for acquisition method, when allocating the excess purchase price to “identifiable net assets”, do we include the differences between fair value and book value of everything, like PP&E, inventory, LT debt and etc…? for equity method, however, when allocating the excess purchase price to “specific assets”, we would only consider allocations to PP&E and land? Thanks…
I’ll attempt this, when you are allocating purchase price to identifiable net assets, they should all be assessed at fair value, so things like PP&E which are measured at historical adjust need to be adjusted. the only adjustments to the equity method come in earnings and dividends, I dont know where you are getting that information from.
CFAI book Page 25 goodwill calculation under equity method and Page 40 goodwill calculation under acquisition method if in the equity method example, there were other items like inventory and long-term debt, will we include them in the goodwill calculation? in other words, can we always use the following equation under both methods? - goodwill = fair value of acquisition cost - fair value of net identifiable assets
skies, don’t know where you are but you should take the john harris accting class. He will have good and correct answers to all your FSA questions
i don’t think i can keep them in a book until then and submit the book to john harris…but thanks for the advice and i heard he’s good! plus i figured it would be good for me to discuss these questions with ppl and if anyone has the same question as i do they would get their answers here as well. so…
Skies Wrote: ------------------------------------------------------- > CFAI book Page 25 goodwill calculation under > equity method > and Page 40 goodwill calculation under acquisition > method > > if in the equity method example, there were other > items like inventory and long-term debt, will we > include them in the goodwill calculation? in > other words, can we always use the following > equation under both methods? - > > goodwill = fair value of acquisition cost - fair > value of net identifiable assets Consolidated purchased goodwill: excess of the purchase price of the acquired business over the fair value of its net tangible and identifiable intangible assets Equity method: the difference between the cost of the investment and the fair market value of the underlying assets
Skies Wrote: ------------------------------------------------------- > i don’t think i can keep them in a book until then > and submit the book to john harris…but thanks > for the advice and i heard he’s good! plus i > figured it would be good for me to discuss these > questions with ppl and if anyone has the same > question as i do they would get their answers here > as well. so… save your money, there are accountants here and that genius CPK waiting in the wings.
Hi there, Equity method in accounting is the process of treating equity investments, usually 20–50%, in associate companies. The ownership of less than 20% creates investment position carried at historic book (or fair market value ; if available for sale or held for trading) in the investor’s balance sheet. The investor keeps such equities as an asset. Proportional share of associate company’s net income increases the investment, and proportional payment of dividends decreases it. In the investor’s income statement, the proportional share of the investee’s net income is reported as a single-line item. Whereas, the ownership of more than 50% of voting stock creates a subsidiary. Its financial statements consolidate into the parent’s. It is a good idea to just read through Question and answer of Dec 07 and June 08 for ACCA to understand the concept better as I did the same since I completed the Accountant exam some years back. http://www.accaglobal.com/students/acca/exams/f7/past_papers Regards rcaus
I have the same question. Any one can explain?
^ +1
The more I try to understand this, the more I get confused.