1、 Pearson Education, Inc. publishing as Prentice Hall,11-1,Chapter 11: Consolidation Theories, Push-Down Accounting, and Corporate Joint Ventures,by Jeanne M. David, Ph.D., Univ. of Detroit Mercyto accompany Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and
2、 Suzanne Lowensohn, Pearson Education, Inc. publishing as Prentice Hall,11-2,Theories, Push-Down Accounting, and Joint Ventures: Objectives,Compare and contrast the elements of consolidation approaches under traditional theory, parent-company theory, and contemporary entity theory. Adjust subsidiary
3、 assets and liabilities to fair values using push-down accounting. Account for corporate and unincorporated joint ventures. Identify variable interest entities. Consolidate a variable interest entity., Pearson Education, Inc. publishing as Prentice Hall,11-3,1: Consolidation Theories,Consolidation T
4、heories, Push-Down Accounting and Corporate Joint Ventures, Pearson Education, Inc. publishing as Prentice Hall,11-4,Parent Company Theory,Consolidated financial statements are Extension of parent company statement Viewpoint of parent company shareholdersPrepare consolidated statements To benefit pa
5、rent company shareholdersNoncontrolling interests Have the separate (subsidiary) statements, Pearson Education, Inc. publishing as Prentice Hall,11-5,Entity Theory,Consolidated financial statements Viewpoint of the total business entity All resources of the entity are valued consistently Impute the
6、value of the firm from the acquisition price Income of noncontrolling interests is a distribution of the total business income, Pearson Education, Inc. publishing as Prentice Hall,11-6,Income Reporting,Parent company theory and traditional theory Consolidated net income is income to the parent compa
7、ny shareholders Entity theory Total consolidated income is to be shared between the controlling and noncontrolling interests, Pearson Education, Inc. publishing as Prentice Hall,11-7,Asset Valuation,Parent company theory and traditional theory Assets and liabilities are adjusted to market value at a
8、cquisition, but only to the extent of the parents ownership share. Land with a book value of $50 and fair value of $80 would be consolidated at $80 if the parent owned 100%, but at $71 (including only 70% of the $30 appreciation in value) if the parent owned 70%Entity theory Assets and liabilities a
9、re consolidated at fair value Land would be consolidated at $80 regardless of ownership percentage., Pearson Education, Inc. publishing as Prentice Hall,11-8,Unrealized Gains and Losses,Parent company theory Unrealized gains and losses attributable to the subsidiary are only eliminated to the extent
10、 of the parents ownership 80% of the $10 unrealized profits on upstream sales would be eliminated if the parent owned 80% of the subsidiary Entity theory and traditional theory Unrealized gains and losses are eliminated All theories treat downstream gains and losses the same, Pearson Education, Inc.
11、 publishing as Prentice Hall,11-9,Consolidated Stockholders Equity,Contemporary theory Noncontrolling interest is a single amount and a part of stockholders equity Entity theory Noncontrolling interest is also part of stockholders equity It would be decomposed into paid in capital, retained earnings
12、, etc. Other ideas being promoted Use footnote disclosure for CI and NCI shares of consolidated income Use proportional consolidation, excluding NCI from the statements, Pearson Education, Inc. publishing as Prentice Hall,11-10,2: Push-Down Accounting,Consolidation Theories, Push-Down Accounting and
13、 Corporate Joint Ventures, Pearson Education, Inc. publishing as Prentice Hall,11-11,SEC Requires Push-Down,SEC requires push-down accounting for SEC filings when the subsidiary Is substantially fully owned (97%), and Has substantially no public debt or preferred stock Establishes a new basis for th
14、e assets and liabilities Based on acquisition price Arguments against Subsidiary is not party to the acquisition Subsidiary receives no new funds, sells no assets, Pearson Education, Inc. publishing as Prentice Hall,11-12,Push-Down Procedure,Assets and liabilities are revalued Goodwill, if any, is r
15、ecorded Retained earnings (prior to acquisition) are eliminated Push-down capital replaces retained earnings Includes old retained earnings Any adjustments to assets and liabilities, including goodwill, Pearson Education, Inc. publishing as Prentice Hall,11-13,Push-Down Example,Paly buys 90% of Sim.
16、 Sims book and fair values are:If Sim applies push-down accounting, it would revalue its inventories, fixed assets, liabilities, and record goodwill., Pearson Education, Inc. publishing as Prentice Hall,11-14,Sim Uses Parent Company Theory,Sim revalues assets and liabilities only to the extent of Pa
17、lys ownership. Only 90% of the increases/decreases are recorded., Pearson Education, Inc. publishing as Prentice Hall,11-15,Sim Uses Entity Theory,Sim fully revalues assets and liabilities. 100% of the increases/decreases are recorded., Pearson Education, Inc. publishing as Prentice Hall,11-16,Push-
18、Down Differences,The example used 90% ownership by the parent. SEC requires push-down accounting when the firm is substantially owned 97% Differences between the methods of application will be considerably less Leveraged Buyouts with a change in controlling interest Changing accounting basis may be
19、appropriate, Pearson Education, Inc. publishing as Prentice Hall,11-17,3: Joint Ventures,Consolidation Theories, Push-Down Accounting and Corporate Joint Ventures, Pearson Education, Inc. publishing as Prentice Hall,11-18,Joint Ventures (def.),Form Partnership or corporate Domestic or foreign Tempor
20、ary or relatively permanent It is a business entity that is owned, operated and jointly controlled by a small group of investors for the conduct of a specific business undertaking that provides mutual benefit for each of the venturers., Pearson Education, Inc. publishing as Prentice Hall,11-19,Corpo
21、rate Joint Ventures,Investors who participate in the overall management of the joint venture (APB Opinion No. 18) Use equity method for the joint venture If significant influence is not present, use the cost methodInvestors with more than 50% of the voting stock have a subsidiary, not a joint ventur
22、e Consolidate the subsidiary, Pearson Education, Inc. publishing as Prentice Hall,11-20,Unincorporated Joint Ventures,Although not specifically addressed by APB Opinion No. 18, application of the equity method to unincorporated joint ventures is appropriateIndustry specific practice Proportional con
23、solidation in oil & gas and undivided interests in real estate ventures, Pearson Education, Inc. publishing as Prentice Hall,11-21,4: Identify Variable Interest Entities,Consolidation Theories, Push-Down Accounting and Corporate Joint Ventures, Pearson Education, Inc. publishing as Prentice Hall,11-
24、22,Variable Interest (def.),“Variable interests in a variable interest entity are contractual, ownership, or other pecuniary interests in an entity that change with changes in the fair value of the entitys net assets exclusive of variable interests.“ (FIN 46(R), para.2c) The primary beneficiary of t
25、he variable interest entity (VIE) must consolidate the VIE., Pearson Education, Inc. publishing as Prentice Hall,11-23,Primary Beneficiary,The entity that will Absorb the majority of the expected losses, receive a majority of the expected gains or both If separate entities are expected to absorb the
26、 profits and losses, the entity expected to absorb the losses is the primary beneficiary The primary beneficiary may be an equity holder and/or creditor of the VIE, Pearson Education, Inc. publishing as Prentice Hall,11-24,VIE Example,Get Rich Quick is a VIE with equity contributed equally by 10 par
27、ties, including Corrine. The VIE will borrow additional amounts equal to twice the equity. The bank is the major creditor/investor! Corrine agrees to absorb 75% of the losses and will take 28% of the profits. The other nine investors will share equally. Corrine is the primary beneficiary and consoli
28、dates the VIE. All 10 equity investors will have to make detailed disclosures about their interests in this VIE., Pearson Education, Inc. publishing as Prentice Hall,11-25,5: Consolidate Variable Interest Entities,Consolidation Theories, Push-Down Accounting and Corporate Joint Ventures, Pearson Edu
29、cation, Inc. publishing as Prentice Hall,11-26,Special Consolidation Considerations,VIEs are consolidated like other subsidiaries FASB Statement No. 141 Exception Goodwill can only be recorded if the VIE is a “business“ FIN 46(R) If the VIE is not a “business,“ the excess paid is an extraordinary lo
30、ss “business“ “Self-sustaining, integrated set of activities and assets conducted and managed for providing a return to investors.“, Pearson Education, Inc. publishing as Prentice Hall,11-27,Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall,All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.,
