1. accounting principal change (retrospective unless impractical)
2. accounting estimate change (prospective)
3. change in reporting entity (retrospective)
4. prior year FS error (corrections/restatement)

• application of principle to prior periods as if it had been used all along
• records effect of change on prior years as an adjustment to beginning balance in RE for year of change, rather than income
• prior year FS are adjusted

1. cumulative effect of the change on periods before those presented is reflected in the carrying amounts of affected A/L as of beginning of the earliest period of presentation, along with an offsetting adjustment to the opening balance of RE
2. FS for prior periods are recast to reflect period-specific effects of applying the new principle
3. through a JE, beginning balance of RE in yr of change is adjusted to reflect use of the new principle

• changes in current or future cash flows resulting from making a change in accounting principle applied retrospectively
• not recognized in the period of change
• FS not adjusted (prior period), but disclosure includes effects

D- Inventory

C-Cumulative effect of accouting change

C- deferred income tax liability

1. effort was made to apply principle to prior periods and it isnt working
2. assumptions are required and can't be substantiated OR
3. RA would require estimates of amounts but info needed is unavailable

1. drived from new information
2. change that causes carrying amount of an sset or liability to change, or that changes the subsequent accounting for an A or L
3. most frequent type of accounting change
4. examples: changes in method of depreciation/amortization/depletion

1. no "cumulative effect" account
2. if affecting only current period, the new estimate is used and usual accounting procedure applies
3. if affecting current and future periods, BV of relevant account at beginning of current period is used as basis for applying new estimate
4. for changes in method for dep, amort, or depletion:BV at beginning of current period is used as basis for expense recognition over remaining useful life along with new estimates of salvage value and useful life if necessary. apply at start of period.

1. effect of income from continuing operations, NI, and per/share amounts for changes affecting now and later
2. if just affecting now, above only required if material

1. change from inappropriate to appropriate method
2. change in estimates which reflect negligence or bad faith

1. statement that previous FS were restated and nature of error
2. effect on each FS line item and per/share accounts
3. total cumulative effect on RE
4. pre/post tax efects on NI

1. doesn't address indirect effects of an accounting principle change
2. impracticability exception- for accounting principle changes AND ERRORS

• capitalize future asset retirement costs in underlying asset account and in ARO liability when they become estimable
• ex: dismantling, removal, site reclamation, nuclear decomissioning and closing mines

• FV used to measure ARO and is PV of all future payments expected to retire an asset
• if PV technique is used, then it is discounted using credit-adjusted risk-free rate
• applies to all legal obligations associated with retirement of a tangible NC asset but doesn't apply to environmental remediation liabilities for impropper asset use

1. total depreciation or depletion expense over Asset's life is increased
2. ARO increases each year due to passage of time, causing a firm to recognize "Accretion expense"= IR used in capitalizing X Beginning balance in ARO

1. acquisition of a group of net assets
2. acquisition of equity interest that obtains control directly or indirectly

1. merger
2. acquisition
3. consolidation

"control" has a different meaning...

• power to govern financial and operation policies understatute of agreement
• power to appoint and remov majority of BOD members
• power to cast majority of votes at BOD meeting

• 1 pre-existing entity acquires either a group of assets that constitutes a business or controlling equity interest of another pre-existing entity that collapses the acquired assets or entity into an acquiring entity
• only acquirer survives

• new entity consolidates the net assets or equity interests of 2 or more preexisting entities
• A & B become C, only C remains

• 1 preexisting entity acquires controlling equity interest of another, but both continue to operate as separate legal entities
• both entities survive

• (treated alike because only one entity remains)

1. Acquirer records the group of assets or the A/L of the acquiree onto its books
2. Merger or consolidation determines kind of A/L accounts used
3. No need for consolidated FSs

1. acquiree records its stalk ownership as LT-investment (doesn't record A/L of acquiree).          D- investment in sub C- consideration given
2. consolidated FS must be filed

1. formation of a joint-venture
2. acquisition of assets that don't constitute a business
3. combo between entities under common control
4. not-4-profit combos 
5. for-profit acquisition by a not-4-profit entity

*IFRS has no scope exception for not-4-profit combos/acquisitions.

1. determine the acquirer
2. determine the acquisition date and measurement period
3. determine the cost of an acquired business
4. recognizing/measuring asset, liabilities, and noncontrolling interest
5. Recognizing/measuring goodwill or bargain purchase

1. determine the acquirer

if new entity is formed to effect a business combo: 

• it is acquirer if it transfers cash and assets or incurs liabilities to effect it
• if it only issues equity, an existing entity must br acquirer

2. determine the acquisition date and measurement period

• measurement period- period after acquisition date that acquirer can still adjust provisional amounts
• adjustments reflected in comparative info for prior period FS
• never > 1 year
• acquisition date- can be before, on, or after closing date

1.    
2.   
3. determine the cost of an acquired business

*obtaining control by transferring consideration

• generally measured at FV
• if A or L transferred have a CV that doesn't = FV. the A or L must ne adjusted to FV at acquisition date and G/L must be recognized
• exception- when A or L remain under acquirer's control

1.  
3. determine the cost of an acquired business

*obtaining control by transferring consideration: contingent consideration

• consideration transferred by acquirer may include a contingent element which is either...

1. obligation of the acquirer to transfer additional assets or equity interests to former owner of acquired business as part of consideration if future events occur
2. a right of acquirer to a return of previously transferred consideration if future conditions met

• recognized at acquisition at FV (either L or equity account if obligation to pay; A if right to return or previously transferred consideration)
• FV changes accounted for subsequently as measurement period adjustments and adjustments to cost of acquired business
• if as a result of event occuring after acquisition date:
• classified as equity: not remeasured, subsequent settlement accounted for as equity adjustment
• classified as A or L: remeassured to FV @ each BS date w/ changes recognized in current income

1.  
3. determine the cost of an acquired business

*obtaining control by transferring consideration: acquirer's share-based payment award as cost elements

• acquirer is obligated to exchange awards- 
• portion that relates to pre-combo services baased on conditions of acquiree's awards will be part of consideration transferred in the business combo
• portion that is Post-combo services will be treated as compensation expense
• acquirer is not obligated to exchange awards, but does
• all value of the awards will be treated as compensation expense in future

1.  
3. determine the cost of an acquired business

*obtaining control with out transferring consideration: 

1. one company is acquirer and one is acquiree
2. equity interests in the acquiree held by parties other than acquirer are NCI

• expensed in period incurred and services rendered (not included in cost of acquiring business)
• 2 Exceptions:
• debt issue costs- recognized as deferred asset and amotized over debt life or expensed when incurred
• equity issuance costs- reduce proceeds from securities issued and reduce APIC

1. contingent Ls remeasured each period at FV or best estimate of expenditures
2. total award for share-based compensation multiplied by > of (a) vesting period completed/total vesting period, or (b) vesting period completed/original vesting period

1.  
2.  
4. recognizing/measuring asset, liabilities, and noncontrolling interest

*recognition

• at acquisition date, acquirer must recognize (distinct from goodwill if any) the identifiable assets required and liabilities assumed and any NCI in acquiree
• acquirer can recognize A/L not previously recognized by aquiree (like trademark)
• intangible assets (not includeing GW) are identifiable and would be recognized by acquirer if
• it is capable of being separated from acquiree OR
• it arises from contractual or other rights
• GW on books on acquiree is not recognized

1.  
2.  
4. recognizing/measuring asset, liabilities, and noncontrolling interest

*exceptions to measurement at FV

• marketable securities: quoted prices
• receivable: PV of amt to be received
• finished goods and merchandise inventories: estimated selling $ - cost of dispoal & reasonable profit
• inventory of raw materials: RC
• P&E held for use- RC
• P&E held for disposal: FV-cost of disposal
• notes/accounts payable: PV of amts to be paid
• contingencies: FV is relating to existing K. if doesn't relate to existing K, then FV only if more likely than not to give rise to A or L
• indemnification provision: establishes seller's guarantee that limits acquirer's L for outcome of uncertainty. recognized as an Asset.
• reaquisition rights: acquiree is granted right to use an asset. if acquirer reaquirers right at acquisition, recognized as intangible asset and amortized over remaining K term

• difference in FV of acquirer's pre-combo equity interest in the acquiree and the CV of that interest is recognized as a G/L in income of period of combo
• if acquirer had accounted for it's precombination equity ownership using equity method, the carrying amount of the investment using that method would be used in deteremining G/L
• FV of equity owned prior to combo-date becomes part of cost of investment in acquiree

must be calculated and reported

1. if MV for equity shares shares is available, use it
2. if not, use some other technique

1. not much guidance given for FV, just a definition
2. contingent assets are not recognized
3. contingent L recognized if they are a present obligation from a past event and FV can be measured reliably
4. for NCI, IFRS gives 2 options: (a) full FV of aquiree or (b) proportionate share of FV of net identifiable assets (excluding GW attributable to NCI)

1.  
2.  
3.  
5. Recognizing/measuring goodwill or bargain purchase

*amount of gain

1.  
2.  
3.  
5. Recognizing/measuring goodwill or bargain purchase

*"invesment value"

a.k.a. cost or consideration given

• FV of assets transferres, L assumed, equity issued, contingent consideration, required shar-based payment award to employees for pre-combo service, pre-combo equity in acquiree, and FV of NCI

1.  
2.  
3.  
5. Recognizing/measuring goodwill or bargain purchase

*goodwill

• investment > FV of net assets
• post-combo: not amortized, assessed at least annually for impairment

1.  
2.  
3.  
5. Recognizing/measuring goodwill or bargain purchase

*bargain purchase

• investment < FV of Net Assets
• if this happens, before recognizing a gain, the acquirer reasses measurements of A and L
• if still holds, it is a bargain purchase and amount of BP is a gain in earnings

1.  
2.  
3.  
5. Recognizing/measuring goodwill or bargain purchase

*2 special situations

1. combo carried out solely through exchange of equity, FV of acquiree's equity interest at acquisition may be more reliable, so use it to determine GW or BP
2. no consideration is transfered in business combo, GW and BP should be detemrined using a valuation technique

1. IFRS-GW is tested for impairmtnet using 1 step: CV-recoverable amount of investee unit. if CV>RA, GW is impaired.
2. GAAP- GW tested for impairment with 2-step approach
1. determine if impaired- compare FV of investee unit w/ CV (including GW) of investee unit. FV<CV=impaired.
2. measure impairment amount- compare investment value w/ FV of NIA to find GW. asjust as needed and recognize a loss in operating income

1. name/description of acquiree, date, % of voting equity interest acquired
2. primary reason for it and description of how control was obtained
3. #s for GW make-up
4. FV of consideration given
5. descriptions of indemnifications and contingent considerations
6. amount recognized at acquisition date
7. GW expected to be deductible for tax and why
8. GW assigned to each segment
9. acquirer/aquiree transaction info
10. for BP, amount of gain and where in FS
11. B-Combos in which acquirer owns < 100% of equity info
12. initial accounting for A/L
13. recent CV of GW @ beginning to end of period

• accounted for based on subsequent information
• FV until new info is found
• when new info is found: 
• if L, reported at > of acquisition date FV or amount under FASB#5
• if A, reported at < of acquisition date FV or best estimate of settlement amount
• derecognized when settled or expired

• same basis as the A/L indemnified
• derecognized upon settle/expiring

• pro rata disclosure- 
• revenue and profit or loss of acquiree since combo
• revene and profit or loss of combined entity since combo
• acquired contingencies-
• major assumptions made about future events must be disclosed
• Goodwill-
• not needed to be disclosed unless the entity generates cash

D- Assets acquired (FV)

C- Liabilities (FV)

C- Consideration paid (FV)

D- Investment in Sub (same as C amount)

C- Consideration paid (FV)

1. only acuirer's income/loss to date of combo enters into determination of consolidated NI as of that date
2. acquiree's operating results closed to its RE at combo date
3. acquiree's RE @ combo date is part of equity "paid for" by acquirer
4. acquirer share of acquiree income is included

• each entity considered for consolidation must be checked to determine if its a VIE and if is is, which other entity is it's primary beneficiary
• legal entity which by design either (a) can't finance its activities w/ out extra financial support or (2) its equity holders do not have direct or indirect ability to make decisions

• has decision power and obsorbs losses/benefits of VIE
• must consolidate FS
• must reassess continuously

1. Special-purpose entity- covered instead of VIE but uses same general guidelines. can be controlled with <50% ownership.
2. Voting control determination- includes potential voting rights in assessment of ownsership level
3. Consolidation Exception- entity doen't have to consolidate if (1) parent is a wholly owned or partially ownded subsidiary of another parent (2) parents debt or equity instruments are not traded in public, and (3) parents didn't file FSs with SEC to issue securities to public and (4)ultimate parent of parent produces consolidated FS

1. cost
2. equity
3. other method of choice

*all result in same amounts in end

• only necessary if firm owns 50-100% of sub
• economic substance takes precedence over form

1. record trial balances
2. record ajusting entries
3. record elimination entries
4. complete consolidation worksheet
5. prepare consolidated FSs from worksheet

0-20%: not significant

20-50%: significant

50-100%: control