Professional Documents
Culture Documents
Financial
Statements-Date
of Acquisition
Chapter 3
Pertemuan 3
ukrida.ac.id
Slide
3-1
Stock Acquisition
Slide
3-2
LO 2 Noncontrolling interest (NCI).
Definitions of Subsidiary and Control
Slide
3-3
LO 1 Meaning of control.
Definitions of Subsidiary and Control
Slide
3-4
LO 1 Meaning of control.
Requirements for the Inclusion of Subsidiaries
in the Consolidated Financial Statements
Slide
3-5
LO 5 Requirements regarding consolidation of subsidiaries.
Reasons For Subsidiary Companies
Slide
3-6
LO 3 Acquiring assets or stock.
Consolidated Financial Statements
Slide
3-7
LO 4 Valuation and classification of subsidiary assets and liabilities.
Investments at the Date of Acquisition
Slide
3-8
LO 7 Recording of investment at acquisition.
Investments at the Date of Acquisition
Polo Save
Common stock, $10 par value $350,000 $320,000
Other contributed capital 590,000 175,000
Retained earnings 380,000 205,000
Slide
3-9
LO 7 Recording of investment at acquisition.
Investments at the Date of Acquisition
Slide
3-10
LO 7 Recording of investment at acquisition.
Consolidated Balance Sheets: Use of Workpapers
Slide
3-11
LO 8 Preparing consolidated statements using a workpaper.
Consolidated Balance Sheets: Use of Workpapers
Advances to subsidiary (from subsidiary) Against Advances from parent (to parent)
Slide
3-12
LO 8 Preparing consolidated statements using a workpaper.
Consolidated Balance Sheets: Use of Workpapers
Investment Elimination
It is necessary to eliminate the investment account of the
parent company against the related stockholders’ equity
of the subsidiary to avoid double counting of these net
assets.
Slide
3-13
LO 8 Investment is eliminated for consolidated statements.
Consolidated Balance Sheets: Use of Workpapers
Investment Elimination
“Computation and Allocation of Difference between Implied
Value and Book Value”
Case 2. The implied value of the subsidiary exceeds the book value of the
subsidiary’s equity (IV > BV), and
a. The parent company acquires 100% of the subsidiary’s stock; or
b. The parent company acquires less than 100% of the subsidiary’s stock.
Case 3. The implied value of the subsidiary is less than the book value of the
subsidiary’s equity (IV < BV), and
a. The parent company acquires 100% of the subsidiary’s stock; or
b. The parent company acquires less than 100% of the subsidiary’s stock.
Adjusting and eliminating entries are made on the workpaper for the
preparation of consolidated statements.
Slide LO 9 Computing and allocating the difference
3-18 between implied and book value (CAD).
Consolidated Balance Sheets: Use of Workpapers
Solution on
Slide notes page LO 9 Computing and allocating the difference
3-19 between implied and book value (CAD).
Consolidated Balance Sheets: Use of Workpapers
Solution on
Slide notes page LO 9 Computing and allocating the difference
3-25 between implied and book value (CAD).
Consolidated Balance Sheets: Use of Workpapers
Implied value =
Balance Sheet P Company S Company
Cash $ 52,000 $ 40,000
Other current assets 280,000 100,000 Book value
Plant and equipment 240,000 80,000
#2 Land 25,000
Difference between IV and BV 25,000
Implied value =
Balance Sheet P Company S Company
Cash $ 80,000 $ 40,000
Other current assets 280,000 100,000 Book value
Plant and equipment 240,000 80,000
Review Question
The noncontrolling interest in the subsidiary is
reported as:
a. Asset
b. Liability
c. Equity
d. Expense
Review Question
Which of the following adjustments do not occur in the
consolidating process?
a. Elimination of parent’s retained earnings
b. Elimination of intra-company balances
c. Allocations of difference between implied and book
values
d. Elimination of the investment account
For Example:
Slide
3-44
LO 6 Limitations of consolidated statements.
IFRS Versus U.S. GAAP
Slide
3-45 LO 10 Similarities and differences between U.S. GAAP and IFRS.
IFRS Versus U.S. GAAP
Slide
3-46 LO 10 Similarities and differences between U.S. GAAP and IFRS.
IFRS Versus U.S. GAAP
Slide
3-47 LO 10 Similarities and differences between U.S. GAAP and IFRS.
Deferred Taxes on the Date of Acquisition
APPENDIX A
If a purchase acquisition is tax-free to the seller
➢ Tax bases of the acquired assets and liabilities are
carried forward at historical book values.
➢ Assets and liabilities of the acquired company are
recorded on the consolidated books at adjusted fair
value.
Slide
3-48
Deferred Taxes on the Date of Acquisition
Slide
3-49
Deferred Taxes on the Date of Acquisition
Slide
3-50
Deferred Taxes on the Date of Acquisition
Slide
3-51
Deferred Taxes on the Date of Acquisition
Slide
3-52
Consolidation of Variable Interest Entities
APPENDIX B
FASB has issued guidance for the consolidation of special-
purpose entities (SPEs) through Interpretation No. 46(R)
“Consolidation of Variable Interest Entities” and SFAS No. 167,
“Amendments to FASB Interpretation No. 46(R)[ASC 810–10–
30].”
An enterprise shall consolidate a variable interest entity (VIE)
when that enterprise has a variable interest (or combination of
variable interests) that provides the enterprise with a
controlling financial interest on the basis of the certain
provisions (listed below).
FASB Statement No. 167 requires ongoing reassessments of
whether an enterprise is the primary beneficiary of a variable
interest entity.
Slide
3-53
Thank You
ukrida.ac.id
Slide
3-54