Earlier application is prohibited 75 assets and

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beginning on or after December 15, 2008. Earlier application is prohibited.” “75. Assets and liabilities that arose from business combinations whose acquisition dates preceded the application of this Statement shall not be adjusted upon application of this Statement.” This tells us that for any new business combination (beginning in 2009) we are required to use the acquisition method, but that we cannot apply the acquisition method before then. When Polaris acquired Ortest, they used the purchase method, and this method would continue to be used even in 2009 because the old method is grandfathered in. b) The gross profit should not be included in the consolidated financial statement because the two companies now act as a single entity. In order to show that unrealized inter- company gain is present in ending inventory we use Consolidation entry G because all of the transferred inventory is retained by the business combination at the end of the year. The lines on the financial statements that will be affected are cost of goods sold against inventory, which will remove the unrealized gain created by inter-company sale. “In the preparation of consolidated financial statements, intercompany balances and transactions shall be eliminated. This includes intercompany open account balances, security holdings, sales and purchases, interest, dividends, etc. As consolidated financial statements are based on the assumption that they represent the financial position and operating results of a single economic entity, such statements should not include gain or loss on transactions among the entities in the consolidated group. Accordingly, any intercompany income or loss on assets remaining within the consolidated group shall be eliminated; the concept usually applied for this purpose is gross profit or loss.” FASB Statement No. 160 (which amends ARB 51) Page 7 paragraph 6.
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