1
Passive (< 20%)
- Initial Recording: At cost including brokers’ fees
- Recording of Income: Dividends as declared (except stock dividends)
2
Influential (20-50%)
- Initial Recording: At cost including brokers’ fees
- Recording of Income: Ownership share of investee income as earned (single line-item amount)
- Dividends declared reduce investment acct
3
Controlling (>50%)
- Initial Recording: At cost
- Recording of Income: Ownership share of income
- Consolidate subsidiary income statements w/ parent
4
Consolidated Statements
- Present results of operations, cash flow, & balance sheet of both parent & subsidiaries as a single company
5
Stock acquisition
- Acquired company remains as a separate legal entity
- Parent records investment
6
Consolidated BS on acquisition date
- parent book value + subsidiary fair value
- assets & liabilities appear; equity eliminated
7
Value Analysis Schedule
- Compare company fair value w/ fair value of identifiable net assets (subsidiary)
- Calculates FV of goodwill or gain on acquisition of the subsidiary
- Allocates diff btwn FV & BV of subsidiary to individual assets & liabilities
8
Determination & Distribution Schedule
- Compare company fair value w/ book value of subsidiary
- Pre-existing goodwill is included in book value of assets & equity
9
Goodwill
- Company fair value > fair value of net assets excluding goodwill
10
Gain on acquisition
- Company fair value < fair value of net assets excluding goodwill
11
Noncontrolling Interest (NCI)
- Non-Parent owner interest when parent acquires <100% of the subsidiary but still exercises control
- Subsidiary accounts are adjusted to full fair value regardless of controlling interest % (Adjustment allocated to Parent & NCI)