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FAR 2014 > Consolidations > Flashcards

Consolidations Flashcards

1
Q

When is the fair value method used for recording interest in a separate company?

A

20% Ownership or Less

Accounted for as a purchase

If amount paid is less than fair value; results in a gain in current period

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2
Q

When is the equity method used when purchasing another company’s stock? How is it recorded?

A

Ownership 21% to 50%

Gives significant influence

Purchase Price - Par Value : Goodwill

Dividends received from the investee reduce the investment account and are not income

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3
Q

When are companies required to file consolidated financials? How is it recorded?

A

Ownership of other company is greater than 50%

Investment account is eliminated

Only parent company prepares consolidated statements; not subsidiary.

Acquired assets/liabilities are recorded at Fair Value on acquisition date.

Eliminating entries for inter-company sales of inventory & PPE; also inter-company investments

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4
Q

When is consolidation not required?

A

Ownership less than 50%

OR

Majority owner does not control - i.e. bankruptcy or foreign bureaucracy

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5
Q

What occurs under a step acquisition?

A

Acquirer held previous shares accounted for under Fair Value Method or Equity Method; and are now re-valued to Fair Value

Results in a Gain or Loss in current period

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6
Q

What is the difference between an acquisition and a merger?

A

Acquired companies continue to exist as a legal entity - their books are just consolidated with the parent company in the parent’s financial statements

Merged companies cease to exist and only the parent remains

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7
Q

How are acquisition costs recorded in a merger?

A

Expensed in period incurred - i.e. NOT capitalized:
Accounting; Legal; Valuation; Consulting; Professional

Netted against stock proceeds:
Stock registration and issuance costs

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8
Q

Treatment of existing goodwill before business combination

A

Do my include old goodwill in net assets when calculating new goodwill

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9
Q

Treatment of finders fees and general acquisition expenses

A

Expensed as incurred

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10
Q

Treatment of registration fees and issuing fees for securities in acquisition

A

Reduce issue price of securities

Reduces APIC

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11
Q

Calculate the consolidated APIC if stock is issued to finance acquisition

A

Parent APIC + APIC from shares issues

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12
Q

What is a bargain purchase

A

FV of NCI + FV previous purchases of CS less than FV of net identifiable assets

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13
Q

What is the acquisition date

A

Date acquirer obtains control of acquirer

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14
Q

How is acquisition cost determine in step acquisition

A

Previously held shares Remeasured at FV as of the date control is acquired
Gain recognized in period

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15
Q

Examples of intangible assets not included in goodwill

A

Trademarks
Lease agreements
Patents
Assets arising from contractual or legal rights
Assets identifiable and can be sold separately

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16
Q

How is the acquisition cost allocated

A

Allocated to acquired asset and liabilities based in relative FV

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17
Q

Calculate acquisition cost

A

Cost + FV of NCI

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18
Q

Calculate current liabilities for acquisition of entity via debt financing

A

Include current portion of LT debt in current liabilities

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19
Q

Calculate acquisition goodwill

A

Assets transferred + FV NCI - FV net identifiable assets

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20
Q

How are assets valued at acquisition date

A

At fair value

21
Q

How are intercompany receivables and payables recorded on subsidiary subsequent to acquisition

A

Intercompany receivable and payables still recorded

Only eliminate on parents consolidated FS

22
Q

Calculate NCI account balance

A

FV of NCI at acquisition date + share of net income - share of dividends

23
Q

How is the excessive value over CV of equipment treated on consolidated FS

A

Capitalized and amortized over useful life

24
Q

How are dividends declared recorded on consolidated FS when parent owns sub and sub owns parent

A

Eliminate dividends from parent to sub and sub to parent

Sub to NCI not included on consolidated FS because it does not represent dividend of consolidated entity

25
Q

Rule for consolidating variable purpose entity

A

Equity less than 10 percent of total assets. Assumed entity does not have sufficient financing to fund operations

26
Q

Who should consolidate variable purpose entity

A

Primary benefiticiary

27
Q

When is the determination of consolidation of variable purpose entity made

A

Made at time entity gets involved with VIE

Reassessed on ongoing basis

28
Q

Adjustments required when switching to consolidated FS

A

Consolidated FS is change in entity

Retroactively restate all FS

29
Q

How are earnings of parent and sub reflected on consolidated FS

A

Consolidated FS reflect combined operations of parent and sub subsequent to acquisition. Earnings of sub prior to combo not included in parent income

30
Q

What causes unrealized profit in ending inventory of consolidated FS

A

Intercompany sales made at prices greater than cost and merchandise not resold to 3rd party. Must be eliminated from consolidated FS

31
Q

Calculate unrealized profit in ending inventory

A

Sales to sub - sub cost x parent GP %

32
Q

Calculate Consolidated COGS when intercompany sales between parent as sub

A

Parent COGS + Sub COGS - sales from parent to sub

33
Q

Calculate consolidated selling expenses with sales from parent to sub and freight out expenses

A

Selling expense parent + selling expense sub - freight out expense from parent to sub

34
Q

How to record equipment from parent sold to sub at gain on consolidated FS

A

Equipment recorded at original cost less accumulated depreciation

As if equipment had never been sold

35
Q

Calculate gain on subsidiary purchase of parent bonds and effect on NCI

A

Gain = cash paid - CV

Treated like retirement of bonds

No effect on NCI

36
Q

Treatment of wholly owned subsidiary’s purchase of parent stock

A

Treated as if consolidated entity is purchasing treasury stock

No gain recorded

37
Q

Adjusted accounts on consolidate FS for intercompany sales

A

Adjust sales and COGS for intercompany sales

Net income needs no adjustment

38
Q

How is NCI share of net income affected by intercompany sales

A

Not affected by unrealized gain

It is a downstream sales from parent to subsidiary

39
Q

How are the parent investment account and subsidiary stockholder equity and NCI reported on consolidated FS

A

Parent investment account and subsidiary stockholder equity account eliminated

Portion of subsidiary stockholder equity not eliminated is NCI

40
Q

Examples of consideration transferred on acquisition

A

FV of assets and liabilities
FV of contingent consideration
Equity interest issued by acquirer
Share based payments required to be replaced by acquirer where not further service is require by employee

41
Q

How to treat incomplete information on acquisition date

A

Items recorded at provisional amount at acquisition date

42
Q

What is the measurement period for incomplete information

A

Earlier of one year from acquisition date or date complete information is available

43
Q

If a acquisition provisional amount is inaccurate how to adjust

A

Retroactively adjust goodwill

44
Q

How is the voluntary payment of share based payments to employees at acquisition recorded

A

As compensation expense post acquisition date

45
Q

When are contingent liabilities arising from acquisition derecognized

A

Only after contingency is resolved

46
Q

What are combined financial statements

A

FS prepared or companies owned by same parent or individual

Eliminate intercompany transactions

47
Q

When are combined FS used

A

Present financial position as results of:

Commonly controlled companies
Companies under common mgmt
Group of consolidated subsidiaries

48
Q

When is goodwill recognized under IFRS

A

When acquired by purchase

49
Q

When can a subsidiary be exclude from consolidation under IFRS

A

Wholly or partially owned and its owners do not object to nonconsolidation
No debt or equity is publicly traded
Parent prepares consolidated FS under IFRS

FAR 2014 (19 decks)

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