Equity and Aquisistion Method understand, investor, interest, guidance

former

Not sure if it's just the language that is throwing me here or what. It's on question #29 and 30. It looks to me as if the answer key(s) is describing an acquisition but calling it a consolidation. I understand why you are supposed to combine all the assets and liabilities of the investee with control, but thenI thought you were suppose to create a non-controlling interest that is reported in the equity section of the investor's balance sheet. Any guidance from someone who knows why the answer key says to include the 320 non-controlling interest?
Thanks, Andrew

defour44

much thanks for the detailed response, I have to admit I'm not sure whether you are a rep for them but I may have to follow your suggestion and check fin quiz out.

spreads

so in your third paragraph from the bottom you state that:
"In case of use of consolidation method, 320 non-controlling interest will be part of total equity of NinMount PLC.

This will increase total equity to 1750."

I had understood the acquisition method to mean that you combine 100% of the investee's assets and 100% of the investee's liabilities with corresponding assets and liabilities on the investors balance sheet and then create an entry in the equity section to account for the non-controlling interest (that is the % of the investee's net assets that the investor does not own) Is this incorrect?

I'm repeating this to see if you think I'm following you correctly:

After reading what you had written my interpretation is that after the accting stmts are prepared, using the acquisition method, two entities now become one. So at the beginning of year 2009 there is no need to continue to use the acquisition method and account for the non-controlling (50%) interest on Ninmount's equity section? -So essentially the non-controlling interest goes away and Ninmount gets to report 100% of the investee's net assets?

This is the part that is confusing for me. Why would the 50% interest they purchased in 2008 now include 100% of this investee's net assets, simply b/c of a new year beginning?

Don't want to sound like I'm arguing with you here, just trying to make sure I understand. Thanks in advance for any help to all willing to post.
-Andrew

yodacaia

Your first understanding is correct.

However, there is a correction needed in your paragraph that starts "After reading what....".

Preparation of consolidated financial statements does not makes two entities as one. Entities continue to prepare their individual financial statements every year. A third set of financial statements (called consolidated financial statements) is also prepared every year.

Consolidated financial statements reflect total equity in hypothetically combined entities. This includes equity of controlling as well as non-controlling stockholders.

Sportsman

also an additional point to consider -

acquirer might originally start with say 20% of investee's shares (intercorporate investment) - this slowly increases over time - and goes above the 50% threshold - at which point he must recast his balance sheet to show the consolidated accounting. (and in this case Ninmount is IFRS - so Consolidated it has to be).

CP

iteracom

Thanks for the help fellas, think I finally got it:

TA of 3,210 since Ninmount has TA of 2,140 and Boswell has TA of 1,070; TL of 1,200 since Ninmount has TL of 710 and Boswell has TL of 490. 3,210-1,200=2010-320(non-controlling interest) = 1,690 + 60 (those damn licenses I was overlooking originally since there is no good will) = 1,750 under either consolidation.

I should of had that last night but just screwed up the mechanics. Which may mean I need a small break.
Thanks again guys, good luck on L3 cpk (good to see you revisiting some of us poor bastards in the L2 forum), and congrats (I know a little late) on the L2 clear.