G’day all,
I’m having trouble understanding the amortisation of the excess purchase price of assets.
Is the excess of the purchase price that is later amortised reflected in both the B/S – (Investment in Associate) and in the Income Statement – (Equity Income)??? Is the same amount reflected in both statements at say the end of year 1?
Furthermore, where is the accumulation of the amortisation of the excess purchase price attributed to assets, over numerous periods Say end of year 2 reflected?
Or am I way off track with tthis concept?
Any feedback would be much appreciated.
Hopefully I understand your question.
Investment in associate is for a non-controlling purchase, recorded at cost and accounted for using the equity method (IFRS anyway, have to brush up on USGAAP)
For controlling acquisitions:
If a company pays consideration greater than the NBV of acquired net assets, company does a purchase price allocation (PPA) and bumps the value of assets/liabs to their fair value. Any excess over net fair value is allocated to goodwill.
Depreciable assets are amortized over their useful life, with the depreiable amount being the original FV allocation for decliining-balance method assets, and FV net of residual value for straight line - the same as any other acquired asset. So the bump in FV is wholly picked up in amortization expense for all years subsequent to acquisition.
Cheers Sglondon, your help is greatly appreciated. This topic has been dominating me, but slowly getting there, cheers
To piggyback on sglondon’s post: the acquiring company amortizes _ only the excess value it’s assigned to depreciable assets _, not the total value of those assets. (Remember that the _ acquired _ company is still depreciating/amortizing _ its value _ on the assets; if the acquiring company amortized the whole amount, it would be double-counting the original value.)
Haha, nothing gets by you S2000! Thanks for the elaboration. No problem Forumnewuser