Consolidations & Group Accounts Flashcards
7 cards from real CA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Consolidations & Group Accounts flashcards as text
In a step acquisition where a parent increases ownership from 25% to 80%, how is the previously held 25% interest treated on the acquisition date?
Answer: It is remeasured at fair value on the acquisition date, with any gain or loss recognized in earnings
Under ASC 805, when control is obtained in a step acquisition, the previously held equity interest is remeasured at its acquisition-date fair value, and any resulting gain or loss is recognized in net income.
When a parent sells a portion of a subsidiary's shares but retains control, how is the transaction accounted for?
Answer: As an equity transaction with no gain or loss recognized in consolidated net income
Under ASC 810, partial disposals that do not result in a loss of control are accounted for as equity transactions, with differences between proceeds and the carrying amount of NCI recorded in equity — not income.
How are unrealized profits on upstream sales (subsidiary selling to parent) eliminated in consolidation?
Answer: Eliminated with the effect allocated between NCI and the parent based on ownership percentages
Unrealized profits on upstream sales are fully eliminated, and the elimination is shared between NCI and the controlling interest in proportion to their respective ownership percentages in the subsidiary.
Under the equity method of accounting, how does an investor record its share of an investee's net income?
Answer: As an increase in the investment account and a credit to investment income
Under the equity method, the investor records its proportionate share of the investee's net income by debiting the Investment account and crediting Investment Income, reflecting the investor's economic stake.
When translating a foreign subsidiary's income statement for consolidation under ASC 830 (current rate method), which exchange rate is used?
Answer: The weighted-average exchange rate for the reporting period
Under ASC 830, income statement items are translated using the weighted-average exchange rate for the period, while balance sheet items (except equity) are translated at the closing rate.
When a parent loses control of a subsidiary, how is any retained non-controlling equity interest measured?
Answer: At fair value on the date control is lost
Upon deconsolidation, the retained interest in the former subsidiary is remeasured at fair value, and a gain or loss representing the difference from the carrying amount is recognized in net income.
A bargain purchase in a business combination occurs when:
Answer: The fair value of net identifiable assets acquired exceeds the total consideration transferred plus NCI
A bargain purchase (negative goodwill) arises when the fair value of identifiable net assets exceeds the sum of consideration transferred plus NCI plus previously held interests; the excess gain is recognized immediately in income.