CH13 consolidated SOFP

Question 2

What is the cost of the business combination (the investment in the parent company’s single entity accounts)?

Answer 2

The total of the fair values of the consideration transferred to gain control.

Question 3

What can the consideration transferred include?

Answer 3

It can include cash, other assets, and liabilities assumed by the acquirer.

Question 4

Fill in the blank: The cost of the business combination is what the parent company paid to purchase its _______.

Answer 4

shareholding in the subsidiary.

Question 5

True or False: The consideration transferred only includes cash.

Answer 5

False

Question 6

Goodwill calc!

Answer 6

Question 7

Consideration transferred is the same as …?

Answer 7

the investment sitting in the parent company’s single entity accounts. This line gets cancelled on consolidation and then reappears in the first line of your GW calc.

Question 8

What kind of value(s) are we trying to calculate for consideration transferred?

Answer 8

The fair values

Question 9

GW calc - types of consideration and treatment

Answer 9

Cash
Equity instruments
Deferred consideration
Contingent consideration

Question 10

Should the top line of the GW calc (consideration transferred) include acquisition related costs?

Answer 10

NO!!! They are expensed thru PorL (internationally)

Question 11

How do you record the value of net assets in the GW calc if their CV on the SOFP is below MV?

Answer 11

MUST record net assets as the MV of its individual net assets by taking their CV and adjusting for any FV differences.

This is why the sub’s assets and liabilities should be recognised at FV at the date of acq.

Question 12

Sometimes assets and liabilities that the subsidiary has not recognised in its single entity accounts are
recognised on consolidation, such as some internally-generated intangibles and contingent liabilities.

This usually requires adjustments at the acquisition date (known as fair value adjustments).

How do you deal with intangible assets on acquisition?

Answer 12

• Internally generated intangible assets cannot be recognised on the sub’s accounts. Ie. CV = 0
• Parent may be willing to pay for that asset.
• If they can reliably value it, they must recognise it on consolidation as its own separate intangible
• This creates a FV difference

Question 13

do you amortise GW?

Answer 13

NOOOO - you annually review it for impairment