PROCEDURE FOR

CONSOLIDATION
USING
ACQUISITION
METHOD
PROCEDURE FOR CONSOLIDATION
USING ACQUISITION METHOD
1. Begins with an acquisition analysis (or schedule of
determination and allocation of excess). The
schedule is prepared as of the date of acquisition and
supports the consolidation procedures used in all future
years.
- The acquisition method of accounting for business
combination requires that a consolidated balance sheet
shows the assets of the subsidiary in the financial
statements at the fair market value as of the date of
acquisition.
 PROCEDURE FOR CONSOLIDATION
USING ACQUISITION METHOD
- Subsidiary assets should not be consolidated at book
value if fair value as of the date of acquisition and book
value are different on the acquisition date.
- When the fair value of the subsidiary is not equal to the
underlying book value of the subsidiary’s net assets, the
assets and liabilities of the subsidiary must be adjusted in
the consolidated statements to fair value.
- The excess represents the total amount of additional net
upward valuations or download valuations that must be
made in the subsidiary’s net asset upon consolidation.
PROCEDURE FOR CONSOLIDATION
USING ACQUISITION METHOD
2. Adjusting Entries Prior to Eliminating Entries
- At times, work paper adjustments to accounting data
may be needed before appropriate eliminating entries can
be accomplished. The need for adjustments generally
arises because of in-transit items where only one of the
affiliates has recorded the effect of an intercompany
transaction.
 PROCEDURE FOR CONSOLIDATION
USING ACQUISITION METHOD
3. Other Intercompany Balance Sheet Eliminations
- Balance Sheet eliminations of a variety of intercompany
receivables and payables are also often required.
- Eliminations must also be made for all types of
intercompany accruals for such items as rent and other
services.
-
THE ACQUISITION
ANALYSIS
( OR SCHEDULE OF
DETERMINATION
AND ALLOCATION
OF EXCESS)
THE ACQUISITION ANALYSIS ( OR SCHEDULE OF
DETERMINATION AND ALLOCATION OF EXCESS

- The acquirer obtains control by acquiring shares ( stock

acquisition) in the acquiree. At acquisition date, an
acquisition analysis is undertaken to determine if there
has been any goodwill acquired, or a bargain purchase
has occurred.
- The acquirer shall recognize goodwill as of the
acquisition date, measured as the excess :
(a) the aggregate of:
(i) the consideration transferred measured in
accordance with this Standard , which generally requires
acquisition date fair value.
THE ACQUISITION ANALYSIS ( OR SCHEDULE OF
DETERMINATION AND ALLOCATION OF EXCESS

(ii) the amount of any non-controlling interest in the

acquiree measured in accordance with this Standard; and
(iii) in a business combination achieved in stages, the
acquisition date fair value of the acquirer’s previously
held equity interest in the acquiree.
(b) The net of the acquisition date amounts of the
identifiable assets acquired and the liabilities assumed
measured in accordance with this standard.
CONSOLIDATION OF WHOLLY OWNED
SUBSIDIARIES
- A wholly owned subsidiary is a company whose
common stock is 100% owned by another company, the
parent company
- Many factors have an effect on the fair value of a
company and its market per share of stock including its
asset values, its earning power, and general market
conditions.
- When one company acquires another, the acquiree’s
fair value based on the consideration given may be equal,
more than or less than the book value.
 CONSOLIDATED
BALANCE
SHEET:THE USE OF
WORKPAPERS
 CONSOLIDATED BALANCE
SHEET:THE USE OF WORKPAPERS
- The most relevant statement is the consolidated
balance sheet.
- The consolidated balance sheet reports the sum of
the assets and liabilities of a parent and its subsidiaries as
if they constituted a single company.
- The non-controlling interest are reflected as a
component of owner’s equity. This interest may be
referred to as either the non-controlling interest in net
assets or as the non-controlling interest in equity
 INTERCOMPANY ACCOUNTS TO BE
ELIMINATED
Parent’s Accounts Subsidiary’s Account
Investment in Subsidiary versus Book value of
stockholder’s equity and
over/ under valuation of
assets and liabilities
Intercompany receivable versus Intercompany payable
+ (payable) (receivable)
Advances to subsidiary versus Advances from parent
(rom subsidiary)
Interest income versus Interest expense
(expense) (income)
Dividend income versus Dividends
(dividends declared declared(dividends
income)
Management fee received versus Management fee paid to
from subsidiary parent