...1. How is goodwill measured in a business combination? ASC 805-30-30-1 Measurement of Goodwill Currently Viewing: 805 Business Combinations 30 Goodwill or Gain from Bargain Purchase, Including Consideration Transferred 30 Initial Measurement General > Measurement of Goodwill 30-1 The acquirer shall recognize goodwill as of the acquisition date, measured as the excess of (a) over (b): * a. The aggregate of the following: * 1. The consideration transferred measured in accordance with this Section, which generally requires acquisition-date fair value (see paragraph 805-30-30-7) * 2. The fair value of any noncontrolling interest in the acquiree * 3. In a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree. * 30-2 In a business combination in which the acquirer and the acquiree (or its former owners) exchange only equity interests, the acquisition-date fair value of the acquiree’s equity interests may be more reliably measurable than the acquisition-date fair value of the acquirer’s equity interests. If so, the acquirer shall determine the amount of goodwill by using the acquisition-date fair value of the acquiree’s equity interests instead of the acquisition-date fair value of the equity interests transferred. * Currently Viewing: * 805 Business Combinations * 30 Goodwill or Gain from Bargain Purchase, Including Consideration...
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...(amortizable, impairment); Acquisition has contingent consideration (treated as part of consideration); in process R&D (treat as asset with unlimited life) * Chapter 3: VIE (multiple choice, not problem), computation of goodwill; E&R elimination entry; bargain purchase; previously recorded goodwill (ignore it) * Chapter 4: CERO, impairment testing (for intangibles, limited life and unlimited life, and goodwill) * Chapter 5: NCI; goodwill allocation; N elimination entry (for NCI); NCI with bargain purchase; cash flow statements (multiple choice) * Chapter 6: land (problem) * IFRS not on the exam! * Be careful, if asked what’s acquiring company’s journal entry, it’s equity method entry. (This is different from consolidation entries.) Do one more time: P1.4 P2.5 E4.3, 4.4, P4.6 P5-4, 5-5 E6.1 Review notes: * At the date of acquisition: only E & R needed. * The balance of treasury stock is Credit. (when there is TS, BV should decrease by this amount) * Gain on bargain purchase: total gain(=Acquisition cost+ NCI- FV of net assets) recorded by parent. (E5.4) * Gain on bargain purchase: in R, NCI should be adjusted to it’s fair value at the date f acquisition, so does investment account. (E5.4) * Step N: DR. NCI in net income of xx (similar to step C for controlling interest) CR. Dividend CR. NCI in xx * Summary of CERON (see handout of P5-5) * C&N has similar function: reverse Equity and investment accounts...
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...Unit III - Consolidation Subsequent to Acquisition Date Key Concepts: Recording on the cost basis requires additional calculations of Ps net income and consolidated retained earnings Under the equity method, the Parent’s net income and retained earnings equals consolidated net income and consolidated retained earnings Preparation of consolidated statements – cost and equity methods - Exhibit 5.16, page 205 Impairment testing for intangible assets with definite useful lives: two step process (page 176): o step 1: is the asset impaired? o step 2: if so, calculate impairment loss as the difference between the recoverable amount f the asset and its carrying value Impairment testing for intangible assets with indefinite useful lives (example: goodwill): as singlestep process; i.e., if the recoverable amount is less than carrying value, asset is impaired by the difference – note that goodwill is no longer amortized but tested for impairment. Key Objectives: Prepare consolidated financial statements for the first and subsequent year ends after acquisition for a parent and its wholly owned (or non-wholly owned) subsidiary when the parent uses the cost method or the equity method. Resources Text pages 170 - 206 Practice Exercises within the unit iStudy Website Unit Assignment Before you begin your reading, review the key points, learning objectives and unit overview/notes. It is useful to keep the learning objectives in mind as you proceed through the...
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...ACCT 595 Advanced Accounting Final Exam Answers https://homeworklance.com/downloads/acct-595-advanced-accounting-final-exam-answers/ ACCT 595 Advanced Accounting Final Exam Answers FINAL EXAM ADVANCED ACCOUNTING (30 questions x 9 points=270) 1. Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2011 and paid dividends of $60,000 on October 1, 2011. How much income should Gaw recognize on this investment in 2011? A. $16,500. B. $9,000. C. $25,500. D. $7,500. E. $50,000. 2. Yaro Company owns 30% of the common stock of Dew Co. and uses the equity method to account for the investment. During 2011, Dew reported income of $250,000 and paid dividends of $80,000. There is no amortization associated with the investment. During 2011, how much income should Yaro recognize related to this investment? A. $24,000. B. $75,000. C. $99,000. D. $51,000. E. $80,000. 3. On January 1, 2011, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.’s voting common stock which represents a 45% investment. No allocation to goodwill or other specific account was made. Significant influence over Lennon was achieved by this acquisition. Lennon distributed a dividend of $2.50 per share during 2011 and reported net income of $670,000. What was the balance in the Investment in Lennon Co. account found in the financial records of Pacer as of December 31, 2011? ...
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...------------------------------------------------- ACCT3050 ASSIGNMENT, CHAP 2 1. | Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be recorded in: A. | A worksheet. | B. | Lisa's general journal. | C. | Victoria's general journal. | D. | Victoria's secret consolidation journal. | E. | The general journals of both companies. | | | | 2. | Using the acquisition method for a business combination, goodwill is generally defined as: A. | Cost of the investment less the subsidiary's book value at the beginning of the year. | B. | Cost of the investment less the subsidiary's book value at the acquisition date. | C. | Cost of the investment less the subsidiary's fair value at the beginning of the year. | D. | Cost of the investment less the subsidiary's fair value at acquisition date. | E. | None of the above; it is no longer allowed under federal law. | | | | 3. | How are direct and indirect costs accounted for when applying the acquisition method for a business combination? A. | Option A | B. | Option B | C. | Option C | D. | Option D | E. | Option E | | | | | | 4. | A statutory merger is a(n): A. | Business combination in which only one of the two companies continues to exist as a legal corporation. | B. | Business combination in which both...
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...Assignment 1: Business Combinations Cindy Yoon Professor Robert Neely ACC 401 – Advanced Accounting October 24, 2013 Abstract In this paper, I will provide an explanation for the business combination method I selected in expanding the corporation by acquiring another firm, the reason for selecting that business combination method, and how the purchase will grow the business. I will also analyze the accounting requirements for the business combination method I selected and how I determined goodwill was impaired and the financial impact of such impaired goodwill. The business combination method I selected is the acquisition method. Business combinations have implemented the newly created accounting treatment called the “acquisition method.” The major changes in the acquisition method include changes to fair value measurement, goodwill recognition, and non-controlling interests. In acquisition method, the parent company reports the net assets of the acquired company at the price that it was paid for. This price includes any cash payment, the fair market value of any shares issued, and the present value of any promises to pay cash in the future. A key point of the purchase method is that the parent consolidates the book value of all the subsidiary’s assets and liabilities and then the fair value, broken down between Net Book Value and Fair Market Value increments, of the subsidiary's assets and liabilities are added to the parent's own assets and liabilities...
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...BAC 3634 Corporate Accounting I Trimester 1 2015/2016 Group Assignment Topic: IFRS & IAS and The Practical Disclosure In Fraser & Neave Holdings Berhad Prepared for: Mdm. Haslin Binti Johari Prepared by: No. | Name | ID | 1 | Tan Se Man | 1102703355 | 2 | Wong Chin Ang | 1102703373 | 3 | Gan Hui Leng | 1102703420 | 4 | Neo Zi Sin | 1102703513 | 5 | Cheah Zhi Qin | 1112701231 | Table of Contents List of Diagrams I 1.0 Introduction 1 1.1 Economics of F&N Holdings Berhad 1 2.0 The Users of Financial Statements and Their Information Needs 4 3.0 Discussion of Standards Related to Consolidation and its Actual Presentation 6 4.0 Conclusion 14 Reference 16 List of Diagrams Exhibit 1 Group Structure & Summary of Ownership Interests in Subsidiary Exhibit 2(a) Disclosure of Ownership Interest in Subsidiaries Exhibit 2(b) Disclosure of Ownership Interest in Subsidiaries Exhibit 3 Consolidated and Separate SOPL Exhibit 4 Consolidated and Separate Statements of Comprehensive Income Exhibit 5(a) Consolidated SOFP Exhibit 5(b) Separate SOFP Exhibit 6 Consolidated SOCIE Exhibit 7 Separate SOCIE Exhibit 8 Consolidated and Separate SOCF Exhibit 9 Disclosure about Reporting Date Exhibit 10 Acquisition Method of Business Combinations Exhibit 11 Comparisons of Investment in Subsidiaries of 2 years Exhibit 12 Goodwill as Intangible Assets and Computations Exhibit 13(a) Goodwill Recognized...
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...Does Parent’s purchase of a legal subsidiary in bankruptcy qualify as a business combination under ASC 805? Parent lost its ability to remove and replace majority of the board of directors of Poor Son as a result of the bankruptcy. This supports that Parent lost control of its wholly owned subsidiary, Poor Son. Therefore, Parent’s acquisition of the reorganized Poor Son does not meet the scope exception in ASC 805-10-15-4(c). Under ASC 805-10-20, a business combination occurs when an acquirer obtains control of one or more businesses. The given facts state that Parent will receive 100% of the new equity interests in the re-organized Poor Son. In addition, Parent will have the power to name all members of Poor Son’s new board of directors. ASC 805-10-55-2 provides the examples of transactions in which an acquirer can obtain control of an acquired business. Based on ASC 805-10-55-2(c), Parent has control of the new reorganized Poor Son because it acquired 100% of equity interests of Poor Son. In addition, Parent has the majority of voting interests of Poor Son because it has the responsibility to appoint all new board of directors of Poor Son. According to ASC 810-10-15-8, an acquirer has the power to control if the acquirer has the ownership of a majority voting interests. Based on these, Parent has control of the reorganized Poor Son. To conclude, Parent’s acquisition of Poor Son in bankruptcy qualifies as a business...
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...On 1 July 2007, Neptune Ltd acquired all the shares of Venus Ltd on an ex-div basis. Acquisition related expenses were $5 000. On this date, the equity and liabilities of Venus Ltd included the following balances: Share Capital $200 000 General Reserve 25 000 Retained Earnings 45 000 Dividend payable 10 000 Provisions 204 400 At acquisition date, all the identifiable assets and liabilities of Venus Ltd were recorded at amounts equal to fair value except for: Carrying Fair Amount Value Equipment (cost $80 000) $50 000 $53 000 Inventory $70 000 $80 000 Plant (cost $300 000) 186 000 190 000 Machinery (cost $18 000) 15 000 16 000 Trademark 100 000 110 000 Land 50 000 70 000 Fittings (cost $15 000) 10 000 10 000 Goodwill 25 000 52 000 Goodwill was written down by $5 000 in the 2008 year by Neptune Ltd as a result of an annual impairment test. The plant had a further five year life at acquisition date and was expected to be used on a straight line basis over that time. The trademark was considered to have an indefinite life. The machinery, which was estimated to have a further four year life at acquisition date, was sold on 1 January 2009. At 1 July 2007, Venus Ltd had not recorded a liability relating to a guarantee that was considered to have a fair value of $10 000. An amount of $6 000 was paid by Venus Ltd in June 2009 in part payment of this liability. The balance of this liability was still considered to be $4 000 at 30 June 2009. ...
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...Strategic investment: own more than an passive amount, not enough to control, has power to participate in financial and operational decision of investee IAS28. Classification require professional judgement. * Presentation of board of directors * Interco transaction and relationship * Who own the other shares * Any debt financing intermingled * Sharing technology and patent * Participation in policy making process Investor need to disclose share of investment income, * Also disc, opns * Error correction * Acct policy changes, * Capital transaction included amount in OCI Have influence or not : 20% Users and objectives 1. Public shareholder: a. investors are interested in the performance of the company b. owner: tony Antonio: the liquidation of the company, if its performing well and be able to generate profit. Ability to distribute dividend. 2. Government/CRA: due to the variety of the investment, if it records the investment recognize it properly. Prepare consolidated financial statement under necessary circumstance. Report the income tax and deferral properly. Constraints: 1. IFRS since it becomes public in 2005 Identify issues * Bach Burgers Inc: 80% which is more than passive amount, under IAS28, Teresa;Antonio’s wife has power to participate financial and operational decision. * One of the 12 board of directors * 20% of the shares is owned by other 11 directors...
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...Equipment (cost $300 000) 186 000 190 000 Machinery (cost $18 000) 15 000 16 000 Trademark 100 000 110 000 Land 50 000 70 000 At the date of acquisition, Beans Ltd had recorded goodwill of $25 000. Goodwill was not impaired in any period. The plant and equipment had a further five year life at acquisition date and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. The machinery, which was estimated to have a further four year life at acquisition date, was sold on 1 January 2014. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. During the year ended 30 June 2013, all inventories on hand at acquisition date were sold, and the land was sold on 1 June 2013. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed. Additional information: a) On 1 July 2013, Beans Ltd has on hand inventory worth $12 000, being transferred from Jelly Ltd in June 2013. The inventory had previously cost Jelly Ltd $8 000. This entire inventory was sold to external parties in the year ending 30 June 2014. b) On 31 March 2014, Beans Ltd transferred an item of plant with a carrying amount of $10 000 to Jelly Ltd for $15 000. Jelly Ltd treated this item as inventory. The item was still on hand at the end of the year....
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...which was carrying $100,000 worth of accumulated depreciation, had a remaining life of five years on January 1, 2010. The inventory was sold in 2010. Salem Company’s net income and dividends declared in 2010 and 2011 were as follows: * Year 2010 Net Income of $100,000; Dividends declared of $25,000 * Year 2011 Net Income of $110,000; Dividends declared of $35,000 Prepare a consolidated worksheet for the year ended December 31, 2012. Although no goodwill impairment was reflected at the end of 2010 or 2011, the goodwill impairment test conducted at December 31, 2012 revealed implied goodwill from Salem to be only $150,000. This impairment was been recorded in the books of the parent under the equity method. December 31, 2012 Consolidation Worksheet Income Statement | Parent | Sub | Debit | Credit | Total | Sales | $1,100,000 | $450,000 | | | | Income from subsidiary | 77,200 | | | | | | | | | | | Cost of goods sold | (900,000) | (200,000) | | | | Depreciation expense | (40,000) | (30,000) | | | | Other expenses | (60,000) | (50,000) | | | | Consolidated net income | $177,200 | $170,000 | | | | | | | | | | | | | | | |...
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...CONSOLIDATION (25 MARKS) On 1 July 2010, Caspian Ltd acquired all the shares of Black Ltd for $330,000 on an ex-div basis. On this date, the equity and liabilities of Black Ltd included the following balances: Share Capital $200 000 General Reserve 25 000 Retained Earnings 45 000 Dividend payable 10 000 Provisions 169 500 At acquisition date, all the identifiable assets and liabilities of Black Ltd were recorded at amounts equal to fair value except for: Carrying Fair Amount Value Inventory $70 000 $80 000 Plant & Equipment (cost $300 000) 186 000 190 000 Machinery (cost $18 000) 15 000 16 000 Trademark 100 000 110 000 Land 50 000 70 000 Goodwill 25 000 55 000 Goodwill was not impaired in any period. The plant and equipment had a further five year life at acquisition date and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. The machinery, which was estimated to have a further four year life at acquisition date, was sold on 1 January 2012. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. During the year ended 30 June 2011, all inventories on hand at acquisition date were sold, and the land was sold on 1 June 2012. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed. Additional information: (i) Of the interim dividend paid by Black Ltd...
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...STUDENT ACTIVITY SECTION 1. SUMMARY OF THE LEARNING OBJECTIVES The preparation of the consolidated financial statements is done using a consolidation worksheet, the left-hand columns of which contain the financial statements of the members of the group. The adjustment columns contain the consolidation worksheet entries that adjust the left-hand columns to form the consolidated financial statements. The adjustment entries have no effect on the actual financial records of the parent and its subsidiaries. At acquisition date, an acquisition analysis is undertaken. The key purposes of this analysis are to determine the fair values of the identifiable assets, liabilities and contingent liabilities of the subsidiary, and to calculate any goodwill or gain on bargain purchase arising from the business combination. From this analysis, the main consolidation worksheet adjustment entries at acquisition date are the business combination valuation entries, to adjust carrying amounts of the subsidiaries’ assets and liabilities to fair value, and the pre-acquisition entries. In preparing consolidated financial statements in periods subsequent to acquisition date, the consolidation worksheet will contain valuation entries and pre-acquisition entries. However, these entries are not necessarily the same as those used at acquisition date. If there are changes to the assets and liabilities of the subsidiaries since acquisition date, or there have been movements in pre-acquisition equity...
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...Accounting for Investments under FASB No. 115 – A Review |For commercial enterprises |Presentation on Financial |Change in Fair Value | |(nonprofit entities follow SFAS No.124) |Statements | | | | |Temporary |Other than | | | | |Temporary Loss | |Does the investor have substantial influence or control? | | | | |Investor owns 20% to 50% of stock and has significant influence but |On BS at historical cost plus |N/A |Realized loss on | |not control of the corporation |share of earnings since | |IS, new basis on | | |acquisition less dividends | |BS | |Use Equity Method |received (amortization may also be| | | | |required) | | ...
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