When do you use the purchase method instead of the consolidated method? This seems so basic, but I never saw anything that really explained when to use each; they usually just tell you “so-and-so used the purchase method to account for this.” If they don’t say that, and they have purchased between 51-100% of a company, I have assumed it’s the consolidated method. But You can use the purchase method for less than 100% of a company, so HOW DO YOU KNOW WHEN TO USE THE PURCHASE METHOD??!
Do you mean purchase v pooling? I thought consolidation was part of the equity/consolidation/proportionate consolidation method distinction. I don’t think purchase method and consolidation are mutually exclusive. I think purchase method is required under GAAP and IFRS. To be honest, I’m not sure why we need to know pooling, except maybe for old school financial statements.
Purchase method is WHEN YOU BUY THE COMPANY. (One time deal, restate the financial statements for the combined company). That is why it is called acquisition accounting. CONSOLIDATION METHOD IS FOR CONTINUED ACCOUNTING. This becomes the Minority Active accounting - and would still be applicable, e.g. if the Company Parent bought between 51-100% of the Company Subs.
But cpk you can buy 80% of a company under the purchase method by accounting for 80% of the net assets you buy at FV and 20% at book value. And will they tell you that it’s a “one time buy?” How will you know that it’s a one-time accounting deal in the wording of the question?