Quiz 3: Consolidations - Subsequent to the Date of Acquisition


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On 1 st January 2014 IN Inc. acquired CT Co. for $670,000 in cash. At the acquisition date the book value of net assets of CT Co. was $500,000. 1. The consolidated balances of both the company's that is parent company and subsidiary company are as under: img The total amortization expense annually is $20,000. The consolidated worksheet has made following adjustment entries as under: Consolidation entry S: This entry S is passed to eliminate the equity shareholders account of subsidiary at the beginning of the year. The entry is as under: img Entry E is passed to record excess amortization expense for the year which is made by debiting the amortization expense and crediting Trademark account and existing technology account. img Entry D is to eliminate the intra entity dividend paid. img Entry A is passed to record the amortization expense on the related assets. This entry establishes unamortized balances as of the beginning of the current year. img Entry I will be passed for transferring the equity earnings in CT Co. to investment in CT Co. img b. If the initial value method is used then the consolidated figures and impairment loss of goodwill is as under: Goodwill will be reduced from the investment in CT Company Account and impairment loss will be debited to the income statement account. img

GAAP prohibits reversal of impairment losses for goodwill. IFRS also prohibits reversal of impairment losses for goodwill.