Ch. 26 - Business Combinations - Date of Acquisition

Question 1

Steps in the acquisition of shares

Answer 1

1. identify the acquirer
2. determine the date of the acquisition
3. determine the purchase price
4. analyze the acquisition differential:
   a) assets and liabilities acquired
   b) goodwill acquisition
5. allocate the NCI

Question 2

How to treat transaction costs in the acquisition

Answer 2

Transactions costs are expensed when incurred and do not impact purchase price

Question 3

Acquisition Differential is:

Answer 3

the difference between the purchase price and the book value

Question 4

Bargain Purchases - how to record transaction when purchaser pays less than fair value

Answer 4

There is no negative goodwill, the difference is a gain to the parent

Question 5

Ways to determine NCI value:

Answer 5

1. identifiable net assets

2. fair value enterprise

Question 6

NCI - Identifiable net asset approach calculated as

Answer 6

FV of net assets x NCI %

Question 7

NCI - Fair value enterprise approach calculated as

Answer 7

ownership % x fair value (as quoted in an active market for instance)

Question 8

Elimination Entry - Parts

Answer 8

1. Goodwill
2. NCI
3. FV Differentials
4. Subs common shares
5. subs R/E
6. Parents investments

Question 9

Elimination entry - How to record Goodwill elimination

Answer 9

Debit goodwill for the amount caluclated

Question 10

Elimination entry - NCI

Answer 10

credit to NCI for the amount attributed to minority shareholders

Question 11

Elimination Entry - FV Differentials

Answer 11

Debit/credit for the fair value differentials from the book value

Question 12

Elimination Entry - subs common shares

Answer 12

debit common shares to remove subs amount

Question 13

Elimination Entry - subs R/E

Answer 13

Debit R/E for subs amount as the net assets are already included

Question 14

Elimination Entry - parents investment

Answer 14

Credit the investment as the net assets are included in the accounts already

Question 15

Intercompany Transactions - balances

Answer 15

need to remove intercompany receivables / payables

Question 16

Intercompany Transactions - preferred shares

Answer 16

1. remove preferred share balance

2. remove any dividends payable/receivable

Question 17

ASPE - reporting choices

Answer 17

can use:

1. acquisition method
2. equity method
3. cost method (unless quoted in an active market, then FV must be used)