Question

In: Accounting

In 200 words or more, discuss some of the issues that accountants face after an investment...

In 200 words or more, discuss some of the issues that accountants face after an investment has been acquired. One example would be how goodwill is accounted for on the financial statements after an acquired company is consolidated on the financial statements.

Solutions

Expert Solution

When a company acquires another company there my be of two scenarios

One is 100% acquisition and the other is partly acuisition such acquired entity is known as subsidary associate or joint venture

Issues faced by accountants are

1.calculation of non controlling interest that is part of the entity which is not acquired by the acquirer company the holding company acquires 50% but it considers in consolidation as it acquired 100% and then the compensation is paid to non controlling interest by holding company

2.Goodwill or bargain purchase gain is calculated on the basis of consideration paid compared with net identifiable assets

3.Any unrealised gain or loss due to the transactions between holding company and subsidary company are to be eliminated in consolidation financial statements

4.Investments made by holding company in a subsidiary company is eliminated in consolidation

5.All the mutual owings between the two companies are to be eliminated as if the transactions are not happened

6. Dividend declared is adjusted from the net income before distributing the profits to non controlling interest

7. All the assets and liabilities are added line by line addition in consolidated financial statements except equity and reserves of subsidary company

8.In case of associate the investment alone is considered but not 100% acquisition i.e associate means 20% investment in entity


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