IFRS vs ASPE – Investments in Subsidiaries: Acquisition Method and Reporting Options (ASPE 1591)

On February 25, Dust Corp. purchased 100% of the shares of Bunny Inc. for $250,000 cash. Dust incurred total direct costs of acquisition of $6,000. On the date of acquisition, Bunny’s common shares and R/E were $50,000 and $150,000, respectively, on the balance sheet.

The following assets and liabilities had FVs different from their BVs:

	FV	BV
Inventory	$25,000	$15,000
Land	50,000	25,000
Long-term debt	100,000	75,000

Both corporations follow ASPE. Dust chooses to consolidate its investment in Bunny and accounts for future income taxes.

What is the amount of goodwill/bargain purchase on this purchase?

Goodwill was correctly calculated as:

Purchase price	$250,000
Net BV ($50,000 + $150,000)	(200,000)
Acquisition differential	50,000
Inventory ($15,000 BV − $25,000 FV)	(10,000)
Land ($25,000 BV − $50,000 FV)	(25,000)
Long-term debt [($75,000) BV − ($100,000) FV]	25,000
Goodwill	$ 40,000

Ryan Co. invested $1.5 million to purchase 100% of the outstanding common shares of Fry Ltd. Fry is a Canadian public company.

Which of the following describes Ryan’s options for accounting for its investment in Fry? Assume Ryan reports under ASPE.

FVPL, equity method and or consolidation

On June 30, Year 25, Namaste Inc., a private company reporting under ASPE, acquired 100% of the common shares of Ciao Ltd. for $2.1 million. Ciao had 1 million common shares issued and outstanding. At acquisition, the common shares and R/E were $470,100 and $730,900, respectively.

On the date of acquisition, the FVs of all of the assets and liabilities of Ciao equalled their BVs, with the exception of the following:

• Equipment with an original cost of $1.8 million and a net BV of $1.175 million had an FV of $1.5 million.

• Ciao had goodwill on its legal entity books recorded at a net BV of $105,000.

Namaste chooses to consolidate its subsidiaries. Which of the following statements about Namaste's June 30, Year 25, consolidated balance sheet is true?

Ciao's common shares are not presented on the consolidated balance sheet

On March 1, Pierce Inc. purchased an 80% interest in O’Hara Ltd. for $1,950,000 cash. Pierce reports under ASPE and has chosen to consolidate its subsidiaries.

The FVs at March 1 were:

Identifiable assets	$2,900,000
Identifiable liabilities	1,050,000

Legal and other professional fees related to the business combination were $20,000. Pierce did not own any shares of O’Hara before this acquisition and the market value of O’Hara’s shares cannot be determined.

What is the NCI at acquisition, assuming it is calculated using the FVE method?

Since the market value of O’Hara’s shares is not known, an imputed value is calculated based on Pierce’s purchase price. $1,950,000 / 80% × 20% = $487,500

On December 31, Year 15, Power Co. acquired the net assets of Solar Co. for $9,000,000. Power is a private company that reports under ASPE. The following is taken from the balance sheet of Solar immediately before the purchase transaction:

	Solar
	BV	FV
Cash and current receivables	$   700,000	$   700,000
Inventories	1,800,000	1,800,000
Land	2,300,000	3,000,000
Plant and equipment (net)	3,560,000	3,898,000
	$  8,360,000
Current liabilities	$   467,400	467,400
Bonds payable	1,470,600	1,492,600
Common shares	1,520,000
R/E	4,902,000
	$  8,360,000

In addition to this information, Solar owns a trademark that has an FV of $1,200,000. Power incurred $300,000 of professional fees related to this acquisition.

What is the goodwill that arises from this acquisition?

Goodwill calculation:

Purchase price	$9,000,000
Net BV ($1,520,000 + $4,902,000)	(6,422,000)
Acquisition differential	2,578,000
Land ($2,300,000 BV − $3,000,000 FV)	(700,000)
PPE ($3,560,000 BV − $3,898,000 FV)	(338,000)
Trademark ($0BV − $1,200,000 FV)	(1,200,000)
Bonds payable [($1,470,600) BV − ($1,492,600) FV]	22,000
Goodwill	$  362,000

Which of the following statements is true regarding elimination entries used to prepare consolidated financial statements under ASPE?

Elimination entries are recorded in the consolidation worksheet to adjust the subsidiary’s assets and liabilities to reflect FV's, and to remove the investment account and pre-acquisition equity of the subsidiary

On June 30, Year 25, Namaste Inc., a private company reporting under ASPE, acquired 100% of the common shares of Ciao Ltd. for $2.1 million. Ciao had 1 million common shares issued and outstanding. At acquisition, the common shares and R/E were $470,100 and $730,900, respectively.

On the date of acquisition, the FVs of all of the assets and liabilities of Ciao equalled their BVs, with the exception of the following:

• Equipment with an original cost of $1.8 million and a net BV of $1.175 million had an FV of $1.5 million.

• Ciao had goodwill on its legal entity books recorded at a net BV of $105,000. Namaste chooses to consolidate its subsidiaries. Which of the following statements about Namaste’s June 30, Year 25, consolidated balance sheet is true?

Which of the following statements about Namaste’s June 30, Year 25, consolidated SFP is true?

Ciao's common shares are not presented on the consolidated balance sheet

Which of the following statements describes the differences between IFRS and ASPE in accounting for investments in subsidiaries?

ASPE allows the choice about whether to consolidate a subsidiary, whereas IFRS does not