So if it is added to depreciable assets, does that not mean that there is no influence on the investment in the sub?
Why would the subsidiary have anything to do with it in this case? The investing company has to deal with the fact that they paid more for 50% than it was worth, no?
caspian Wrote: ------------------------------------------------------- > Why would the subsidiary have anything to do with > it in this case? The investing company has to > deal with the fact that they paid more for 50% > than it was worth, no? yup
joeisenb Wrote: ------------------------------------------------------- > Goodwill amortization shouldn’t come into play as > the extra amount was added to depreciable assets > it said. Question though. It did say dividends > declared not paid. I was wondering if the > dividends should be factored in. This is why I said depreciation does not take into account under US GAAP
I didn’t include depreciation as I believe it was a trick so as to get you thinking about “purchase method” when in fact it had nothing to do with purchase method, it was “equity method” for the GAAP firm and “Prop Consolidation” for the IAS firm. I have never seen an equity method problem where they subtract depreciation…unless someone can show me an example where “equity method” subtracts depreciation. Any specific citations?
There is a specific example in schweser sponge. If I crack the books open again I will loook it up. They are in the garage now. 
come on, guys, it does not matter if it’s control or not … if the price you paid is higher than the fair value of net assets acquired, it results in goodwill … and if this is related to DEPRECIATABLE assets, you adjust your books for the higher depreciation to reflect the fair value of assets acquired … the answer is 1305, i’m 100% right … btw, i’m an ACCA member, so trust me on this one …
"come on, guys, it does not matter if it’s control or not … if the price you paid is higher than the fair value of net assets acquired, it results in goodwill … and if this is related to DEPRECIATABLE assets, you adjust your books for the higher depreciation to reflect the fair value of assets acquired … the answer is 1305, i’m 100% right " I totally agree.
Banat - pls explain one thing to me. I agree about the depreciation but why wasn’t the required depreciation already built into the net income figure it gave you?
I put $1325 because the dividends were declared, not paid.
Sponge_Bob_CFA Wrote: ------------------------------------------------------- > I didn’t include depreciation as I believe it was > a trick so as to get you thinking about “purchase > method” when in fact it had nothing to do with > purchase method, it was “equity method” for the > GAAP firm and “Prop Consolidation” for the IAS > firm. I have never seen an equity method problem > where they subtract depreciation…unless someone > can show me an example where “equity method” > subtracts depreciation. > > Any specific citations? p. 163 schweser.
I didn’t even think about the dep. expense!!! I thought they asked about carrying value = B/S so I just did FMV +%income - %div Is that wrong?!!
This right according to Equity method listed in CFAI. Forget about schweser, aftering using it last year and failed, CFAI books rules.
look also from a different perspective: not adjusting for depreciation means reporting some assets in the BS at a value higher than their fair value, which would mean overestimating the value of your assets … that’s why it specified DEPRECIATABLE assets, because you have to account for extra depreciation over the average life of those assets …
Here is to 1305. Goodwill is not amortizable. IAS and US GAAP only test Goodwill for impairments. See the link: http://www.nysscpa.org/cpajournal/2002/0302/dept/d034402.htm I got 1355. Please tell me I am correct.
This is where Goodwill comes. Again Under US GAPP Goodwill are not amortised. I will only refer to what CFAI says.
if still have doubts, just check page 163 - 164 example in Schweser … and there is one in CFA books as well, i will provide you the page … the adjustment for extra depreciation it has to be done, no matter what method you choose: equity, proportionate consolidation and full consolidation … this was one of the easiest question from the whole exam, i can not believe we have so many arguments over this very easy topic … it’s quite logic and common sense that you have to adjust for depreciation … taking this to an extreme, is almost similar like buying extra asstes worth 150k with an average life of 3 years …
Fair enough on I/S, but does it also impact the carry value on the B/S under Equity Method?
Yeah. The NI flows through to increase the investment acct on the BS (adjusted for dividends).
Doh! Sorry wasn’t thinking that one through all the way. After looking at that example I definitely got that question wrong.