Business Combinations & Consolidations Flashcards
Under IFRS, what are the three criteria for a parent to exclude a subsidiary from consolidations?
1) It is owned fully or partially and the other owners do not object to non-consolidation.
2) It is not publicly traded.
3) The parent has consolidated financial statements that comply with IFRS.
How do you calculate goodwill in a business acquisition?
Goodwill is the cost of the acquisition (the purchase price) minus the FV of net assets ( FV assets - FV liabilities).
How do US GAAP and IFRS record non-controlling interest, respectively?
In US GAAP non controlling interest is recorded at FV.
In IFRS, non-controlling interest is recorded at either FV or a proportionate share of the sub’s net assets.
What does a company record when they calculate a negative goodwill for an acquisition?
A negative goodwill is recorded as a gain from bargain purchase.
What are the typical methods of financial statement preparation for parent companies with percentage owned?
< 20% - FV or amortized cost
50% - 20% - Equity Method
> 50% is consolidated or possibly equity depending on the circumstance. Usually consolidated.
Under the full equity method, how is the retained earnings calculated in a business combination?
The retained earnings is equal to the parent company’s retained earnings.
How is the accounts receivable from investee companies accounted for in the balance sheet?
It is the sum of all the receivables that are no consilidated in the balance sheet. Consolidated receivables do not get added again to AR.
What is push-down accounting and what are the rules for GAAP and IRFS?
The SEC requires the use of push-down accounting, while IFRS disallows it. It is the method used to prepare the separate financial statements for significant, very large subsidiaries that are substantially owned ( over 90%). Has no effect on presentation but requires adjustment entry to revalue the subsidiary assets/ liabilities to fv.
What assets and liabilities need fair value measurement when presented in the financial statements?
1) Goodwill
2) Investments
3) Derivatives
4) Asset Impairments
5) Asset retirement obligations
6) Business obligations
7) Troubled Debt Restructuring
What does regulation S-X describe?
It describes the form and content of the financial statements filed with the SEC.
What does regulation S-K describe?
Describes the requirement for information and forms required by regulation S-X.
What is Regulation AB?
Describes reporting requirements of asset backed securities.
What does regulation fair disclosure mandate?
It mandates that publicly traded companies disclose material information to investors all simultaneously.
Where is accumulated other comprehensive income reported in the financial statements?
It is reported in the equity section of the balance sheet.
