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Consolidation of Financial Statements
Finance & Accounting
Pages 5 (1255 words)
The acquisition method is predominantly applied to consolidation of financial statement from 2009.Prior to that Purchase Method of consolidation was in vogue. Pooling of interest method was adopted for consolidation prior to 2002…
This paper seeks to analyze how the acquisition method compares with the earlier two methods in consolidation of financial statements, its impact on financial statement reporting quality, potential Impact on decision making and International implications of consolidation of financial statements. The paper also discussed the differences between the standards of IFRS and GAAP in respect of consolidation of financial statements with a view to resolve the differences for enhancing uniformity, comparability and transparency in consolidation of financial statements. Acquisition Method Primarily there are two types of treatment under this method. In the first one, the investor acquires assets (and often liabilities) and investee goes out of business and the investor continues to do the business with the controlling interest. The investee company becomes a subsidiary and the stock of investee is shown as investment in the investor’s books of accounts. This process involves accounting for the fair value of the company acquired by ascertaining fair value of the assets and liabilities including contingencies based on risks associated as well as the consideration in line with the international standards. If the consideration is not equal to fair value either it is treated as good will where consideration exceeds fair value or as gain on acquisition where the consideration is less than the fair value. Direct costs associated with the acquisition are expensed. ...
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