Lecture 4 - Lecture 4: Consolidation Accounting Goodwill,...

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1 Lecture 4: Consolidation Accounting Goodwill, Excess and Impairment Fair Value Adjustments
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2 AASB 3 Defines goodwill as “future economic benefits arising from assets that are not capable of being individually identified and separately recognised” It is an intangible asset, but not one to which AASB 138 Intangible Assets applies as it is not separable
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3 Recognition and measurement of goodwill Internally generated goodwill cannot be recognised Only that acquired in a business combination can be recognised as an asset If cost of parent’s Investment asset is greater than the fair value of the subsidiary’s pre- acquisition equity This is recognisable goodwill
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4 Measurement of the Cost of a Business Combination Fair value at the date of exchange of assets given, liabilities incurred, or assumed, and equity instruments issued by the acquirer, in exchange for control of the acquiree; plus Any costs directly attributable, e.g., Legal fees Due diligence fees are no longer allowed to be capitalized and now must be expensed straight away. This is another recent change in the Standards that affects this course See AASB 3 paragraph 53
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5 Accounting for Goodwill FV of the Cost of the business combination – fv of the IDENTIFIABLE assets, liabilities and contingent liabilities acquired Goodwill is the residual
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6 Acquisition Analysis Always begin a consolidation by doing an acquisition analysis to calculate the amount of any goodwill or excess Example: A Ltd has purchased all the shares of B Ltd on 1/7/2006 for a price of $550,000. The fair value of the identifiable net assets of B Ltd was $450,000.
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7 Acquisition Analysis Cost of acquisition FV of the purchase consideration 550,000 Recorded Value of Equity Share Capital 200,000 Retained Earnings 1/7/06 100,000 Revaluation Reserve 100,000 General Reserve 50,000 450,000 Fair Value Adjustments nil FV of the identifiable net assets 450,000 Goodwill 100,000
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8 Goodwill Goodwill as calculated by the acquisition analysis cannot be recorded in the accounts of the Parent or Subsidiary It is recognised ONLY in the consolidated financial statements of the group It is “created” by the Elimination Entry
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This note was uploaded on 11/18/2010 for the course ACCOUNTING 22754 taught by Professor Helen during the Three '10 term at University of Technology, Sydney.

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Lecture 4 - Lecture 4: Consolidation Accounting Goodwill,...

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