If a company acquires 70% of stake in company b, which of the method is used by parent company a. consolidation b. purchase Are these methods are not one and same? What is difference between these two methods?
purchase vs pooling is used primarily for mergers and acquisitions. In the purchase you record all the assets/liab of the companies at FMV and the additional amounts (if FMV > BV) are attributed to the respective assets and /or intangible assets / goodwill. in consolidation - you just add up the BOOK VALUE of the assets/liabilities of the target company and the part you DON"T own is accounted for as minority interest on the liabilities side of your balance sheet. so for the above question…I would say A. Consolidation. There is no mention of the companies merging as such.
Thanks for the detailed explanation
I’ve posted on this question a number of times so use the search function. The book does a very poor job of integrating these two topics. What mumukada said above is largely incorrect.
you’re right…sorry…have that messed up up there…just re -read it ( had posted it while at work and was in a rush!) what i’ve said about attributing the additional amounts applies to consolidation method - not purchase… apologies… giribk…just ignore my post! do a search…you’ll find some big discussions on the above