Chapter 5 - Allocation and depreciation of differences between implied and book values. With the new rulings concerning goodwill, companies are coming to grips with a different method of accounting for any differences found between the book value, fair value, and cost of an acquisition. In this chapter we’ll look at the real allocation of the difference between implied and book value. | Allocation and Depreciation of Differences Between Implied and Book Values 1 Learning Objectives Calculate the difference between implied and book values and allocate to the subsidiary’s assets and liabilities. Describe FASB’s position on accounting for bargain acquisitions. Explain how goodwill is measured at the time of the acquisition. Describe how the allocation process differs if less than 100% of the subsidiary is acquired. Record the entries needed on the parent’s books to account for the investment under the three methods: the cost, the partial equity, and the complete equity methods. 2 Learning Objectives (continued) Prepare workpapers for the year of acquisition and the year(s) subsequent to the acquisition, assuming that the parent accounts for the investment alternatively using the cost, the partial equity, and the complete equity methods. Understand the allocation of the difference between implied and book values to long-term debt components. Explain how to allocate the difference between implied and book values when some assets have fair values below book values. Distinguish between recording the subsidiary depreciable assets at net versus gross fair values. Understand the concept of push down accounting. 3 Allocation of Difference Between Implied and Book Values: Acquisition Date When consolidated financial statements are prepared, asset and liability values must be adjusted by allocating the difference between implied and book values to specific recorded or unrecorded tangible and intangible assets and liabilities. In the case of a wholly owned subsidiary, the implied value of the subsidiary equals the acquisition price. 4 LO 1 Computation and Allocation of Difference (CAD). Allocation of Difference Between Implied and Book Values: Acquisition Date Allocation of difference between implied and book values at date of acquisition - wholly owned subsidiary (implied value equals acquisition price). Step 1: Difference used first to adjust the individual . | Allocation and Depreciation of Differences Between Implied and Book Values 1 Learning Objectives Calculate the difference between implied and book values and allocate to the subsidiary’s assets and liabilities. Describe FASB’s position on accounting for bargain acquisitions. Explain how goodwill is measured at the time of the acquisition. Describe how the allocation process differs if less than 100% of the subsidiary is acquired. Record the entries needed on the parent’s books to account for the investment under the three methods: the cost, the partial equity, and the complete equity methods. 2 Learning Objectives (continued) Prepare workpapers for the year of acquisition and the year(s) subsequent to the acquisition, assuming that the parent accounts for the investment alternatively using the cost, the partial equity, and the complete equity methods. Understand the allocation of the difference between implied and book values to long-term debt components. Explain how to allocate the .
