Finance and Accounting - Coursework Example

? Finance and Accounting Affiliation with more information about affiliation, research grants, conflict of interest and how to contact Part 1: 1. SFAS No. 141R is a revision of the standard that continues to be a tool which helps in the better use of fair values in monetary reporting. It transforms how trade acquisitions are carried out and accounted for, and it also impacts economic statements from the date of completion of the acquisition. It further influences the yearly goodwill impairment test connected with acquisitions that closes both before and after the efficient date of this standard. A non controlling interest is the part of equity in a supplementary not attributable, indirectly or directly, to a parent company. The main objective of this statement is to recover the relevance, transparency, and comparability of the monetary information that a reporting unit gives in its consolidated financial statements by determining reporting and accounting standards. 2. In a partial acquisition, where a firm acquires a managing interest during a series of dealings, the acquirer will normally record every asset, containing 100% of goodwill and every liability at fair value on the date the control is taken over. This makes use of single-step acquisitions of a managing interest, in addition to transactions, where acquiring control requires various steps over time. 3. Fair value is the predictable value of every liability and asset of an acquired company, which needs to be determined. This method is most appropriate in acquisition method because “fair value was the only way of getting derivative transactions onto the balance sheet and openly” (Policy Paper: Fair Value, 2009, p. 4). 4. Purchase method uses a more optional purchase price allocation approach, whereas acquisition method uses a more market driven credit approach. The acquisition method is appropriate because this “method is designed to improve the recognition and measurement of the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree” (Aghimien, n.d.). 5. Part 2: Solution: For the purpose of financial reporting, the profit on the intercompany sale can always be delayed by the parent to the credit of the equity earnings of the subsidiary. If these profits of intercompany are eliminated from the equity system bookkeeping applied by a parent firm, then the equity profits earned by the parent is equivalent to the consolidated net profits. In the given case, Sapling Inc is a 95% individual subsidiary of Fir Enterprises. The company sells an industrial wood chipper for $10,000 and Fir pays $17,000 for the wood chipper. The asset currently has a book value of $8,000. The asset has a remaining valuable life of four years, without salvage value. In this case, parent company is Fir Enterprises and subsidiary is Sapling, Inc. The parent company or the company that acquires another company manages its own affairs apart from taking over the management of the subsidiary company after the acquisition. Sapling, Inc books in year of purchase 20x8. Particulars Debit Credit 01/01/x8 Equipment Cash (To record purchase of wood chipper from Fir Enterprises on 01/01/20x8.) $10,000 $10,000 12/31/x8 Depreciation Expense Accumulated depreciation (To record depreciation of wood chipper for 2008) $2500 $2500 Fir Enterprises Books in year of sale 20x8: Date Particulars Debit Credit 01/01/x8 Cash Accumulated Depreciation Equipment Gain on sale of equipment (To record sale of wood chipper from Fir Enterprises on 01/01/20x8.) $10,000 $9,500 $17,000 $2,500 In the year of transfer, the following Consolidating worksheet adjusting entries should be made: particulars Debit Credit Gain on sale of equipment Equipment Accumulated Depreciation (To remove unrealized gain and restore asset to original past cost.) Accumulated Deprecation Depreciation Expense (To eliminate excess depreciation based on the subsidiary’s transfer price.) $2,500 $7,000 $1500 $9500 $1500 The consolidating worksheet adjusting entries for 20x9 that deals with the influence of annual depreciation that happens on the purchasing subsidiary’s books: Account Equipment 12/31/x9 Accumulated Depreciation 12/31/x9 Depreciation Expense 12/31/x9 01/01/x9 Retained Earnings Individual records $10,000 ($11500) $2500 ($1000) Consolidated records $17,000 ($12000) $1500 $1500 Worksheet adjustment $7000 ($500) ($1000) $2500 Explanation $9500orig.accum.depr. +$2,500 Sellers depr. Exp for 20x8 and 20x9. $2,500 deprec. Equipment $7000 Retained earnings 1/1/20x9 $1000 Accumulated depreciation $8000 (To return equipment account to original past cost and correct the 01/01/20x9 balance of accumulated depreciation and retained earnings.) Accumulated Depreciation $1500 Depreciation Expense $1500 (To remove additional depreciation cost and adjust accumulated depreciation to its correct 12/31/20x 9 balances.) Reference List Aghimien, P. (n.d.). Purchase vs. Acquisition Methods of Business Combinations. Indiana University South Bend. Retrieved from http://www.aabri.com/OC09manuscripts/OC09106.pdf Policy Paper: Fair Value. (2009). The Association of Chartered Certified Accountants. Retrieved from http://www.accaglobal.com/content/dam/acca/global/PDF-technical/financial-reporting/pamr-pp-fv.pdf What are the Effects of Depreciation? (2004). AccountingCoach, LLC. Retrieved from http://blog.accountingcoach.com/effects-of-depreciation/ Read More