Performance can use operating income as measure return

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Unformatted text preview: dates 100% of assets and liabilities – Records non- controlling interest (NCI) to show outside ownership – Under IFRS presents NCI in equity section of consolidated financial statements Usefulness of Consolidation Positive features – Shows proper entity being controlled, i.e., “big picture” – Stakeholders can see all resources available – Eliminates misleading information that may be caused by intercompany transactions Negative features – Masks results by industry group – May skew ratios for analysis purposes – Not helpful for creditors of individual entities Significant Influence Equity method of accounting – Single investment account recorded on Balance Sheet of investor Initially recorded at cost Increased for share of profits of subsidiary Decreased for any dividends declared Adjustments for fair value of assets and intercompany transactions Passive Investments Also referred to as “non- strategic” investments Jessica Gahtan ACTG2011 Page 24 Final Notes Chapters 8- 12 Fall 2013 Examples – non- voting securities such as debt or preferred shares, non- voting common shares Investment recorded at fair value at time purchased Revenue recorded on receipt of dividends Subsequent measurement depends on classification – Classification Classification of passive investments – Held- to- maturity – Trading investments – Available- for- sale Accounting for Investments Appendix – Consolidation After Purchase After the initial acquisition the consolidated f/s are more than the sum of the lines on the statements of the parent and subsidiaries – Three adjustments: Record any amortization of fair value adjustments Assess for goodwill impairment Intercompany transactions must be eliminated Fair Value Adjustments – Any adjustment to fair value to inventory must be reflected in the cost of sales when sold – Any adjustments to fair value of capital assets must be amortized on consolidated balance sheet and expensed in consolidated income statement Must amortize over useful life of assets Original cost amortized by subsidiary Goodwill – Must regularly evaluate the goodwill and write it down if it is impaired Jessica Gahtan ACTG2011 Page 25 Final Notes Chapters 8- 12 Fall 2013 The write- down would reduce the amount of goodwill on the consolidated balance sheet and the reduction would be expensed on the consolidated income statement Elimination of Intercompany transactions – Revenues, expenses, and changes...
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