Concept explainers
Introduction:
Reciprocal ownership: A reciprocal relationship is when two companies hold stock in each other. It is rare in practice. The method of dealing with reciprocal relationships is found mostly in the
To explain: The overstating of its income by parent company if no adjustment is made in case of a reciprocal ownership arrangement between two subsidiaries.
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Advanced Financial Accounting
- When the price paid to acquire another firm is lower than the fair value of its identifiable net assets, the difference should be considered as: Select one: O Goodwill an increase to the subsidiary's assets and liabilities O. An ordinary gain ONonearrow_forwardIf both big companies enter into a joint venture, will that signify unfair competition? Explain briefly.arrow_forwardWhich of the following accounting treatments for costs related to business combination is incorrect? Group of answer choices a. Acquisition related costs such as finder’s fees; advisory, legal, accounting, valuation and other professional and consulting fees; and general administrative costs, including the costs of maintain an internal acquisitions department shall be recognized as expense in the Profit/Loss in the periods in which the costs are incurred. b. The costs related to issuance of financial liability at fair value through profit or loss shall be recognized as expense while those related to issuance of financial liability at amortized cost shall be recognized as deduction from the book value of financial liability or treated as discount on financial liability to be amortized using effective interest method. c. The costs related to the organization of the newly formed corporation also known as pre-incorporation costs shall be capitalized as goodwill or deduction from…arrow_forward
- Which of the following accounting treatments for costs related to business combination is incorrect? Group of answer choices The costs related to issuance of financial liability at fair value through profit or loss shall be recognized as expense while those related to issuance of financial liability at amortized cost shall be recognized as deduction from the book value of financial liability or treated as discount on financial liability to be amortized using effective interest method. The costs related to issuance of stock or equity securities shall be deducted/debited from any share premium from the issue and any excess is charged to “share issuance cost” reported as contract-equity account against either (1) share premium from other share issuances or (2) retained earnings Acquisition related costs such as finder’s fees; advisory, legal, accounting, valuation and other professional and consulting fees; and general administrative costs, including the costs of maintain an…arrow_forwardList the potential conflict of interests between shareholders, executives and other stakeholders due to share repurchase.arrow_forwardWhich of the following statements is true about goodwill? Goodwill may be recorded when the fair value of a company's assets exceeds their а. cost. b. Goodwill may be recorded when one company acquires another in a business combination. С. Goodwill may be recorded when a company has exceptional customer relations. d. Goodwill may be recorded when it is identified within a company.arrow_forward
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