Chapter 3 and 4 PPT

Chapter 3 and 4 PPT - Chapter Three Consolidations...

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7/28/11 Chapter Three Consolidations – Subsequent to the Date of Acquisition
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7/28/11 Chapter 3 Goodwill Impairment Consolidation Entries ( Greater than 50% ) Equity Partial Equity Cost Contingent obligations over time Push down accounting
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7/28/11 Consolidation - The Effects of the Passage of In Chapter 2, we looked at consolidation on the date the combination was created. As time passes, the investment account changes, and the consolidation process becomes more complex.
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7/28/11 SFAS No. 142 - Goodwill and Other Intangible For fiscal periods beginning AFTER December 15, 2001, goodwill was no longer to be amortized. The “nonamortization” rule is applied to both previously recognized and newly acquired goodwill. Any unamortized goodwill arising from pre-SFAS 142 combinations is carried on the books as a permanent asset.
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7/28/11 SFAS No. 142 - Goodwill and Other Intangible Generally, once goodwill has been recorded, the value will remain unchanged. S a l e o f a l l o r p a r t o f t h e r e l a t e d s u b s i d i a r y . A n y i m p a i r m e n t i n t h e v a l u e o f g o o d w i l l s h o u l d b e r e p o r t e d a s a n e x t r a o r d i n a r y i t e m . A d e t e r m i n a t i o n t h a t g o o d w i l l h a s e x p e r i e n c e d a p e r m a n e n t i m p a i r m e n t o f v a l u e . T w o c i r c u m s t a n c e s e x i s t t h a t w i l l r e s u l t i n a d j u s t i n g t h e a m o u n t o f g o o d w i l l o n t h e c o n s o l i d a t e d b a l a n c e s h e e t .
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7/28/11 Goodwill Impairment Goodwill is not amortized. Generally, goodwill will be carried at its acquisition cost. At some future point in time, goodwill may become permanently impaired. SFAS No. 142 calls for an annual test of impairment for Goodwill.
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7/28/11 Periodic Determination of the Fair Value of a Reporting Unit Basis for determining fair value : Market price, if the reporting unit is publicly traded. Market price of comparable businesses. Business valuation techniques using PV.
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7/28/11 Assignment of Acquisition Value to Reporting Units A Reporting Unit can be: A component of an operating segment A segment of an enterprise The entire enterprise To better assess potential declines in value for goodwill, the goodwill must be assigned to its related REPORTING UNIT.
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7/28/11 Goodwill Impairment Test Step 1 Compare fair value of REPORTING UNIT to carrying value of the REPORTING UNIT
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7/28/11 Look at problem 16 page 125 Do step one- What is the total value versus the carrying value for each of the 3 reporting units? Which units need step 2?
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7/28/11 Step 1- is the fair value less than the carrying Carrying Potential Fair Value Value Goodwill Impairment Sand Dollar 510,000 530000 Yes Salty Dog 580000 610000 yes Baytowne 560000 280000 no
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7/28/11 Goodwill Impairment Test Step 1 Compare fair value of REPORTING UNIT to carrying value of the REPORTING UNIT Step 2 Compare fair value of GOODWILL to carrying value of GOODWILL
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7/28/11 Goodwill Impairment Test Example Problem 16 Fair Value of Sand Dollar
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Chapter 3 and 4 PPT - Chapter Three Consolidations...

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