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