Business combinations -Acquisition accounting Flashcards
If giving anything other than cash in exchange for a business I must adjust it to its _____ on my books before transfer, and recognize a ___ or ____.
Fair value
Land cv 126
land fv 150
Gain 24
Land 24
If I purchase a company and my continent consideration is for 500k but the fv is 200k, what is the je.
equity investment 5.2m
contingent consideration 200
cash 5m
6 months later the contingent consideration fv is 300k. je?
expense 100
contingent lia 100
control of a business is what percent?
50%
what are the three types
merger
consolidation
acquisition
which two types are treated the same
Because both a merger and a consolidation result in only one entity surviving, they can be treated alike.
what is a journal entry for merger and consolidation
DR: Assets $______(per Acquisition Method)
CR:Liabilities (assumed) $______(as Acquisition)
Consideration Given $______(as Acquisition)
journal entry for acquisition
DR: Investment in subsidiary $________(Per Acquisition Method)
CR: Consideration Given $________(As Acquisition)
If you have 20% of a company and you have it listed as AFS in your financials and you later acquire 30% more, you now have control (50%) and must take out what ever you have in loci and recognize a gain. ex
few years ago it was worth 150k and it was a afs security. today it’s worth 185k. and you now have 50% control. how much do I have in AOCI? whats the je?
AOCI 35k
Gain on investment 35k
what is NCI?
Shares of your company I am not acquiring
decomposition tool
purchase price (fv of entity as a whole) gw (identifiable asset) fmv (asset-lia) identifiable assets (fv) book value
when do you have a bargain purchase option?
when gw is negative or if you gave less and received more.
ex if you gave 900 (purchase price) and you received 1m( fmv) then you got a bpo.
post acquisition. how to you treat asset/lia that change in value
if its a liability write it up, if its an asset write it down.
do we remeasure equity items? a contingency can be a equity item.
no we do not
at the time of acquisition P corp recorded the acquisition of S. What’s the JE. at acquisition?
what’s the JE after6 months if the contingent lia is now 3500?
Net assets acquired 11k
cash paid 9k
contingent lia 2k
Investment in S Co 11k
Cash 9k
Contingent LIA 2k
6 months later
Loss of FV on increase of lia 1500
Contingent lia 1500
*Remember this is acquisition acquisition method accounting because this is an acquisition. not a merger or consolidation.
why do they call it acquisition method of accounting.
Only investment account is used in acquisition. there are three types of business combinations. Mergers, Consolidations, and acquisitions. all three use acquisition method of accounting. anything that is combined wether it be a merger, acquisition, consolidation, its acquisition method of accounting.
What are non quantitative disclosures reported?
name and description of acquired acquisition date percentage acquired primary reason for combo how acquirer obtained control qualitative description of factors that make up Goodwill if any.
what are value disclosures?
fv of each major class of consideration
amount recognized for each major class of asset and lia assumed
fv of nci and techniques inputs used in determining fv
fv of recombination ownership
gain loss in adjusting fv
where gain loss shows in financials
for gw how much was allocated to each segment
amount expected to be tax deductible
post combination of rev and earnings
merger/ consolidation is two or more preexisting entities being combined into one.
what is the JE for it?
dr assets acquired (fv)
dr GW (if consideration > fv of net assets)
cr liabilities assumed(fv)
cr consideration paid (fv)
ex
ar
inventory
pre
gw
ap
other lia
cash
- if it’s a bargain purchase (negative gw) then a bpo gain will be credited and no gw is recognized.
if it’s a legal acquisition where one entity gains control of another entity. entities prepare separate financials that need to be consolidated. entities continue as separate legal entities. acquirer records investment in sub account. what is the je?
investment in Sub
Cash
how is IFRS for business combos differ
contingent assets not recognized
gw impairment is one step
gw is allocated to cash generating unit
