parent’s)
CR noncontrolling interest (create if not 100%)
DR b/s adjustments (adjust to fv)
DR identifiable intangibles (adjust to fv)
DR goodwill (adjust to fv)
CAR formula
subsidiary entity acquired
= assets - liabilities
at acquisition date
ending RE
+ dividends
+ income
= beginning RE (R in CAR)
I formula
investment in subsidiary
original cost is measured by FV business combination costs are expensed: - finder's/legal fees - registration/issuance costs (decrease APIC) - indirect costs
bond issue costs are capitalized and amortized
acquisition price > FV of net assets
A/L presented at FV
N formula
non controlling interest
businesses that do not establish 100% allocate remaining portion of sub’s equity to NCI
reported at FV in consolidated equity
includes NCI share of goodwill
N formula
B/S
at acquisition date
= FV of subsidiary
x NCI %age
after acquisition date, use equity method beg NCI \+ NCI share of sub NI - NCI share of dividends = ending NCI
allocate sub net losses to NCI even if allocation exceeds equity attributable to NCI
N formula
I/S
include 100% of sub’s revenues/expenses (AFTER date of acquisition)
sub income - sub expenses = sub NI x NCI %age = NI attributable to NCI (goes to NCI RE in G/L)
NCI
IFRS
can be calculated using partial goodwill method or full goodwill method
full goodwill method
GAAP vs IFRS
GAAP
= FV of sub
x NCI %age
IFRS
= FV of sub
- FV of sub’s net assets
partial goodwill method
GAAP vs IFRS
GAAP
= FV of sub’s net identifiable assets
x NCI %age
IFRS
= acquisition cost
- FV of sub’s net assets x %age owned
FV of subsidiary
acquisition cost + NCI
any difference b/w FV and BV will require adjustments to “BIG”
B/S adjustments to FV
B in BIG
adjust from BV to FV
recalculate depreciation
identifiable intangibles (I in BIG)
related to acquisition of sub are recorded at FV
finite life
- amortize over remaining life
- subject to 2-step impairment test
indefinite life
- do not amortize
- subject to 1-step impairment test
goodwill
G in BIG
recognized for any excess of FV of sub over FV of sub’s net assets
not amortized
test for impairment
gain
recognized if FV of sub < sub’s net assets
CR, gain instead of DR, goodwill
in process R&D
carry as an asset
recognize as an intangible
do not write off immediately
continuing R&D
expense to complete project:
- success, amortize IP R&D
- failure, impair write off IP R&D
acquisition at a premium
parent paid more than NBV of sub
determine acquisition with goodwill
acquisition at a discount
parent paid less than NBV of sub
determine acquisition with gain
consolidated RE/NI
same as parent’s RE/NI when F/S are consolidated under acquisition/equity method
