M5 - Acquisition Method: Part 2

Question 1

When a subsidiary is acquired with an acquisition cost that is less than the FV of the underlying assets, the following steps are required:

Answer 1

1. The balance sheet is adjusted to FV, which creates a negative balance in the acquisition account.
2. Identifiable intangible assets are recognized at FV, which increases the negative balance in the acquisition account.
3. The total negative balance in the acquisition account is recorded as a gain.

Question 2

Under US GAAP, how is noncontrolling interest (NCI) calculated?

Answer 2

NCI = Fair value of subsidiary * NCI%

FV of subsidiary = Acquisition Price/Parent %

Question 3

Under IFRS, how is noncontrolling interest (NCI) calculated using the partial goodwill method?

Answer 3

NCI = FV of subsidiary net assets * NCI%

Question 4

Under IFRS, how is goodwill calculated using the partial goodwill method?

Answer 4

Goodwill = Acquisition cost - FV of subsidiary’s net assets acquired

Question 5

Dividends paid to NCI affect both retained earnings and noncontrolling interests. True or false

Answer 5

False, it only affects the noncontrolling interest balance as a subtraction off of their NCI balance.

Question 6

How should the acquirer recognize a bargain purchase in a business acquisition?

Answer 6

As a gain in earnings at the acquisition date