[jdj017400]

I was hoping that as I started restudying for this next attempt at FAR that some of my prior confusion would start to dissipate as I reviewed chapters for a 2nd time. Unfortunately I just can’t seem to become comfortable with Becker F3, specifically around Consolidations, Acquisition method, and Inter company.

I’ve never had a class on any of the topics mentioned above, so the way Becker teaches it seems to assume quite a bit of prior knowledge. I’m struggling to decipher where the Acquisition method ends and Consolidations begins? With Becker’s CAR IN BIG mnemonic (for eliminating JEs) I get confused as to the sequential “timeline” of how it would really work in the real world? To make things worse, the MCQs start to phrase questions with “Business Combinations accounted for as an acquisition”, “Business combinations accounted for as a purchase”, “Consolidation Accounting”, and certain MCQs show P&L line items with (equity method) next to them.

Has anyone else struggled with the way Becker teaches F3? Can anyone shed some light on the best way to grasp this, perhaps an alternate review course, or am I just completely screwed due to 0 background knowledge in these areas?

Thanks in advance.

BEC - 80 (11/30/2010), Lost Credit - Retake 11/30/2012, 80 (FINISHED!)
AUD - 71 (05/31/2011), 79 (08/28/2011)
REG - 70 (11/30/2011), 87 (02/09/2012)
FAR - 61 (5/31/2012), 80 (08/31/2012)

[Anonymous]

I thought the acquisition method was just the accounting method you use for consolidation?

[Mr.NiceWatch]

I would say you're not the only one having trouble with F3. I felt pretty good about F3 until I hit acquisition method, consolidation, and inter company eliminations. Like you, I tried my best to understand the material but pretty much gave up since it felt like a waste of time. I'm thinking about reviewing my intermediate accounting textbook to see if there's any info. on consolidation. If you find anything helpful, please let me know. Thanks.

Journey begins in July 2012.

FAR - 87 (8/7/2012)
REG - 89 (11/19/2012)
AUD - 95 (1/17/2013)
BEC - 81 (2/26/2013)

[jamesjohnson11]

F3 and F5 are by far the two hardest sections in FAR and maybe in all of the becker material. Don't feel bad i had the worst time studying F3. Just get it down the best you can and pray their wont be many questions on it.

R PASS
A PASS
B PASS
F AUGUST

[jdj017400]

@jamesjohnson11 – I'm just nervous because … my first attempt at FAR.

@Mr.NiceWatch – I'm in exactly the same boat…felt great until I hit those last few sections of F3.

BEC - 80 (11/30/2010), Lost Credit - Retake 11/30/2012, 80 (FINISHED!)
AUD - 71 (05/31/2011), 79 (08/28/2011)
REG - 70 (11/30/2011), 87 (02/09/2012)
FAR - 61 (5/31/2012), 80 (08/31/2012)

[zcyankeefan]

@jamesjohnson11 Not to be an a**hole but you might have to delete your previous comment (don't want to disclose exam info.).

As for your concern, I understand how easily someone could get confused by this. I'm no different, but a quick scan through my intermediate book (never thought it would come in handy) eased my headache a bit. Here's a brief overview of the “timeline” I think of when attacking these problems:

1. When you (company) owns 0-20% of another company

-You DON'T have significant influence

-How would this investment be accounted for? Cost Method (record investment, adjust to FV, record dividend INCOME)

2. When you (company) owns 21-50% of another company

-You HAVE significant influence

-How would this investment be accounted for? Equity Method (record investment, add your share of net income to the investment account, subtract your share of dividends, adjust to FV (bottom of F3-16 has a chart of FV adjustment))

3. When you (company) owns 51% or more of another company

-You CONTROL it (since you hold majority of shares)

-Since you CONTROL it, you consolidate their financial statements into yours. How would you do this? By the Acquisition Method (this is when you use the CAR-IN-BIG entry; this entry is right after you record the purchase of the investment)

of course there are some rules/exceptions that come with each method (cost/equity/acquisition), but for the sake of not writing a novel I'm going to leave that stuff out.

Whenever I see a problem that might be associated with this I always ask myself “what percentage of shares does the company own?” and “does it say anywhere in the facts that the company HAS significant influence?” Here are the possible answers

Company owns less than 20% AND doesn't have significant influence= use Cost method

Company owns less than 20% BUT has significant influence= use Equity method

Company owns between 20-50% (significant influence doesn't matter)=Equity method

Company owns 51%+=Consolidate using Acquisition method (CAR-IN-BIG entry etc.)

Hopefully this makes it a little easier to understand

What I would do to be this confident with governmental/not-for-profit haha

FAR -> 76
AUD -> 74...Revenge 2/16/13
REG -> 83
BEC -> 75

[jdj017400]

Thanks for the explanation. I think my biggest area of confusion is between the external and internal reporting of 51%+. In the real world I always thought that Consolidations happened at the end of each reporting period as the Consolidated financial statements were prepared…therefore the Parent company's individual accounting wouldn't use the Acquisition method until Consolidations were ready to happen.

So what does the accounting look like after the acquisition takes place, in subsequent reporting periods? If I remember correctly Becker and certain MCQs allude to the fact that equity method is used for internal journal entries for the Parent and then CAR IN BIG is used when Consolidation takes place. Is this the correct way to think about it?

BEC - 80 (11/30/2010), Lost Credit - Retake 11/30/2012, 80 (FINISHED!)
AUD - 71 (05/31/2011), 79 (08/28/2011)
REG - 70 (11/30/2011), 87 (02/09/2012)
FAR - 61 (5/31/2012), 80 (08/31/2012)

[zcyankeefan]

From what I'm seeing in the book the Acquisition method (CAR-IN-BIG) entry is used on the date of acquisition/purchase. For instance, the book says “all of the sub.'s balance sheet accounts are to be adjusted to FV on the acquisition date. This is accomplished as part of the eliminating journal entry (CAR-IN-BIG)…”

Something to keep in mind is that you have to use the beginning balance of the subsidiary's retained earnings as part of that entry.

FAR -> 76
AUD -> 74...Revenge 2/16/13
REG -> 83
BEC -> 75

[Anonymous]

CAR IN BIG is just an entry to make the consolidated financial statements. It's an elimination entry.

[Anonymous]

@zcyankeefan and others. I've been beating my head in the table listening to F3 for the 3rd time. There was one major detail I couldn't grasp until reading your post. I think I've got it now, but anyone feel free to chime in.

Let's say you own zero percent of company Z. You decide to buy 100% for 1 million

I was struggling with the fact that in the lectures they state you must eliminate the I, which is Investment in sub, but then they turn around and say debit the full cost of Investment in Subsidiary.

My conclusion is this, as you stated- you must book the Investment in Sub as a debit for the full price of acquisition on the date of the acquisition. You then eliminate this account with a Credit to Investment, since you are deemed a controlling owner. Wrong right? Anyone?

[jslo123]

Honestly just do the multiple choice, get it wrong, read into the book and learn. Repeat.

That's how I understood the IFRS and NCI FV parts.

[Author]

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