Question

consolidation accounting
working out FVINA
pre-acquisition journal entry
valuation entries in year of acqusition
valuation entries subsequent to aqcusition

could you explain what those are with a simple examples

Answer 1

Consolidation accounting;

Consolidation accounting refers to the combination of the financial statements of parent and subsidiary companies. In other words we can say when we present financial statements of parent and subsidiary company in combined format then it is known as consolidation accounting. For example; ABC company has a subsidiary company XYZ then prepartion of financial statements of ABC and XYZ combinedly will be known as consolidation accounting.

Working out FVINA;

FVINA refers to fair value of the identifiable net assets. In case of acquisition of a business parent company have to determine the fair value of intentifiable assets and liabilities. In other words we can say that it will help in calculating real cost of acquisition. For example if ABC company acuires XYZ then ABC company will calculate cost of the business with the help of FVINA.

Pre-acquisition journal entry;

Pre-acquisition journal entries refers to those journal entries which are passed for the following objectives;

·        To eliminate Investment in subsidiaries out of Group account.

·        To eliminate the pre acquisition equity at consolidation out of Group account.

·        To recognise Gain on bargain of purchase (if any)

For example;

If ABC company acuires XYZ then ABC company have to pass some pre-acquisition journal entry to prevent double counting of asset, prevent double counting of equity and to recognise gain etc.

Valuation entries in year of acquisition;

When book value (BV) of assets and liabilities of the subsidiary firm is not equal to the fair value of assets and liabilities then some specific journal entries need to be made these entries are known as valuation entries in the year of acquisition.

For example;

Suppose value of land is increased by $10000 then following valuation entry will be made;

Debit….Land…………….$10000

            Credit….DTL……………….$3000

            Credit….BCVR……………..$7000

Valuation entries subsequent to acquisition;

Practically we see that sometime consolidation is being done after acquisition date. In such case some valuation entries are passed on that subsequent to acquisition. These valuation entries are made for considering transactions and events occurring since acquisition. Hence these entries are known as valuation entries subsequent to acquisition.

For example; If ABC company purchased XYZ on December 31, 2016 and consolidation is being made on June 30, 2017. So on that date valuation entries subsequent to acquisition will be made to consider transactions and events occurring since acquisition.