IFRS Business Combinations: Consolidation After Acquisition – Comprehensive Notes

Which of the following statements describes impairment testing for goodwill arising from acquisition of a subsidiary?

Goodwill is tested annually for impairment

Which of the following statements best describes one of the steps in approaching a consolidation after the date of acquisition?

Calculate ending consolidated R/E

On August 31, Year 1, Pink Inc., a publicly accountable corporation, acquired 75% of the outstanding common voting shares of Salmon Corp. for $900,000 cash, resulting in an acquisition differential of $300,000. At this time, Salmon’s inventory and buildings both had FVs greater than book values. The acquisition differential was allocated as follows: 10% to inventories, 70% to buildings, and the remainder to goodwill. The buildings had a remaining useful life of eight years.

Which of the following is the amortization of the FV differentials for the year ended August 31, Year 5?

This is one year of amortization of the FV increment on the buildings: ($300,000 × 70%) / 8 years = $26,250

In the consolidation of a parent and its subsidiary after the date of acquisition, which of the following statements with respect to intercompany balances and transactions is true?

The impact of the intercompany transactions after the date of consolidation must be eliminated from the financial statements

PLE Corp. purchased 100% of the outstanding voting shares of SPP Inc. on December 31, Year 4. On this date, SPP reported $200,000 in common shares and $420,000 in retained earnings. Goodwill resulting from this acquisition amounted to $300,000.

The amortization schedule for the FV differentials is prepared up to December 31, Year 6, as follows:

Amortization of FV differentials
Item	FV differential per acquisition differential schedule	Amortization to beginning of Year 6	Unamortized FV differential to beginning of Year 6	Amortization in Year 6	Unamortized FV differential to end of Year 6
Inventory	$(35,000)	$(35,000)	$      -	$      -	$      -
Land	(170,000)	-	(170,000)	(85,000)	(85,000)
Building and equipment	(315,000)	(31,500)	(283,500)	(31,500)	(252,000)
Long-term debt	215,000	86,000	129,000	86,000	43,000
Total	$(305,000)	$19,500	$(324,500)	$(30,500)	$(294,000)

Which of the following statements is true?

The amortization of the FV differentials in Year 6 will decrease consolidated net income

Which of the following statements best describes why FV differentials must be amortized after the date of acquisition of a subsidiary?

From a consolidation perspective, assets and liabilities of the subsidiary should be based on their FV's at the date of acquisition

A company is preparing consolidated financial statements after the date of acquisition. Which of the following is the amortization period and SCI account impact for the amortization of long-term debt FV differentials?

The FV differential is amortized over the remaining term of the debt to interest expense

PLE Corp. purchased 100% of the outstanding voting shares of SPP Inc. on December 31, Year 4. On that date, SPP reported $200,000 in common shares and $420,000 in retained earnings. Goodwill resulting from this acquisition amounted to $300,000.

The amortization schedule for the FV differentials is prepared up to December 31, Year 6, as follows:

Amortization of FV differentials
Item	FV differential per acquisition differential schedule	Amortization to beginning of Year 6	Unamortized FV differential to beginning of Year 6	Amortization in Year 6	Unamortized FV differential to end of Year 6
Inventory	$(35,000)	$(35,000)	$      -	$      -	$      -
Land	(170,000)	-	(170,000)	(85,000)	(85,000)
Building and equipment	(315,000)	(31,500)	(283,500)	(31,500)	(252,000)
Long-term debt	215,000	86,000	129,000	86,000	43,000
Total	$(305,000)	$19,500	$(324,500)	$(30,500)	$(294,000)

During Year 6, in their legal entity income statements, PLE and SPP reported interest expense of $140,000 and $190,000 respectively. What amount would be reported as consolidated interest expense on the consolidated SCI?

Correct! The amortization of the long-term debt FV differential will decrease interest expense. $140,000 + $190,000 − $86,000 = $244,000