In: Accounting
Which method must be used if ASC 810-10-65 prohibits full consolidation of a 70% owned subsidiary?
Select one:
a. Equity method
b. The Liquidation value
c. Market value
d. The cost method
Subsequent to an acquisition, the parent company and consolidated financial statement amounts would not be the same for
Select one:
a. ending retained earnings.
b. investments in consolidated subsidiaries.
c. investments in unconsolidated subsidiaries.
d. capital stock.
Push-down accounting
Select one:
a. is the process of recording the effects of the purchase price assignment directly on the books of the subsidiary.
b. requires a subsidiary to use the same accounting principles as its parent company.
c. is required when the parent company uses the cost method to account for its investment in a subsidiary.
d. is required when the parent company uses the equity method to account for its investment in a subsidiary.
IFRS defines control as
Select one:
a. having a majority of the ownership interests entitled to elect management.
b. the power to direct the activities that impact economic performance, the obligation to absorb expected losses, and the right to receive expected residual returns.
c. the power to govern the entity’s financial and operating policies as to obtain benefits from its activities.
d. the direct or indirect ability to determine the direction of management and policies through ownership, contract, or otherwise.
(a) Equity method must be used if ASC 810-10-65 prohibits full consolidation of a 70% owned subsidiary.
The companies ues equity method in the above mentioned case.
Subsequent to an acquisition, the parent company and consolidated financial statement amounts would not be the same for (b) investments in consolidated subsidiaries.
There are different entries in the books of consolidated statement and parent comapny for such cases.
Push-down accounting (a) is the process of recording the effects of the purchase price assignment directly on the books of the subsidiary.
Push-down accounting is the process of recording the effects of the purchase price assignment directly on the books of the subsidiary. Push-down accounting affects the books of the subsidiary and separate subsidiary financial statements. It does not alter consolidated financial statements and, in fact, simplifies the consolidation process.
Pushdown accounting establishes a new basis for reporting assets and liabilities in an acquiree’s stand-alone financial statements based on the “pushdown” of the newly adopted acquirer’s basis.
Push down accounting is a convention of accounting for the
purchase of a subsidiary at the purchase cost rather than its
historical cost.
According to the U.S. Financial Accounting Standards Board (FASB),
the total amount that is paid to purchase the target becomes the
target’s new book value on its financial statements. Any gains and
losses associated with the new book value are “pushed down” from
the acquirer’s to the acquired company’s income statement and
balance sheet. If the acquiring company pays an amount in excess of
fair value, the target carries the excess on its books as goodwill,
which is classified as an intangible asset.
In push down accounting, the costs incurred to acquire a company
appear on the separate financial statements of the target, rather
than the acquirer.
IFRS defines control as (b) the power to direct the activities that impact economic performance, the obligation to absorb expected losses, and the right to receive expected residual returns.
An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
An investor controls an investee if and only if the investor has all of the following elements: