class 3 slides final - 1 Fall 2010 Advanced Financial...

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Unformatted text preview: 1 Fall 2010 Advanced Financial Accounting RSM 321 Class 3: Consolidated Statements on Acquisition Date (continued) 2 Ch # 4 Consolidated Statements on Date of Acquisition IAS 27 specifies the accounting principles involved in the preparation of consolidated financial statements Consolidated financial statements consist of a balance sheet, a statement of comprehensive income, a statement of changes in equity, a cash flow statement, and the accompanying notes We will now focus on the preparation of the consolidated balance sheet on the date that control is obtained by the parent company, using the acquisition method 3 The Consolidated Balance Sheet on Acquisition Date The facts below are the basis of the following illustrations: We will examine P Ltd. and S Ltd. Both companies have a June 30 fiscal year-end. The balance sheets of the two companies on June 29, Year 1 are shown in Exhibit 4.1. P pays $90,000 to acquire 100% of S on June 30, Year 1. P records in its books: Dr investment in S $90,000 Cr cash $90,000 The calculation and allocation of acquisition differential is in Exhibit 4.2. Exhibit 4.3 shows the consolidated balance sheet of P on June 30, Year 1, using the working paper approach; Exhibit 4.4 shows the same balance sheet using the direct approach. 4 Exhibit 4.1 5 Exhibit 4.2 6 The Consolidated Balance Sheet on Acquisition Date Working Paper Approach Use of the working paper ensures that the debit and credit adjustments balance each other. The working paper in Exhibit 4.3 reflects two consolidation adjusting entries: To eliminate the parents share of the subsidiarys shareholders equity accounts and the parents investment account; and To allocate the purchase discrepancy to the identifiable assets and liabilities of the subsidiary and record goodwill. These entries are made only on the working paper, not in the accounting records of P or S. The idea is to eliminate and then add across to get the consolidated balance sheet and income statement. 7 Exhibit 4.3 8 The Consolidated Balance Sheet on Acquisition Date Direct Approach - An alternative to the worksheet method of preparing consolidated financial statements in Exhibit 4.3 is the Direct Approach, preparing the statements directly without the use of a working paper. See Exhibit 4.4 next slide....
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This note was uploaded on 05/09/2011 for the course RSM 323 taught by Professor Lisaharvey during the Spring '11 term at University of Toronto- Toronto.

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class 3 slides final - 1 Fall 2010 Advanced Financial...

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