Unit 4th Advanced Accountiing - UNIT IV Contents Allocation...

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UNIT - IV
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Contents Allocation and Depreciation of Differences Between Implied and Book Values Acquisition Allocation of assets in subsidiary books Depreciation of assets Differences between liabilities and assets Implied and Book Values; Assets and liabilities Effects of depreciation on consolidated net income ( Cont….)
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1. Calculate and allocate the difference between implied and book values to the subsidiary’s assets and liabilities. 2. Contrast the past accounting (under GAAP) and proposed accounting for bargain acquisitions. 3. Explain how goodwill is measured at the time of the acquisition. 4. Describe how the allocation process differs if less than 100% of the subsidiary is acquired. 5. Record the entries needed on the parent’s books to account for the investment under the three methods: the cost, the partial equity, and the complete equity methods. Learning Objectives Conti…
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6. Understand the allocation of the difference between implied and book values to long-term debt components. 7. Explain how to allocate the difference between implied and book values when some assets have fair values below book values. 8. Distinguish between recording the subsidiary depreciable assets at net versus gross fair values. Learning Objectives
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Allocation of difference between implied and book values at date of acquisition. Step 1 : Difference used first to adjust the individual assets and liabilities to their fair values on the date of acquisition. Step 2 : Any residual amount: Implied value > aggregate fair values = goodwill . Implied value < aggregate fair values = bargain . In a bargain acquisition, some acquired assets are reduced below their fair values. Allocation of Difference Between Implied and Book Values: Acquisition Date
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1. Acquired assets, except investments accounted for by the equity method, are recorded at fair market value. 2. Previously recorded goodwill is eliminated. 3. Long-lived assets (including in-process R&D and excluding long-term investments) are recorded at fair market value minus an adjustment for the bargain. 4. Extraordinary gain recorded if all long-lived assets are reduced to zero. Allocation of Difference Between Implied and Book Values: Acquisition Date
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Bargain Rules : Under exposure draft (ED) of the Financial Accounting Standards Board, “Business Combinations,” No. 1204-001, issued June 30, 2005, the negative (or credit) balance should be recognized as an ordinary gain the year of acquisition. Under this proposal, no assets should be recorded below their fair values. Allocation of Difference Between Implied and Book Values: Acquisition Date
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In the event of a bargain acquisition (after carefully considering the fair valuation of all subsidiary assets and liabilities) the most recent FASB proposal requires the following accounting: a. an ordinary gain is reported in the financial statements of the consolidated entity.
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