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CONSOLIDATIONSSUBSEQUENT TO THE
DATE OF ACQUISITION
I.
II.
III.
IV.
Bargain purchases
A. As discussed in Chapter Two, bargain purchases occur when the
parent company transfers consideration less than net fair values of
the subsidiarys assets acquired and liabilities assumed.
B. The parent recognizes an excess of net asset fair value over the
consideration transferred as a gain on bargain purchase.
V.
Goodwill Impairment
A. When is goodwill impaired?
1. Goodwill is considered impaired when the fair value of its related
reporting unit falls below its carrying value. Goodwill should not
Contingent consideration
A. The fair value of any contingent consideration is included as part of
the consideration transferred.
B. If the contingency results in a liability (typically a cash payment),
changes in the fair value of the contingency are recognized in
income as they occur.
C. If the contingency calls for an additional equity issue at a later date,
the acquisition-date fair value of the contingency is not adjusted
over time. Any subsequent shares issued as a consequence of the
contingency are simply recorded at the original acquisition-date fair
value. This treatment is similar to other equity issues (e.g., common
stock, preferred stock, etc.) in the parents owners equity section.
VII.
Push-down accounting
A. A subsidiary may record any acquisition-date fair value allocations
directly onto its own financial records rather than through the use of
a worksheet. Subsequent amortization expense on these allocations
could also be recorded by the subsidiary.
B. Push-down accounting reports the assets and liabilities of the
subsidiary at the amount the new owner paid. It also assists the
new owner in evaluating the profitability that the subsidiary is
adding to the business combination.
C. Push-down accounting can also make the consolidation process
easier since allocations and amortization need not be included as
worksheet entries.