Consolidated statements at the date of acquisition - study notes

Which of the following statements regarding the elimination entry to consolidate the SFP at the date of acquisition is true?

Debits are required to eliminate the subsidiary's share capital and Retained earnings (R/E)

On March 11, Year 17, Tam Corp. (TC) paid $450,000 to purchase 100% of the shares of Dinshaw Ltd. (DL). DL’s assets consist of $65,000 of inventory, $280,000 in machinery, and $20,000 of goodwill on a BV basis. The machinery has an FV of $320,000. DL has accounts payable of $15,000, common shares of $1,000, and R/E of $349,000. All other assets and liabilities have BVs equal to their FVs. TC incurred $4,500 in legal fees on the purchase. Both entities report under the IFRS financial reporting framework.

What amount of goodwill will TC recognize on the purchase of DL?

The acquisition differential schedule is as follows:

Purchase price	$450,000
BV of net assets ($1,000 + $349,000)	(350,000)
Acquisition differential	100,000
FV differentials:
Machinery ($280,000 BV − $320,000 FV)	(40,000)
DL's goodwill ($20,000 BV − $0 FV)	20,000
Goodwill	$80,000

Which of the following describes how goodwill is measured in a business combination using the acquisition method?

Goodwill is the difference between the consideration given and the FV of all the identifiable net assets received

Papier Inc., a public company, purchased 80% of the outstanding voting shares of Sapin Corp. for $360,000 cash on July 1, Year 1. Immediately before the acquisition, Papier and Sapin reported the following:

Statements of financial position
As at July 1, Year 1
	Papier	Sapin
	BV	BV	FV
Cash	$500,000	$245,000	$245,000
Investments at amortized cost	7,000	24,000	26,000
AR	60,000	40,000	40,000
Inventory	120,000	45,000	55,000
Equipment (net)	290,000	80,000	72,000
Patents	10,000	90,000	193,000
Total assets	$987,000	$524,000
Current liabilities	$ 95,000	$160,000	160,000
Bonds payable	0	70,000	75,000
Common shares	400,000	180,000
R/E	492,000	114,000
Total liabilities and equity	$987,000	$524,000

What amount would be reported for patents on the consolidated SFP at July 1, Year 1?

The BV of Papier’s patents ($10,000) and the FV of Sapin’s patents ($193,000) should be added together to get the final consolidated amount.

On January 5, Year 1, Honey Corp., a public company, purchased 90% of the shares of Vinegar Corp. for $300,000 cash. On this date, the following information was available for both entities, which report under IFRS:

	Honey Corp.		Vinegar Corp.
	BV	FV	BV	FV
Cash	$450,000	$450,000	$15,000	$15,000
Investments — at amortized cost	0		23,000	26,000
Inventory	60,000	60,000	9,000	11,000
Machinery (net)	80,000	100,000	220,000	210,000
Trademark	0		0	60,000
Total assets	$590,000		$267,000
Current liabilities	$78,000	78,000	$17,000	17,000
Bonds payable	0		126,000	129,000
Common shares	1,000		45,000
R/E	511,000		79,000
Total liabilities and equity	$590,000		$267,000

Which of the following would be included in the investment elimination entry for the purchase of Vinegar? Assume that Honey calculates NCI using the FVE method.

This is the amount of the FV increment on the subsidiary’s investments, which is debited in the investment elimination entry. $26,000 FV – $23,000 BV = $3,000.

Which of the following describes the options for measuring the NCI in a business combination?

The INA approach or the FVE approach

Which of the following is included in the purchase price of a subsidiary?

Contingent consideration

Which of the following describes the key reasons for the acquisition differential in a business combination?

FV differentials and goodwill

Which of the following is included in consolidated common shares when a parent owns less than 100% of a subsidiary?

100% of the parents common shares only