Acquisition Method to Account for Controlling Interest Investments
U.S. GAAP requires the acquisition method when accounting for controlling interest business combinations, starting in December 2008.
Under the Acquisition Method:
The acquired identifiable assets and liabilities are recognized at full fair value, even if the parent purchases less than 100% of the subsidiary.
Direct costs in support of the acquisition (ex. legal fees) are not added to the acquisition price, but are directly expensed by the acquirer.
Contingent assets and liabilities are recognized at their fair value on the transaction date.
In process research and development (R&D) is recognized at fair value as an intangible asset. This asset is not amortized, but tested annually for impairment.
The fair value of the subsidiary on the transaction date is used to calculate minority interest.
Minority interest is reported under the equity section of the consolidated balance sheet (recall that under the purchase method, U.S. GAAP placed minority interest on the mezzanine between debt and equity).
- CFA Level 2: Financial Reporting Part 2 – Introduction
- Intercorporate Investments Accounting - Ownership Categories
- Minority Passive Investments – Accounting Classes
- Minority Active Investments and the Equity Method for Financial Reporting
- Joint Venture Investments
- Controlling Interest Investments: Accounting for Business Combinations
- Purchase Method of Accounting for Controlling Interest Investments or Acquisitions
- Pooling of Interests Method to Account for Controlling Interest Investments
- Purchase Method vs. Pooling of Interest Method
- Acquisition Method to Account for Controlling Interest Investments
- GAAP Purchase Method, IFRS Purchase Method, and GAAP Acquisition Method Accounting
- Variable Interest Entities (VIEs) and Special Purpose Entities (SPEs)
- Defined Benefits Plans vs. Defined Contribution Plans
- Measuring the Defined Benefit Obligation
- Pension Expense (both GAAP & IFRS) for the Income Statement
- Defined Benefit Plans & the Company Balance Sheet
- The Role of Actuarial Assumptions in DB Plan Accounting
- Economic Pension Expense
- Pensions and the Statement of Cash Flows
- Accounting for Stock (or Share) Based Compensation
- Financial Statement Consolidation of Multinational Operations
- Consolidation: Presentation Currency vs. Functional Currency vs. Local Currency
- Foreign Currency Translation
- Temporal Method for Translation of Foreign Statements
- Current Rate Method for Translation of Foreign Statements
- Consolidating Financial Statements: Determining the Functional Currency
- Translation Methods and Financial Statement Effects
- Accounting for Subsidiaries in Hyperinflationary Economies
- CFA Level 2: Financial Reporting 2 - Recommendations
- MBS Weighted Average Life