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Acquisition Accounting for Subsidiaries

The document outlines practical examples of acquisition accounting for wholly owned and partially owned subsidiaries. It details the necessary calculations for costs related to the acquisition, goodwill, elimination and adjustment, and consolidated financial statements (CFS). Specific examples include transactions involving PALM Corporation and STARR Company, as well as Post Corporation and Sage Company, with a focus on fair values of identifiable assets and liabilities.

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11 views4 pages

Acquisition Accounting for Subsidiaries

The document outlines practical examples of acquisition accounting for wholly owned and partially owned subsidiaries. It details the necessary calculations for costs related to the acquisition, goodwill, elimination and adjustment, and consolidated financial statements (CFS). Specific examples include transactions involving PALM Corporation and STARR Company, as well as Post Corporation and Sage Company, with a focus on fair values of identifiable assets and liabilities.

Uploaded by

nati101n
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

1.

PRACTICAL EXAMPLE 1(Wholly owned)

Required;
• Costs related to Acquisition of Subsidiary
• Goodwill Calculation
• Elimination and Adjustment
• CFS
2. PRACTICAL EXAMPLE 2(Wholly Owned)
On December 31, 2002, PALM Corporation issued 10,000 shares of its 10 par common shares
(current fair value Br 50 a share) to shareholder of STARR Company for all the outstanding Br 5 par
common shares of Starr. There was no contingent consideration. Costs of issuing common shares
35,000
Assume also that the combination qualified for Acquisition accounting. Starr Company was to continue
its corporate existence as a wholly owned subsidiary of Palm Corporation. Both companies had a
December 31 fiscal year and use the same accounting policies. Income tax rate for both companies was
40%. Financial statements of the two companies as of December 31, 2002 Prior to combination are
presented below follow:

1
On Dec, 31, 2002 current fair values of Starr Company’s identifiable assets and liabilities were the same
as their carrying amount, except for the following 3 assets:
• Fair Values:
– Inventories Br 135,000
– Plant assets (net) Br 365,000
– Patent (net) Br 25,000
Required;
• Costs related to Acquisition of Subsidiary
• Goodwill Calculation
• Elimination and Adjustment
• CFS

2
PRACTICAL EXAMPLE 3(Partially owned )
To illustrate the consolidation techniques for a Acquisition type business combination involving a
partially owned subsidiary, assume the following facts:
• On December 31,2003 Post Corporation issued 66,500 shares of its Br 1 par common stock
(Current fair value Br 20 a share ) to shareholders of Sage Company in exchange for 38,000 of
the 40,000 outstanding shares of Sage’s Br 10 par common stock. Thus Post acquired 95% of the
interest in Sage (38/40).
• There was no contingent consideration.
• Cost of issuing shares of the combination paid in cash by Post on December 31, 2003 were $ 72,750
• The Fair value of Non-Controlling Interest is Br 70,000.
Financial statements of the two companies before the combination are as follows:

3
• On Dec, 31, 2003 current fair values of Sage company’s identifiable assets and liabilities were
the same as their carrying amount, except for the following assets:
• Fair Values
– Inventories Br 526,000
– Plant assets (net) Br 1,290,000
– Leasehold Land Br 30,000
Required;
• Costs related to Acquisition of Subsidiary
• Goodwill Calculation
• Elimination and Adjustment
• Cfs

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