Subsequent consolidation Flashcards
Subsequent Consolidation
In all subsequent consolidations, the revaluation of the assets and liabilities and the calculation of goodwill are done in the same way and using the same values as in the initial consolidation.
Per acquisition
in the subsequent periods the revaluation and presentation of goodwill as well as the equity per acquisition are always to be carried out with the focus on “per acquisition”
Depriciation table
− Book value of PPE per acquisition according to statutory accounts: 500
− Remaining useful life 5 years; straight-line depreciation, depreciation per year 100
− Increase value of property, plant & equipment: 300
Revaluations in subsequent periods
Worldwide agreement on Goodwill
There is worldwide agreement to the extent that goodwill resulting from an acquisition is to be ascertained at the time of the initial consolidation (purchase method).
Different goodwill concepts in subsequent periods
different concepts exist with regard to the treatment of goodwill in subsequent periods.
− Impairment-only approach
− Capitalization and amortization
− Offsetting and shadow accounting
Impairement only
Accepted buy: IFRS, US GAAP
Effect: Recognition of goodwill as an asset, no systematic amortization, disclousure of possible impairement.
Appraisal: Aggreesive approach, M&A firendly as there is no impact from future depriciations, difficult verification of goodwill valuation
Capitalization & Amortization
Accepted by: Swiss GAAP FER
Effect: Recognition of Goodwill as an asset, Usually straight-line amortisation, impairment if book value of goodwill is not justifiable anymore
Appraisal: Prudent approach, Difficult estimation of the useful life of goodwill.
Offset against equity with shadow accounting
Accepted by: Swiss GAAP FER
Effect: Goodwill is offset against equity immediately. Recognition and Amortization of goodwill to be disclosed in the notes (incl. impairement if book value of goodwill is not justifiable anymore)
Appraisal: Prudent approach. Possible in case of difficult estimation of the useful life of goodwill.
Impairement only treatment
Approach:
Consolidated equity per initial consolidation. Consists of parent’s equity
Consolidated profit: no negative imoact on profit due to amortization of goodwill
Return on consolidated equity: Attractive values, risk of high impairement expenses in the future
Capitalization & Amortization treatment
Consolidated equity per initial consolidation: Consists of parent’s equity
Consolidated profit: Negative impact on profit due to amortization of goodwill
Return on consolidated equity: Conservative values, reduced risk of impairement exenses in the future.
Offsetting and shadow accounting treatment
Consolidated equity per initial consolidation: Consists of parent’s equity decreased by goodwill
Consolidated profit: No negative impact on profit due to amortization of goodwill
Return on consolidated equity: High values, shadow accounting with recognition and amortization shows reference values.
Consolidated profit
Consolidated equity
Return on consolidated equity
Impairement test
Impairement of goodwill 1
Impairement of goodwill 2
Impairement of goodwill 3
Impairement of goodwill 4
Define group
combination of legally independent entities for business purposes, in which a parent controls one or more subsidiaries and may be involved in jointly operated or associated entities.
What does the consolidated F.statements represent?
consolidated financial statement pretends to represent the group entities as if they were one single entity. Only the relations to third parties are relevant. All relations between entities within the group must be eliminated.
What is group relevant profit?
Group-relevant profit results only when supplies and services are provided towards third parties
− All intragroup supplies and services must be recognized at their respective acquisition or production costs at most
− Unrealized profit that has already been recognized must be corrected. − Corrections:
− Unrealized profit that existed at the beginning of the period must be eliminated directly via equity
− The change in unrealized profit during the current period is recognized in net income
Treatment of Intragroup profit 1
Treatment of Intragroup profit 2
Calculation of unrealized intragroup profit
Treatment of intragroup profit in statement
