Cost of liquidating a company


09-May-2020 21:42

The purchasing company uses the cost method to account for this type of investment.

Under the cost method, the investment is recorded at cost at the time of purchase.

Regular dividends are recorded as dividend income whenever they are declared.

Impairment loss : An impairment loss occurs when there is a decline in the value of the investment other than temporary.

Treatment of Purchase Differentials: At the time of purchase, purchase differentials arise from the difference between the cost of the investment and the book value of the underlying assets.

Purchase differentials have two components: Purchase differentials need to be amortized over their useful life; however, new accounting guidance states that goodwill is not amortized or reduced until it is permanently impaired, or the underlying asset is sold.

When the amount of stock purchased is more than 50% of the outstanding common stock, the purchasing company has control over the acquired company.

In the case of an insolvent liquidation this is by the creditors (those owned money) by passing a resolution (a formal voting procedure).It was possibly in fact the first recorded major industry consolidation In business, consolidation or amalgamation is the merger and acquisition of many smaller companies into a few much larger ones.In the context of financial accounting, consolidation refers to the aggregation of financial statements of a group company as consolidated financial statements.Under the equity method, the purchaser records its investment at original cost.

This balance increases with income and decreases for dividends from the subsidiary that accrue to the purchaser.Regardless of the method of acquisition; direct costs, costs of issuing securities and indirect costs are treated as follows: Treatment to the acquiring company: When purchasing the net assets the acquiring company records in its books the receipt of the net assets and the disbursement of cash, the creation of a liability or the issuance of stock as a form of payment for the transfer.