ACTG 6160 Lecture Notes - Lecture 5: Rylands Library Papyrus P52, Retained Earnings, Extension Method

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Week 5: Advanced Financial Accounting
Entity Method
Full Value is $100; Goodwill is $10
Your Value is $80; Goodwill is $8
NCI is $20; Goodwill is $2
FV of assets is $90
Parent-company Extension Method
Whateer Goodill that does’t elog to us ill ot be included; excludes NCI share of
Goodwill
Full Value is $98; Goodwill is $8
Your Value is $80; Goodwill is $8
NCI is $18; Goodwill is $0
100% CV + (100% FVA NCI % Goodwill) or,
% CV + % FVA attriutale to NIA + Paret’s Share of Goodill
Proprietary Theory (not to be tested on)
Vie the susidiary fro the oer’s perspetie
Your share of the FV of the subsidiary
Your share of the CV + Your share of the FVA
Applied by proportionate consolidation method
Entity Theory
Full FV
100% CV + 100% FVA
Applied by the entity method
Acquisition Method allows for the entity method and the parent-company extension method
Purchase Method
100% CV + Our share of FVA or,
Our share of FV + NCI share CV
Upstream vs. Downstream
Upstream
o Subsidiary makes the profit; paret’s ad NCI share i susidiary
o If profit is 10, and 80% owned subsidiary, 8 attributable to parent and 2 to NCI
If 5 is unrealized, take 4 away from parent and 1 away from NCI
Downstream
o Parent makes the profit
o If profit is 10 and 5 is unrealized, attriutale to paret’s SH
Example (Upstream)
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Document Summary

Entity method: full value is ; goodwill is , your value is ; goodwill is , nci is ; goodwill is , fv of assets is . Parent-company extension method: whate(cid:448)er good(cid:449)ill that does(cid:374)"t (cid:271)elo(cid:374)g to us (cid:449)ill (cid:374)ot be included; excludes nci share of. Proprietary theory (not to be tested on: vie(cid:449) the su(cid:271)sidiary fro(cid:373) the o(cid:449)(cid:374)er"s perspe(cid:272)ti(cid:448)e, your share of the fv of the subsidiary, your share of the cv + your share of the fva, applied by proportionate consolidation method. Entity theory: full fv, 100% cv + 100% fva, applied by the entity method. Acquisition method allows for the entity method and the parent-company extension method. Purchase method: 100% cv + our share of fva or, our share of fv + nci share cv. Upstream vs. downstream: upstream, subsidiary makes the profit; pare(cid:374)t"s a(cid:374)d nci share i(cid:374) su(cid:271)sidiary. If profit is 10, and 80% owned subsidiary, 8 attributable to parent and 2 to nci: downstream.

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