Week08_Practice_Question_Solutions - Week 8 Practice...

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Week 8 Practice Questions 18.4 What is the control date and what is its significance? The control date is the date on which the acquirer gets control of the acquired business. AASB 3.9 (which calls it the acquisition date) identifies the date as normally being when the business combination transaction is completed, that is, when title passes to the acquirer and consideration is paid. It also acknowledges circumstances when control might arise before or after this event. The control date is important for two reasons. It identifies the moment at which a group is created or an existing group is enlarged; it is the moment when the parent/subsidiary relationship arises and subsidiaries cease to be autonomous entities. It is the means of separating pre-control and post-control periods and events. This distinction is critical since the accounting treatment of pre-control equity and its distribution is substantially different from that for post-control equity and its distribution. 18.5 Describe the main features of the acquisition method of consolidation. The dominant features of the acquisition method of consolidation are: All net assets of member entities (except only for the parent’s investment in subsidiary which is eliminated, as it stands in for the net assets of the subsidiary) are included in the consolidation, regardless of what proportion of the subsidiary is owned by the parent. Subsidiaries’ net assets are brought into the consolidation at amounts that include fair values at the time the subsidiary joins the group. These fair values are the primary basis for the price paid to acquire control of the subsidiaries. If these fair values are not reflected in a subsidiary’s carrying amounts for its assets and liabilities they will be introduced by data adjustments. Note that the subsidiary’s assets and liabilities are not shown in the consolidation at their historic values, which may refer to a long distant past; nor need they be shown at their current fair values. Rather, the amounts shown in the consolidation are often the fair values at control date, which may have undergone many changes since the subsidiary was acquired. The possibility of current fair values being applied in subsequent consolidations is examined in chapter 19. A distinction is made between pre-control equity and post-control equity of subsidiaries. The former is eliminated, the latter included in the consolidated results. The substitution process will typically give rise to a consolidation difference, either consolidation goodwill or consolidation bargain purchase. Intra-group transactions are eliminated completely. Mark-up or mark-down on intra-group transactions is eliminated completely.
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These features are consistent with the following notions: the passing of control powers to the parent; the getting of control over a subsidiary by acquisition of its equity; the formation of a new (or enlarged) group entity by obtaining control; and
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This note was uploaded on 10/25/2011 for the course ACCT 5942 taught by Professor Diane during the Three '11 term at University of New South Wales.

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Week08_Practice_Question_Solutions - Week 8 Practice...

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