(Becker) F4-M6,M7,M8 - consolidation & goodwill Flashcards
Dividends paid by subsidiary
Are 100% eliminated in consolidation
Sub dividends paid to noncontrolling shareholders would decrease their non controlling interest under equity method
Intercompany sales
Both company’s revenue added together
- consolidated revenue
Transactions
When consolidating 100% of Intercompany transactions must be eliminated, even when the parent owns less than 100%.
Unrealized profit To be eliminated from inventory
Interco.profit on inventory x % of inventory purchases still on hand
Parent/sub bonds
NCI is not adjusted if bonds are originally issued by the sub and a portion of the gain must be allocated to NCI.
If the parent issues the bond, retained earnings is adjusted and the elimination has no impact on NCI
Earnings from subsidiaries
Take beginning and ending balance and subtract out dividends if any to get income. Multiply sub income by percentage owned by parent to get earnings from sub
Stockholders equity(consolidated)
Consolidated equity will be equal to the parent company’s equity plus FV of any NCI.
Sub equity accounts eliminated
If 100% of sub not owned by parent but still over 50%
NCI included (such as in total retained earnings)
Equity=
Common stock
+ APIC
+ retained earnings
(+NCI if applicable)
IFRS- goodwill calculation
(1 step impairment test)
Cash generating unit level
CV compared with recoverable amount (greater of FV less costs to sell & value in use)
Impairment loss is recognized If CV is more than recoverable amount
(IFRS) value in use
Present value of the future cash flows expected from the cash generating unit
GAAP requires that goodwill be tested for impairment. What are the two steps
1) determine if FV of reporting units is less than CV. If yes potential goodwill impairment.
If FV is more than CV then no goodwill and step 2 unnecessary
2) compute
