process of preparing FS for group entities
combining financial statements of individual entities
present a set of FS as if all entities wihtin a group are one entity
If you don't use right scope of consolidation, it may lead to potential abuses f.e. Enron
10, control
1. power over the investee
2. exposure or rights to variable return from involvement
3. the ability to use its power to affect the return
existing rights that give the current ability to direct the relevant activities
a legal contract
Voting rights, right to appoint managment, right to appoint another entity that participates in management, right to determin important decisions
they are substantive and represent a current ability to exercise
the ability to direct
these are relevant activities that are being directed and significantly affect the investee's return
an investors owns more than 50% of the voting rights of an entity
voting rights are > 50%, this can result in an investor having power over an investee
1. Dispersion of the other shareholders
2. Attendance at AGM's
3. Existence of contracts
BS is different, accounting policies are different, fair values versus book values, different currency
1. BC valuation entries (adjust carrying amounts to fair value)
2. Pre-acquisition entires
3. Transactions between groupentities
avoid double accounting for transactions
acquisition analysis compares the cost of acquisition with the FVINA to determine whether there goodwill or bargain purchase
all identifiable assets and liabilities of the subsidiary as well as the FV of contingent liabilities of the acquiree
acquirer on the acquisition of the subsidiary, not recognized on subsidiaries BS
it is used to record adjustments in FV vs BV, unrecognized assets, and contingent liabilites at FV