I have found couple of discrepencies in these methods while discussing with couple of my friends. These may not be discrepencies, and may just be derivations of unsettled mind. Here are these discrepencies / confusions
1] I got to know that in the acquisition method, fair value of the subsidiary should be used, and I have seen this in the CFAI text (They have put it in asterisks) that appropriate method is use fair value of the subsidiary. The problem with this approach is first you have to find the fair value of each line item, which is going to be not only for the parent company but for subsidiary as well. I don’t know if balance sheet will look good if you mix book balue of the parent and fair value of the subsidiary. If this is not the case and if you consider FV for bot, your earnings will be 180 degree upside down because of the assets at old price on the balance sheet. If this is the case, who will get into acquisition in the first place? Schweser has only taken book values in the consideration regardless of the choice of the method – proportionate consolidation or acquisition.
2] Treatment of cash which the parent company pays to buy the subsidiary. In the schweser notes they mentioned that it has to be deducted from the cash and in the videos they have shown this amount needs to be added back to the minority shareholders portion of equity to bring the accounting equation in balance. Is this still true?
3] Amortization of fair value over book value of assets is different in partial and full goodwill approach the same is for goodwill from which you have to take off the % share of minority shareholders by any approach for any goodwill that is recorded on the balance sheet. I am assuming the deduction of fair market value that happens at the good will level in full good will approach should be for the value of the subsidiary not for the % share of the parent.
Can you please help me sort these things out?