Acquisition Method Flashcards
Acquisition method fees are expenseded
legal, finder’s fees, indirect cost
Acquisition Date Calculation (of CAR)
difference between book value and fair value
BASE calculation but put CAR in reverse so start with “E”
Acquisition Date computation Noncontrolling Interest
FV of sub * non-controlling interest percentage
Noncontrolling Interest after the Acquisition Date
accounted for using equity method; Beginning noncontrolling interest \+ NCI share of subsidiary net income - NCI share of subsidiary dividends =Ending NCI
Acquisition Method Allocation of Subsidiary Net Losses
allocated to NCI even if result is negative carrying balance
NCI on B/S Acquistion Method
- consolidate balance sheet includes 100% of sub’s assets and liabilities
- NCI share of sub’s net assets should be presented as part of stockholder’s equity, separately from parent’s
NCI on I/S Acquistion Method
Consolidated I/S will include 100% of Subs revenues and expenses after the date of acquisition
UNDER IFRS, MEHTODS FOR NCI COMPUTATION
- “Full goodwill” which is GAAP
NCI= FV of Sub * NCI % - “Partial goodwill” method
NCI= FV of sub net identifiable assets * NCI %
HANDLE IN PROCESS R&D: ACQUISITION METHOD
- recognize as intangible asset separate from goodwill at acquisition date
- do not write off immediately
- expense continuing R&D to complete
Later:
1) project success–>amortize IP R&D
2) Failure–>impair/write off IP R&D
DETERMINING AN ACQUISITION WITH GOODWILL
- if acquiring where FV (acq price + FV of NCI) > FV of 100% of assets follow these steps
1) adjust balance sheet accounts to fair value (recalc depreciation) and allocate acq cost to fair value of 100% of Balance Sheet accounts
2) allocate remaining acquisition cost to identifiable intangibles at FV
a) finite life which is amortized over remaining life
b) indefinite life subject to one step impairment test
3) allocate anything remaining to goodwill, not amortized just test for impairment
Determination ACQUISITION with a gain
parent acquired sub at discount (paid less then NBV)
1) “B” allocate acquisition cost to FV of 100% balance sheet (even if negative balance created)
2) “I” allocate remaining acquisition cost to FV of 100% of identifiable intangibles
3) “G” negative balance remaining is gain
STATEMENT OF CASH FLOWS IN PERIOD OF ACQUISITION
- net cash spent or received in acquisition reported in investing section
- assets and liabilities of sub on acquisition date must be added to parent’s to determine change in cash due to operating, investing, and financing activities during period
DIFFERENCES BETWEEN PREPARING A NORMAL STATEMENT OF CASH FLOWS AND ONE FOR A CONSOLIDATED ENTITY
for consolidated:
- when reconciling net income to net cash provided by operating activities, total consolidated net income should be used
- financing section should include dividends paid to noncontrolling shareholders
- investing section may report acquisition of additional subsidiary shares by the parent if the acquisition was an open market purchase
Non-control –> Control (Step Transaction)
- remeasure previously held equity interest to fair value
- income statements will reflect this adjustment
Parent Acquires More (already above 50%)
- treat like treasury stock transaction
- equity transaction NOT ACQUISITION
- no gain or loss recognized on the income statement
- additional paid-in capital adjusted
CHANGE FROM CONTROL–>NON-CONTROL?
- recognize gain or loss of sale of the stock
- remeasure the remaining non-consolidating interest to FV
- recognize adjustment to FV on income statement
IFRS partial goodwill method
Goodwill = Acquisition cost − Fair value of net assets acquired
The fair value of XXX net assets is XXX ($XX book value + $XX asset FV adjustments + $XX identifiable intangibles).
IFRS partial goodwill method, noncontrolling interest (NCI)
NCI = FV of subsidiary net assets × NCI %
Under U.S. GAAP, noncontrolling interest (NCI)
NCI = Fair value of subsidiary × NCI %
What effect does the dividend have on the retained earnings and noncontrolling interest balances in the parent company’s consolidated balance sheet?
NO effect R/E Decrease NCI
Beginning noncontrolling interest
+ NCI share of subsidiary net income
- NCI share of subsidiary dividends
Ending noncontrolling interest
The acquisition price exceeds the fair value of net assets acquired. How should Parent Company determine the amounts to be reported for the plant and equipment and long-term debt acquired from Small Company?
When the acquisition price exceeds the fair value of net assets acquired, assets and liabilities should be presented at fair value.
the appraised values of the identifiable assets acquired exceeded the acquisition price. How should the excess appraised value be reported?
As a gain, after adjusting the balance sheet, including identifiable intangible assets, to fair value.
How are plant assets recorded when parent acquired 100% of Sub ?
The acquisition method requires that 100% of the fair value of the subsidiary’s assets be recognized
FV Sub
+ BV Parent
At date of acquisition, the consolidated equity will be equal to
the parent company’s equity plus the fair value of any noncontrolling interest. The subsidiary company’s equity accounts are eliminated.
