USA Acquisition - Excess Question


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Parent buys 80% interest in sub. On date of acquisition, Sub has on its books land at $15,000. The FV of the land on the acquisition date is $25,000 (so the consolidated balance sheet in year 1 has land at $25,000).

In a subsequent year, Sub sells land to a 3rd party for $20,000.

The sub will report a $5,000 gain. But, from a consolidated standpoint, is this a $5,000 loss? I'm conflicted, because the historical cost is $15,000, but from a consolidated view is there a "new" historical cost of $25,000?
 
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bklynboy

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My understanding is under PGAAP you would FV all of the balance sheet in the sub and hold land at $25K. Upon sale you recognize a loss of $5K. Doesnt matter what the original cost basis is since the acquisition required you to set up the value at FV at date of acquisition. See FAS 141 for details. This assumes the purchased entity was previously not part of a consolidated structure as noted by you purchasing 80% of this company.

If it was previously a consolidated subsidiary and the internal structure is changing (i.e. you purchase the 80% from a related subsidiary), then you canot FV the land and after doing all elimination entries (including the purchase ehich just re-aligns the investment across subsidiaries) you still hold the land at $15K.
 

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