Under the equity method, we need to depreciate any additional premium attributed to PP&E as a further adjustment? (Question 44 of 2011 CFAI AM) So the investment account at year end for parent = original cash investment + (subsidiary NI * ownership %) - (subsidiary DIV * ownership %) - Amortization of excess amount paid for PP&E Is that correct? What other weird details do we need to know for these intercorporate accounting methods?
wait…
passme Wrote: ------------------------------------------------------- > in equity mthod, no need to allocate excess > purchase price over to ppne. > > there is not really “excess” purchase price. > > just NI and Dividend matter nope I saw them incorporate the excess as goodwill and you depreciate your portion of PP&E
You absolutely must account for the write up in PPE assets. The parent’s net income will be reduced by the depreciation created by the pro-rata share of the additional writeup.
yeah. you guys are right…glad I went back to check
Agreed with chuck…same goes for upstream and downstream sales
Hmm, anything similar of this nature exist for the other methods? It’s things like this that I’m concerned about.
It’s basically the same across all methods. I highly doubt they would give us a vignette where the purchase price of the target was their current book value. Way too easy. Plus, what company would ever sell for just book??? Just remember that when you buy another company at greater than book you first account for the excess purchase, 99% likely from PPE writeup, If there is still a difference between the purchase price and the marked up book value then you have created goodwill. IFRS - Allows Partial and Full Goodwill GAAP - Full Goodwill only IFRS - you can writedown goodwill beyond it’s value and assign the impairment pro-rata to other assets GAAP - you cannot write down goodwill beyond 0. once it’s gone it’s gone