Becker CPA FAR EXAM WITH COMPLETE SOLUTIONS
LATEST UPDATE
How does the acquisition method treat the expenses related to the combination?
- direct out-of-pocket costs are expensed
- stock-related costs are a reduction in value fo the stock issued (normally a debit to
additional paid in capital)
- indirect costs are expensed
How is noncontrolling interest (balance sheet) as of the date of acquisition measured
under US GAAP?
noncontrolling interest (NCI) = FV of subsidiary x NCI%
How does the income statement calculate noncontrolling interest?
subsidiary NI
× NonControlling interest%
=
NCI in NI
How is IFRS calculated for noncontrolling interest on the Balance Sheet at Acquisition
Date?
IFRS allows full goodwill method and partial goodwill method.
Full Goodwill Method (same as US GAAP)
NCI = FV of subsidiary × NCI%
,Partial Goodwill Method
NCI = FV of subsidiary's net identifiable assets × NCI%
Acquired Identifiable Intangible Assets - Acquisition
How are acquired identifiable intangible assets amortized in an acquisition?
Finite useful life: Amortised to residual value over expected useful life. Subject to the
two-step impairment test.
Indefinite useful life: Do not amortise. Subject to one step impairment test.
How is goodwill valued under US GAAP?
US GAAP
goodwill = FV os subsidiary - FV of subsidiary's net assets
What are the two possible ways to determine goodwill under IFRS acquisition method?
IFRS
The two possible ways to recognize goodwill are, like in US GAAP, the full goodwill
method and the partial goodwill method
Partial goodwill = acquisition cost - FV of subsidiary's net assets required
What would be the treatment of such an acquisition if, in a business combination, an
acquisition cost was less than FV of 100% of the net assets acquired?
The acquisition cost is apportioned to the FV of 100% of the BS accounts & the FV of
100% of the identifiable intangible assets. The negative balance in the acquisition
account results, that is recorded as a gain
Solution to this problem is available in the member's area of ECE.
name some of the basic workpaper elimination entries that are required to eliminate
,intercompany payables & receivables when preparing consol f/s
eliminate:
a/p / a/r
- bonds payable / bonds receivable
- accrued bond interest payable/accrued bond interest receivable
Provide the workpaper elimination entry related to the intercompany inventory
transactions.
dr. RE (intercomany profit in beg inventory)
dr. intercompany sales
cr. intercompany COGS
cr. COGS (intercompany profit in goods sold)
cr. end inventory (intercompany profit in ending inventory)
Provide the workpaper elimination entry related to intercompany bond transactions.
dr. bonds payable
dr. premium (or credit discount)
cr. investment in affiliate bonds
cr. gain on extinguisjment of bonds (or debit loss on existinguishment of bonds)
state the elimination entry for intercompany land transactions
dr. intercompany gain on sale of land
cr. land
State the workpaper elimination entry for intercompany depreciable assets
transactions.
Elimination Entry 1 - Eliminate intercompany gain & adjust asset & accumulated depre
to original amounts.
, dr. intercompany gain on sale of machinery
cr. machinery
cr. accumulated depreciation
Elimination Entry 2 - Eliminate excess depreciation:
dr. accumulated depreciation
cr. Depreciation expe
When a parent company owns less than 100% of the stock of subsidiary company, what
amount of the subsidiary's assets, libts, equity are included on the consolidated BS =?
The consolidated BS includes 100% of the parent's subsidiary's assets & lbts, but does
not include the subsidiary's equity. Noncontrolling interest is presented as part of
equity, separately from the equity of the parent company
What three considerations must be taken into account when preparing consolidated
SOCF that are not present when preparing statements of CF for nonconsolidated entity?
1. When reconciling NI to net cash provided by operating activities total consolidated NI
(including NI attributable to both parent & the noncontrolling interest) should be used.
2. the financing section should report dividends paid by the subsidiary to noncontrolling
shareholders. Dividends paid by the subsidiary tot he parent co should not be reported.
3. the investing section may report the acquisition of additional subsidiary shares by the
parent if the acquisition was an open-market puchase
Define goodwill
-Excess of the fair value of a subsidiary over the fair value of the subsidiary's net assets.
-Costs of maintaining and/or developing goodwill CANNOT be capitalized.
How is goodwill impairment analyzed under U.S. GAAP?
LATEST UPDATE
How does the acquisition method treat the expenses related to the combination?
- direct out-of-pocket costs are expensed
- stock-related costs are a reduction in value fo the stock issued (normally a debit to
additional paid in capital)
- indirect costs are expensed
How is noncontrolling interest (balance sheet) as of the date of acquisition measured
under US GAAP?
noncontrolling interest (NCI) = FV of subsidiary x NCI%
How does the income statement calculate noncontrolling interest?
subsidiary NI
× NonControlling interest%
=
NCI in NI
How is IFRS calculated for noncontrolling interest on the Balance Sheet at Acquisition
Date?
IFRS allows full goodwill method and partial goodwill method.
Full Goodwill Method (same as US GAAP)
NCI = FV of subsidiary × NCI%
,Partial Goodwill Method
NCI = FV of subsidiary's net identifiable assets × NCI%
Acquired Identifiable Intangible Assets - Acquisition
How are acquired identifiable intangible assets amortized in an acquisition?
Finite useful life: Amortised to residual value over expected useful life. Subject to the
two-step impairment test.
Indefinite useful life: Do not amortise. Subject to one step impairment test.
How is goodwill valued under US GAAP?
US GAAP
goodwill = FV os subsidiary - FV of subsidiary's net assets
What are the two possible ways to determine goodwill under IFRS acquisition method?
IFRS
The two possible ways to recognize goodwill are, like in US GAAP, the full goodwill
method and the partial goodwill method
Partial goodwill = acquisition cost - FV of subsidiary's net assets required
What would be the treatment of such an acquisition if, in a business combination, an
acquisition cost was less than FV of 100% of the net assets acquired?
The acquisition cost is apportioned to the FV of 100% of the BS accounts & the FV of
100% of the identifiable intangible assets. The negative balance in the acquisition
account results, that is recorded as a gain
Solution to this problem is available in the member's area of ECE.
name some of the basic workpaper elimination entries that are required to eliminate
,intercompany payables & receivables when preparing consol f/s
eliminate:
a/p / a/r
- bonds payable / bonds receivable
- accrued bond interest payable/accrued bond interest receivable
Provide the workpaper elimination entry related to the intercompany inventory
transactions.
dr. RE (intercomany profit in beg inventory)
dr. intercompany sales
cr. intercompany COGS
cr. COGS (intercompany profit in goods sold)
cr. end inventory (intercompany profit in ending inventory)
Provide the workpaper elimination entry related to intercompany bond transactions.
dr. bonds payable
dr. premium (or credit discount)
cr. investment in affiliate bonds
cr. gain on extinguisjment of bonds (or debit loss on existinguishment of bonds)
state the elimination entry for intercompany land transactions
dr. intercompany gain on sale of land
cr. land
State the workpaper elimination entry for intercompany depreciable assets
transactions.
Elimination Entry 1 - Eliminate intercompany gain & adjust asset & accumulated depre
to original amounts.
, dr. intercompany gain on sale of machinery
cr. machinery
cr. accumulated depreciation
Elimination Entry 2 - Eliminate excess depreciation:
dr. accumulated depreciation
cr. Depreciation expe
When a parent company owns less than 100% of the stock of subsidiary company, what
amount of the subsidiary's assets, libts, equity are included on the consolidated BS =?
The consolidated BS includes 100% of the parent's subsidiary's assets & lbts, but does
not include the subsidiary's equity. Noncontrolling interest is presented as part of
equity, separately from the equity of the parent company
What three considerations must be taken into account when preparing consolidated
SOCF that are not present when preparing statements of CF for nonconsolidated entity?
1. When reconciling NI to net cash provided by operating activities total consolidated NI
(including NI attributable to both parent & the noncontrolling interest) should be used.
2. the financing section should report dividends paid by the subsidiary to noncontrolling
shareholders. Dividends paid by the subsidiary tot he parent co should not be reported.
3. the investing section may report the acquisition of additional subsidiary shares by the
parent if the acquisition was an open-market puchase
Define goodwill
-Excess of the fair value of a subsidiary over the fair value of the subsidiary's net assets.
-Costs of maintaining and/or developing goodwill CANNOT be capitalized.
How is goodwill impairment analyzed under U.S. GAAP?
