Consolidating balance sheet after acquisition k 40 dating
In this example, it specifically reflects the value of the customer loyalty and the quality of the subsidiary’s workforce.
If Giant pays million for the stock of Tiny when its reportable assets have a value of only million, the following entry is made by Giant to consolidate the two companies.
They have probably purchased many of them by acquiring entire companies A new subsidiary could very well have hundreds of intangibles: patents, copyrights, databases, smart employees, loyal customers, logos, and the like.
When the company is acquired, which of these intangibles are recognized on the consolidated balance sheet produced by the new parent?
The subsidiary (Tiny) owns property and equipment worth million.
It also holds patents worth million, a database worth million, and copyrights worth million.
Thus, on the date the subsidiary is purchased, the parent should recognize this database as an intangible asset at fair value to reflect the portion of the acquisition price paid to acquire it.
Question: When one company buys another, payment amounts will likely be negotiated to compensate the seller for intangibles where contractual or legal rights are held or where the asset can be separated and then sold.
As mentioned, acquisitions often take place to gain those rights.Answer: FASB has stated that a parent company must identify all intangibles held by a subsidiary on the date of acquisition.For consolidation, the fair value of each of these intangibles is recorded by the parent as an asset but only if contractual or other legal rights have been gained or if the intangible can be separated and sold.This guideline serves as a minimum standard for recognition of intangible assets in a corporate takeover: Patents, copyrights, trademarks, and franchises clearly meet the first of these criteria.Legal rights are held for patents, copyrights, and trademarks while contractual rights provide the right to operate franchises.