Business Combinations - Date of acquistion

Question 1

Two types of business combinations

Answer 1

purchase assets

purchase shares

Question 2

Purchase net assets

Answer 2

Record at FV.
Any difference between FV and Price = Goodwill

Put all assets and liab on b/s at FV

Question 3

Purchase shares

Answer 3

DR Investment in sub
CR Cash

Subsidiary remains own legal status and own f/s

Parents must report using a consolidated f/s

Question 4

Acquistional diff

Answer 4

Purchase price - BV of sub

Will pay more than the book value of net assets

Question 5

Acquistitonal differential schedule

Answer 5

Consideration paid
- BV of subs net assets (also = common shares + r.e)
= Acquistional diff
+/- FV Differential (BV - FV) do each asset on sep line
+/- Deferred taxes (opposite) calculate based on all FV differentials (50% CG’s - land)
= GOODWILL

Question 6

FV Differential

Answer 6

BV - FV

This accounts for the fact that the subs books are not recorded at FV.

Any excess of the purchase price that isn’t down to the FV differential is goodwill

Question 7

Deferred taxes

Answer 7

Opposite to FV diff x tax rate

Do 50% of FV Diff (opposite sign) for any CG assets like land

Question 8

Elimination entry

Answer 8

Not posted to general ledger. Just for consolidation

Question 9

Elimination entries

Answer 9

• Set up goodwill
• Set up NCI (non controlling interest)
• Record FV differentials
• Eliminate common shares and r/e
• Eliminate parents investment

Question 10

ASPE differences

Answer 10

Can choose acquisition method(consolidation) , cost or equity

Question 11

Net Assets

Answer 11

Equity - R/E + Shares

Question 12

Steps in setting up consolidated BS

Answer 12

Allocate purchase price to FV of net assets

Remainder is goodwill

Question 13

Calculate equity income w/ fv differentials

Answer 13

Portion of net income 
\+/- Amort of FV differential:
(if negative in acq diff schedule negative now)
Inventory - 100% in c/y
PPE - over useful life 

+/- DIT - opposite of amort x tax rate

= Total equity income

Question 14

Which are included in consolidated common shares?

Answer 14

100% of the parent’s common shares only

Question 15

How should acquisition-related costs, such as due diligence and legal costs, be accounted for?

Answer 15

expensed as incurred

don’t affect purchase P

Question 16

NCI

Answer 16

Calculate at number of share NOT controlling x market price
Add to purchase price in calculating Acq differential
Then calc goodwill normally

Question 17

NCI Balance sheet account is affected by

Answer 17

The NCI balance sheet account is impacted by the NCI’s share of amortization to date of fair value differentials and the NCI’s share of unrealized gains or losses on UPSTREAM intercompany transactions.