Term
| Two main principals of applying Acquisition method |
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Definition
Note: consolidate sub at 100% fair value at acquisition date.
1. Recognition Principle: The acquirer recognizes all of the subsidiary's assets and liabilities, including identifiable intangible assets.
2. Measurement Principle: The acquirer measures each recognized asset and liability and any no controlling interest at its acquisition date at fair value. |
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Term
The subsidiary may be acquired for:
The investment is valued at the: |
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Definition
Cash, stock, debt securities etc.
Fair Value. at the date of acquisition. |
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Term
| The acquisition method has 2 distinct acct characteristics |
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Definition
1. 100% of the net asset acquired (regardless of percentage acquired) are recorded at fair value with any unallocated balance remaining creating good will.
2. When companies are consolidated, the subsidiary's entire equity(including CS, APIC and retained earnings) is eliminated (not reported) |
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Term
| An acquiring corporation should adjust the following items during consolidation |
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Definition
"CAR IN BIG"
1. CAR - Common Stock, APIC, Retained earnings of Subsidiary are eliminated:(sub's old books)
The pre-acquired equity (CS, APIC, RE) of the subsidiary is not carried forward in an AQ. Consolidated equity will be equal to the parent's equity balance (+ any non-controlling interest). The sub's equity is eliminated by debiting each of the sub's equity account in the eliminating J/E on the consolidating work paper.
2. I of IN Investment in Sub is eliminated: (parents books) The parent company will eliminate the "investment in Sub" account on balance sheet as part of the EJE. This credit will be posted on the consolidated work papers.
3. N of IN Non-controlling interest (NCI) is created:(not 100% owned)As part of the eliminating EJE on the consolidated work papers, the fair value of any portion of the sub that is not acquired by the parent must be reported as non controlling interest in the equity section of the consolidated financial statements, separately from the parents equity.
4. B in BIG: Balance Sheet of the sub's is adjusted to fair value (100% assets and liability)100% FV: All of the subs balance sheet acct are to be adjusted to FV on the AQ date. This is accomplished as part of the EJE on the consolidated work papers.
5. I in big: Identifiable intangible Assets of the sub are recorded at the FV: As part of the EJE on the consolidated WP it is required that the parent record the FV of all the identifiable intangible assets of the sub. This is done even if no amount was incurred to acquire these items in the acquisition.
6. Good Will (or gain) is required: if there is an excess of the fair value of the sub (acq cost + any non-controlling interest) over the FV of the subs net assets, then the remaining/excess is debited to create good will. If there is an deficiency in the acqu cost compared to the subs fair vale then the shortage/neg amount is recorded as a gain |
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