Business combinations -Acquisition accounting

Question 1

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 ____.

Answer 1

Fair value

Land cv 126
land fv 150

Gain 24
Land 24

Question 2

If I purchase a company and my continent consideration is for 500k but the fv is 200k, what is the je.

Answer 2

equity investment 5.2m
contingent consideration 200
cash 5m

Question 3

6 months later the contingent consideration fv is 300k. je?

Answer 3

expense 100

contingent lia 100

Question 4

control of a business is what percent?

Answer 4

50%

Question 5

what are the three types

Answer 5

merger
consolidation
acquisition

Question 6

which two types are treated the same

Answer 6

Because both a merger and a consolidation result in only one entity surviving, they can be treated alike.

Question 7

what is a journal entry for merger and consolidation

Answer 7

DR: Assets $______(per Acquisition Method)
CR:Liabilities (assumed) $______(as Acquisition)
Consideration Given $______(as Acquisition)

Question 8

journal entry for acquisition

Answer 8

DR: Investment in subsidiary $________(Per Acquisition Method)
CR: Consideration Given $________(As Acquisition)

Question 9

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?

Answer 9

AOCI 35k

Gain on investment 35k

Question 10

what is NCI?

Answer 10

Shares of your company I am not acquiring

Question 11

decomposition tool

Answer 11

purchase price (fv of entity as a whole)
gw (identifiable asset)
fmv (asset-lia)
identifiable assets (fv)
book value

Question 12

when do you have a bargain purchase option?

Answer 12

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.

Question 13

post acquisition. how to you treat asset/lia that change in value

Answer 13

if its a liability write it up, if its an asset write it down.

Question 14

do we remeasure equity items? a contingency can be a equity item.

Answer 14

no we do not

Question 15

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

Answer 15

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.

Question 16

why do they call it acquisition method of accounting.

Answer 16

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.

Question 17

What are non quantitative disclosures reported?

Answer 17

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.

Question 18

what are value disclosures?

Answer 18

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

Question 19

merger/ consolidation is two or more preexisting entities being combined into one.
what is the JE for it?

Answer 19

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.

Question 20

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?

Answer 20

investment in Sub

Cash

Question 21

how is IFRS for business combos differ

Answer 21

contingent assets not recognized
gw impairment is one step
gw is allocated to cash generating unit