AFM491 Lecture Notes - Lecture 13: Control Premium

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM491
• Professor: Robert Ducharme

Document Summary

Sold off some shares to raise money: conserve cash, unable to get 100, reduces share dilution. Spread ownership risk: provide a market for the subsidiary"s shares. Consolidation theories: proprietary theory, consolidating certain types of joint arrangements, prior to 2013, parent company theory, prior to 2011, parent company extension theory, partial goodwill method. In effect since 2011: entity theory, full goodwill method. Full value of the parent"s assets and liabilities on acquisition date. Subsidiary"s balance sheet: showing portion of assets and liabilities that reflect the parent"s ownership percentage. Includes 100% of book value of sub"s net assets: only parent"s ownership % of fair value excess. Fair values and goodwill is substantiated by purchase price: appropriate to reflect on the balance sheet, value attributed to nci. Including portion of subsidiary"s net assets attributable to non-controlling shareholders: non-controlling interest under liabilities, viewed as lenders, portion of balances that relate to non-controlling shareholders, recorded on balance sheet.