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ACCOUNTING
THEORY AND
ANALYSIS:
TEXT AND CASES
11TH EDITION
RICHARD G.
SCHROEDER
MYRTLE W. CLARK
CHAPTER 16
ACCOUNTING FOR
MULTIPLE
ENTITIES
Introduction
Business combinations
Consolidations and segment reporting
Foreign currency translation
Business
Combinations
Wyatts classifications
1.
2.
3.
Classical era
Second wave
Third era
1.
2.
3.
4.
5.
Tax consequences
Growth and diversification
Financial considerations
Competitive pressure
Profit and retirement
Business Combinations
Two methods of acquisition
1.
2.
Cash
Exchange of stock
Accounting Method
Accounting Treatment
Purchase
Pooling of Interests
Book Value
Accounting is distorted
FASB decision
Economic consequences
arguments
2001: SFAS 141 (FASB ASC
805) abolished further use
Must be used
a.
b.
c.
d.
e.
Business Combinations II
Consolidation
Parent-subsidiary relationship
Control
Maintenance of control
Operate as integrated unit
Approximate fiscal years
Principles
The Concept of
Control
1.
2.
Are powers limited? Can the party change the entitys purpose?
3.
4.
If so consolidate
Also consolidate if no new cash outlay or benefits exceed new cash
outlay
Theories of
Consolidation
Entity theory
Emphasis is on control of a
group of legal entities operating
as a single unit
Parent company
theory
Purpose of consolidated
statements is to provide
information for parent company
stockholders
Noncontrolling
Interest
Definition
Placement
Liability
Separately presented
Stockholder equity
Additional Issues
Proportionate consolidation
Goodwill
Should it be attributed to
minority interest?
Drawbacks to consolidation
Loss of information
a.
b.
c.
1.
2.
Segmental Reporting
Why important?
What to disclose
Definition
Identity segment
Reportable segment
Revenue
Operating profit or
loss
Identifiable assets
Reporting guidelines
Reportable segments
Information to be
disclosed
Where to disclose
Operating segment
Report balance sheet
and income statement information
about each operating segment
Include other specified information
Reportable Segments
Foreign Currency
Translation
Methods of translation
Current Noncurrent
Monetary Nonmonetary
Current Rate Method
Temporal Method
International Accounting
Standards
IAS No 2
1
(revised
)
The Effe
cts of
Changes
in
Foreign
Exchang
e
Rates
IFRS No 3
Business
ons
Combinati
(replaces
)
IAS No. 22
IFRS N
o
Operat
ing
Segme
nts
(Repla
ce
IA S N o s
. 14)
Consolidation required
.
.
.
.
1.
2.
a.
b.
3.
4.
IFRS No 3: Business
Combinations
Acquirer must be
identified for all
business
combinations
IFRS No 3: Business
Combinations
Assets given,
Liabilities incurred or assumed,
And equity instruments issued
by the acquirer
Assets,
Liabilities
And contingent liabilities
That satisfy specified recognition
criteria
Revenues
Results
Assets
Requires disclosure of
measure of profit or loss and
total assets
New Developments
0
IFRS No. 1
ted
Consolida
Financial
s
Statement
IFR S N o
. 11
Joint
Arrange
ments
IFRS No. 1
of
Disclosure
n
Interests i
ies
Other Entit
If the entity is a joint operator or joint venturer it shall account for its
interest as a joint operation
If the entity is a party that participates in, but does not have joint
control of, a joint arrangement it shall account for its interest:
As a joint operation
As a joint venture in accordance with IFRS No. 9