Parent has accounts receivable of $52,000 while Sub has accounts receivable of $38,000 for a total

of $90,000. Since consolidated accounts receivable is only $78,000, the difference of $12,000
represents an intercompany receivable that has been eliminated in preparing the consolidated
financial statements. The intercompany receivable equals the intercompany payable, making it
$12,000 as well.
Acquisition cost is the fair value of the consideration given in exchange for a controlling financial
interest in other company.. The cost of relocating the other company may be partially or fully
capitalized when incurred but would not be included as part of the acquisition cost.
Accounts receivable and accounts payable will each equal the total of the parents and the
subsidiarys amounts for each less any intercompany reciprocal amounts.
Business acquisition expenses: Direct costs of a business combination, including finders fees and
consulting fees, are recognized as expenses in the period incurred. Costs of issuing securities in the
combination, such as registration fees, reduce the amount recognized as proceeds from their
issuance and are not recognized as expenses.
Under the acquisition method, the fair value of the identifiable assets acquired is reduced by the fair
value of liabilities assumed and the difference is compared to total consideration. If the fair value of
identifiable net assets exceeds total consideration, the excess is recognized as a gain on bargain
purchase in the period of the acquisition.
Under the acquisition method, the cost of an acquiree consists of the fair value of the consideration
given. Costs incurred in the acquisition, such as the consulting fee, are recognized as expense in
the period incurred. Costs of registering and issuing securities do not increase the acquisition price
but, instead, reduce the amount recorded as additional paid-in capital.
Acquisition cost if for the FV of net assets (assets - liabilities) reduced by minority interest (FV of
shares held by noncontrolling parties).
Common stock on consolidated financial statements is always equal to the parents amount
increased by the total par of the newly issued shares.
Dividends paid by subsidiaries must be eliminated in a consolidation, since a consolidated entity
cannot pay dividends to itself. The remaining amount of the dividends paid to the noncontrolling
shareholders is recorded as a reduction of the noncontrolling interest.
Intercompany transactions are eliminated when preparing combined financial statements, as with
consolidated financial statements. Sales and cost of goods sold are eliminated in consolidation.
Dr. Sales, Cr. COGS
Total current liabilities will include the parents amount plus the subsidiarys amount, adjusted to fair
value if appropriate, plus any new current liabilities incurred in the combination. Polk borrowed
$60,000 payable in 10 equal annual installments indicating a current portion of $6,000 and a
noncurrent portion of $54,000. Total current liabilities is $30,000 + $10,000 + $6,000 = $46,000.

When preparing consolidated financial statements, the stockholders' equity accounts of the
subsidiary are eliminated along with the investment account on the parents balance sheet. The
amounts reported for stockholders' equity in consolidated financial statements would be equal to the
parent's retained earnings balance.
Dividends reported on consolidated financial statements will consist exclusively of the Acquirers
dividends. The Acquirees dividends are eliminated. When the Acquiree owns stock in the Acquirer,
the portion of the dividends that are paid to the Acquiree are eliminated as an intercompany
transaction reducing dividends to be reported on the consolidated financial statements to the portion
of the Acquirers dividends that are paid to others.
- P owns 80% of S, S owns 10% of P. P declares 90% dividends, S declares 0%
Regardless of the percentage of the subsidiary owned by the parent, 100% of intercompany
receivables and payables are eliminated.
Sale of equipment to sub: the gain on sale would be eliminated on consolidation, as would that
portion of the depreciation expense attributable solely to the gain.
Minority interest = minority interest / stockholders equity of sub
Consolidated revenues equals the parents amount plus the subsidiarys amount less intercompany
sales.
When an acquiring corporation pays less than fair value for an acquired entity, a bargain purchase
has occurred, and a gain will be recorded at the acquisition date to recognize the bargain purchase
In a business combination accounted for under the acquisition method, consolidated stockholders'
equity will be equal to the stockholders' equity of the parent. Amounts are not combined on the date
of the combination.
The gain on the transaction is recorded as the net fair value of the acquiree less the amount paid by
the Acquirer The direct acquisition costs are recorded as period expenses and not part of the
calculation of the gain on the transaction.
A corporation with a majority-owned subsidiary will prepare consolidated financial statements, even
though the operations of the subsidiary may be nonhomogeneous or when the subsidiary is a foreign
company. When one individual owns several corporations, however, combined financial statements
would be appropriate.
Additional paid-in capital on consolidated financial statements is always equal to the parents
amount. Parent issued 200,000 shares with a fair value of $18 per share and a par of $10 per share.
The difference of (200,000 x $8) $1,600,000 is recognized as APIC, increasing parents APIC
beginning amount
In recognizing a business combination, an acquirer will compare the fair value of the underlying net
assets to the aggregate of the fair values of consideration transferred, previously held and retained
investments in the acquiree, and any noncontrolling interests. When the fair value of the underlying
net assets exceeds the total, the acquisition is considered a bargain purchase and the difference is
recognized as a gain in the period of acquisition.

When a subsidiary pays dividends, the portion that is paid to the parent is eliminated and has no
effect on retained earnings. The remainder, which is paid to the minority shareholders, reduces the
minority interest.
Investment in acquiree = acquisition cost + net income of sub (pro rata) - dividends (pro rata). Net
income is reduced by depreciation of equipment acquired.
When an entity enters into a business combination, costs of issuing debt securities, such as the cost
of issuing debt securities and the cost of registering them are recognized as debt issue costs and
are amortized over the term of the debt.
Direct and indirect costs incurred in the acquisition are recognized as expense in the period incurred.
These would include legal fees and due diligence costs.
Under IFRS, an impairment loss must be recognized when the recoverable amount of a cash
generating unit (CGU) is less than the carrying amount of the CGU. Any such impairment loss must
first be allocated to the carrying amount of the CGUs goodwill. Therefore if the carrying amount of
the goodwill is large enough to absorb the entire impairment loss, as it is in this case, then the entire
impairment loss is allocated only to goodwill.
Similar to US GAAP, IFRS only allows for the recognition of goodwill as a result of a business
combination in which the total of the fair values of consideration, noncontrolling interests, retained
investments exceeds the fair value of the underlying net assets of the acquiree.
Total stockholders equity in consolidated financial statements consists of the parents stockholders
equity plus any noncontrolling interest. The subsidiarys stockholders equity accounts are eliminated
on consolidation.
When consolidated financial statements are prepared, stockholders' equity and net income will be
the same as when the parent prepares separate financial statements applying the equity method.
In a business combination accounted for under the acquisition method, the guidelines for assigning
amounts to inventory provide for raw materials to be valued at replacement cost. Work in process is
to be valued at selling price of the finished goods less costs to complete, cost of disposal, and a
reasonable profit. Finished goods are to be valued at selling prices less costs of disposal and a
reasonable profit.
Excess of cost over book value of acquired assets is allocated and added to assets of parent + sub.
On a consolidated balance sheet, total assets will include the assets of the parent, excluding any
investment in the subsidiary, which is eliminated on consolidation, plus the assets of the subsidiary,
adjusted for differences between the carrying values and fair values at the acquisition date, plus
goodwill, if any, net of amortization.
Under the acquisition method, the acquirers investment in the acquiree is equal to the fair value of
the consideration given unless the fair value of acquirees identifiable net assets was greater than
that amount. As a result, Sayon will record the investment at $12 x 200,000 shares or $2,400,000.
The shares have a par value of $1,000,000, resulting in additional paid-in capital of $1,400,000.
Costs of issuing and registering securities exchanged in the acquisition reduce additional paid-in
capital, resulting in a net amount of $1,400,000 - $35,000 or $1,365,000. Legal and consulting fees
related to the acquisition are recognized as expense in the period incurred.