USA Business acquisition vs Investment in Subsidiary acc to GAAP ???


Joined
Jan 27, 2021
Messages
1
Reaction score
0
Country
Estonia
Hi all!

I have a business case that I can't solve and was hoping to pick your brains :)

On 31 March 2020, Company A acquired 100% of the share capital of Company B. The cost of the acquisition was $10m and was paid in cash. Company B's net assets on the date of acquisition consisted of $5m in Accounts Receivables only, it had no other assets or liabilities. Goodwill of $5m was recognised as of that date.

I am looking at the Consolidating Cash Flow Statement for Q1 2020 from Q1 2020, and I see following:



all data in $000Company ACompany B
Accounts Receivable,net-$5,000--
Investments in Subsidiaries-$10,000$10,000
Acquisition of Business, net of cash acquired----
NET CASH FLOW FROM INVESTMENT ACTIVITIES-$10,000$5,000


My question is: why is 'Acquisition of Business' not $10m? Is the above treatment of the acquisition of Company B in the Consolidating Cash Flow Statement for Q1 2020 incorrect and not in compliance with US GAAP?

I would intuitively assume that this is considered a business acquisition, however this article by CFI and some others made me wonder whether that is correct:

https://corporatefinanceinstitute.com/resources/knowledge/accounting/consolidation-method/

Some sources on the web seem to suggest that this transaction would be recorded as a business acquisition only if the company B would no longer exist, but would be "incorporated" into Company A. However, I could not find anything related to this in GAAP, so I am not sure.

Any thoughts?
 
Ad

Advertisements


Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads


Top