Chapter 4 KB - Chapter 4 Consolidated Statements on Date of...

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Chapter 4 1 Chapter 4 Consolidated Statements on Date of Acquisition
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Chapter 4 2 Learning Objectives To identify all factors that will determine if control exists To calculate & allocate the purchase discrepancy To prepare a consolidated balance sheet on the date of acquisition: Parent owns 100% Parent owns less than 100% To apply the concepts of push-down accounting
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Chapter 4 3 Learning Objectives To explain the differences between the 3 consolidation theories To account for contingent consideration based on earnings and share prices To explain and illustrate the concepts behind a reverse takeover (Appendix)
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Chapter 4 4 OUTLINE Discussion of control vs sig influence 100% ownership Less than 100% ownership Consolidation theories
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Chapter 4 5 CONTROL & SIGNIFICANT INFLUENCE
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Chapter 4 6 Control and Consolidated Statements An enterprise should consolidate all of its subsidiaries [1590.16] SUBSIDIARY : an enterprise controlled by another enterprise (the parent) that has the right and ability to obtain future economic benefits from the resources of the enterprise and is exposed to the related risks CONTROL : is the continuing power to determine its strategic operating, investing, and financing policies without the co-operation of others [1590.03]
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Chapter 4 7 Control and Consolidation Why consolidate? More useful to users of financial statements than all the statements taken together because there can be intercompany transactions Limitations of consolidation: Poor performance of a sub can be hidden Doesn’t show subs in different countries separately Users of sub statements can’t use the consolidated statements
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Chapter 4 8 Control and Consolidated Statements When a parent company has control over one or more subsidiaries, it has the right to benefit economically from the subsidiaries’ resources and at the same time is exposed to the related risks involved Consolidated financial statements reflect a group of economic resources that are under the common control of the parent company even though these resources are owned separately by the parent and the subsidiary companies The key concept is common control This concept is reinforced in Section 1000 of the Handbook, where the definition of an asset focuses on control rather than ownership
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Chapter 4 9 How Is Control Determined? Control is a continuing power of one company to determine the strategic operating, investing, and financing policies of another company without the co-operation of others The ability to exercise this power is all that is required; it is not necessary to actually exercise it Since more than 50% of the voting shares are required to elect the majority of the board, control is presumed to exists if the percentage owned is over 50%
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Chapter 4 10 How Is Control Determined? There is a presumption that a holding of less
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This note was uploaded on 05/08/2010 for the course ACCOUNTING 343 taught by Professor Andrewatt during the Spring '10 term at Webster.

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Chapter 4 KB - Chapter 4 Consolidated Statements on Date of...

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