Consolidated Financial Statements

Question 1

When are consolidated FS prepared?

Answer 1

When a parent-sub relationship has been formed

Investor considered to have parent status when control over an investee is established or > 50% of voting stock has been acquired

Question 2

What are the exceptions to consolidation?

Answer 2

1. Sub is in legal reorganization

2. Bankruptcy and/or sub operates under severe foreign restrictions

Question 3

Under IFRS, a parent must consolidate investments in subs unless what conditions are met?

Answer 3

1. Parent is a wholly owned sub, or partially owned sub w/owners who don’t object to not consolidating
2. Parent not publicly traded and not in process of issuing securities in public market
3. Ultimate or any intermediate parents consolidate their FS in compliance with IFRS

Question 4

What method is required to record the acquisition of a sub under GAAP and IFRS?

Answer 4

Acquisition method

Question 5

Recognition principle

Answer 5

Acquirer recognizes all of sub’s assets/liabilities, including identifiable intangible assets

Question 6

Measurement principle

Answer 6

Acquirer measures each recognized asset/liability and any noncontrolling interest at its acquisition date FV

Question 7

What are the main principles for applying the acquisition method?

Answer 7

Recognition principle and Measurement principle