Chapter 3 Section 6: Acquisition Method Flashcards
What are the two distinct characteristics of acquisition accounting?
100% of the net assets acquired are recorded at FV, regardless of percent acquired.
Sub equity is completely eliminated
What are the items that need to be adjusted during acquisition?
CAR IN BIG
Common stock, APIC, and R/E of the sub are eliminated
Investment in sub is eliminated
Noncontrolling interest is created (if
How do you calculate investment in subsidiary?
Original cost.
Costs from acquisition are not capitalized to that account.
How are acquisition costs like finder’s fee and legal fees, stock registration and issuance costs, indirect costs, and bond issue costs handled?
Finder’s and legal fees: expense
Stock registration and issuance costs: dr APIC
Indirect: expense
Bond issue costs: capitalize and amortize to bond issue costs
How is noncontrolling interest accounted for?
Establish it by taking the sub’s FV x NCI %
Subsequent adjustments include NCI % of sub’s income.
How does IFRS account for NCI?
Either the full goodwill method (what GAAP uses) or the partial goodwill method
Explain the partial goodwill method
NCI = FV of sub’s net assets x NCI %
Define In Process Research and Development
It is an asset because it has probable future economic benefit.
Recognize as an intangible on the acquisition date
If the IPRD is successful, amortize. If unsuccessful, impair and write off.
How is goodwill calculated under GAAP and IFRS?
GAAP:
goodwill = fv of sub - fv of sub’s net assets
IFRS:
GAAP way, or:
goodwill = acquisition cost - fv of sub’s net assets acquired
