slide 5-1. slide 5-2 allocation and depreciation of differences between implied and book values...

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Allocation and Depreciation of Allocation and Depreciation of Differences Between Implied and Differences Between Implied and Book Values AcquisitionBook Values Acquisition

Advanced Accounting, Fourth Edition

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1. Calculate the difference between implied and book values and allocate to the subsidiary’s assets and liabilities.

2. Describe FASB’s position on accounting for bargain acquisitions.

3. Explain how goodwill is measured at the time of the acquisition.

4. Describe how the allocation process differs if less than 100% of the subsidiary is acquired.

5. Record the entries needed on the parent’s books to account for the investment under the three methods: the cost, the partial equity, and the complete equity methods.

6. Prepare workpapers for the year of acquisition and the year(s) subsequent to the acquisition, assuming that the parent accounts for the investment using the cost, the partial equity, and the complete equity methods.

7. Understand the allocation of the difference between implied and book values to long-term debt components.

8. Explain how to allocate the difference between implied and book values when some assets have fair values below book values.

9. Distinguish between recording the subsidiary depreciable assets at net versus gross fair values.

10. Understand the concept of push down accounting.

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

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In the previous chapters, it was often assumed that any difference between IV and BV of equity of subsidiary was entirely attributable to the under or overvaluation of land , a nonamortizable assets on the books of the subsidiary.

This chapter focus on a more complex and realistic allocation of the difference to various assets and liabilities in the consolidated balance sheet , and the depreciation or amortization of the difference in the consolidated financial statements.

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The following two steps are taken in this case:

Step 1: The difference between IV and BV is used first to

adjust the individual assets and liabilities to their fair values

on the date of acquisition.

Step 2: After adjusting the assets and liabilities to fair values

, any residual amount of the difference is treated like this:

Implied value > aggregate fair values = goodwill.

Implied value < aggregate fair values = bargain. Bargain

is recognized as an ordinary gain. In the sense: - When we have a positive balance or a debit balance , we consider it as a goodwill.- When we have a negative balance or a credit balance, we consider it as bargain.

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Bargain Rules under prior GAAP (before 2007 standard):

1. Acquired assets, except investments accounted for

by the equity method, are recorded at fair market value.

2. Previously recorded goodwill on the books of seller is

eliminated .

3. Long-lived assets (including in-process R&D and

excluding long-term investments) are recorded at fair

market value minus an adjustment for the bargain.

4. Extraordinary gain recorded if all long-lived assets are

reduced to zero.

LO 2 Current and proposed treatment of bargain LO 2 Current and proposed treatment of bargain acquisitions.acquisitions.

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Bargain Rules: FASB Statement No. 141R, “Business

Combinations,” [ASC 805-30-25-2], the negative (or

credit) balance should be recognized as an ordinary

gain in the year of acquisition. No assets should be

recorded below their fair values.

Allocation of Difference Between Allocation of Difference Between ImpliedImpliedand Book Values: Acquisition Dateand Book Values: Acquisition Date

Allocation of Difference Between Allocation of Difference Between ImpliedImpliedand Book Values: Acquisition Dateand Book Values: Acquisition Date

LO 2 Current and proposed treatment of bargain LO 2 Current and proposed treatment of bargain acquisitions.acquisitions.

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In the event of a bargain acquisition (after carefully considering the fair valuation of all subsidiary assets and liabilities) the FASB requires the following accounting:

a. an ordinary gain is reported in the financial statements of the consolidated entity.

b. an ordinary loss is reported in the financial statements of the consolidated entity.

c. negative goodwill is reported on the balance sheet.

d. assets are written down to zero value, if needed.

Review QuestionReview Question

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E5-1:E5-1: On January 1, 2010, Pam Company purchased an 85%

interest in Shaw Company for $540,000. On this date, Shaw

Company had common stock of $400,000 and retained

earnings of $140,000. An examination of Shaw Company’s

assets and liabilities revealed that their book value was

equal to their fair value except for marketable

securities and equipment:Book Value Fair Value Diff erence

Marketable securities 20,000$ 45,000$ 25,000$

Equipment 120,000 140,000 20,000

Allocation of DifferenceAllocation of DifferenceAllocation of DifferenceAllocation of Difference

Case 1: Implied Value “in Excess of” Fair Value

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E5-1:E5-1: A. Prepare a Computation and Allocation Schedule for

the difference between book value of equity acquired and the

value implied by the purchase price.


85% 15% 100%Parent NCI TotalShare Share Value

Purchase price and implied value 540,000$ 95,294$ 635,294$ Book value of equity acquired:

Common stock 340,000 60,000 400,000 Retained earings 119,000 21,000 140,000 Total book value 459,000 81,000 540,000

Difference between implied and book value 81,000 14,294 95,294 Marketable securities (21,250) (3,750) (25,000) Equipment (17,000) (3,000) (20,000) Balance 42,750 7,544 50,294 Record new goodwill (42,750) (7,544) (50,294) Balance 0$ 0$ 0$

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E5-1 (variation):E5-1 (variation): Prepare the worksheet entries to eliminate

the investment, recognize the noncontrolling interest, and to

allocate the difference between implied and book.


Common stock 400,000

Retained earnings 140,000

Difference between Implied and Book 95,294

Investment in Shaw

540,000Noncontrolling interest in Equity

95,294Marketable securities 25,000

Equipment 20,000

Goodwill 50,294

Difference between Implied and Book

95,294

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E5-1 (variation):E5-1 (variation): On January 1, 2010, Pam Company

purchased an 85% interest in Shaw Company for $470,000. On

this date, Shaw Company had common stock of $400,000 and

retained earnings of $140,000. An examination of Shaw

Company’s assets and liabilities revealed that their book value

was equal to their fair value except for marketable securities

and equipment:Book Value Fair Value Diff erence

Marketable securities 20,000$ 45,000$ 25,000$ Equipment 120,000 140,000 20,000


Case 2: Acquisition Cost “Less Than” Fair Value

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Difference between implied and book value 11,000 1,941 12,941 Marketable securities (21,250) (3,750) (25,000) Equipment (17,000) (3,000) (20,000) Balance (excess of FV over implied value) (27,250) (4,809) (32,059) Pam's gain 27,250 Increase noncontrolling interest to fair

value of assets 4,809 Total allocated gain 32,059 Balance 0 0 0

E5-1E5-1 (variation): (variation): Prepare a Computation and Allocation Schedule.

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E5-1E5-1 (variation):(variation): Prepare the worksheet entries.


Common stock 400,000

Retained earnings 140,000

Difference between Implied and Book 12,941

Investment in Shaw

470,000Noncontrolling interest in Equity

82,941

Marketable securities 25,000Equipment 20,000

Gain on acquisition

27,250 Noncontrolling interest in equity

4,809 Difference between Implied and Book

12,941

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When any portion of the difference between implied

and book values is allocated to depreciable and

amortizable assets, recorded income must be

adjusted in determining consolidated net income in

current and future periods.

Adjustment is needed to reflect the difference

between the amount of amortization and/or

depreciation recorded by the subsidiary and the

appropriate amount based on consolidated carrying

values.

Effect of Allocation and Depreciation of Differences Effect of Allocation and Depreciation of Differences on Consolidated Net Income: Year Subsequent To on Consolidated Net Income: Year Subsequent To AcquisitionAcquisition

Effect of Allocation and Depreciation of Differences Effect of Allocation and Depreciation of Differences on Consolidated Net Income: Year Subsequent To on Consolidated Net Income: Year Subsequent To AcquisitionAcquisition

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P5-4:P5-4: On January 1, 2010, Porter Company purchased an 80% interest in Salem Company for $850,000. At that time, Salem Company had capital stock of $550,000 and retained earnings of $80,000. Differences between the fair value and the book value of the identifiable assets of Salem Company were as follows:

Fair Value in Excess of Book Value

Equipment 130,000$

Land 65,000

I nventory 40,000

Consolidated Statements – Cost Consolidated Statements – Cost MethodMethodConsolidated Statements – Cost Consolidated Statements – Cost MethodMethod

The book values of all other assets and liabilities of Salem Company were equal to their fair values on January 1, 2010. The equipment had a remaining life of five years. The inventory was sold in 2010.

LO 4 Allocation of difference in a partially owned subsidiary.LO 4 Allocation of difference in a partially owned subsidiary.Year of

Acquisition

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P5-4P5-4:: Salem Company’s net income and dividends declared in 2010 and 2011 were as follows: 2010 Net Income of $100,000; Dividends Declared of $25,000; 2011 Net Income of $110,000; Dividends Declared of $35,000.

Entries recorded on the books of Porter to reflect the acquisition of Salem and the receipt of dividends for 2010 are as follows:


Investment in Salem 850,000

Cash850,000

Cash 20,000

Dividend income ($25,000 x 80%) 20,000


Acquisition

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P5-4:P5-4: A. Prepare a Computation and Allocation Schedule



Purchase price and implied value 850,000$ 212,500$ 1,062,500$ Book value of equity acquired:


Difference between implied and book value 346,000 86,500 432,500 Equipment (104,000) (26,000) (130,000) Land (52,000) (13,000) (65,000) Inventory (32,000) (8,000) (40,000) Balance 158,000 39,500 197,500 Record new goodwill (158,000) (39,500) (197,500) Balance -$ -$ -$


Acquisition

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P5-4:P5-4: B. 1. Prepare the worksheet entries for Dec. 31, 2010.


Dividends declared20,000

Beg. retained earnings - Salem 80,000

Common stock - Salem 550,000

Difference between Cost and Book 432,500

LO 4 Allocation of difference in a partially owned subsidiary.LO 4 Allocation of difference in a partially owned subsidiary.

Investment in Salem850,000


Noncontrolling interest in equity 212,500

Year of Acquisitio

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1-Cost of goods sold (beginning inventory) 40,000

Land 65,000



Plant and equipment 130,000

Goodwill 197,500

Difference between cost and book432,500

2-Depreciation expense ($130,000/5) 26,000

Plant and equipment26,000

Year of Acquisitio

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P5-4:P5-4: B. 1. Prepare the worksheet entries for Dec. 31, 2010.

Note: if the inventory were still on hand on Dec.31,2010 the $40000 would be allocated to ending inventory in the balance sheet rather than COGS

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Note: Entry no. 1 to Note: Entry no. 1 to Cost of Goods sold is appropriate only in the year of acquisition.

In subsequent years, consolidated Cost of Goods Sold will have been reflected in 2011 consolidated net income and hence consolidated retained earnings at the end of 2011.

Thus the adjustment ($40000 debit) in the future years will be to beginning retained earnings. (Parent company 80% and to NCI 20%).

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Investment in Salem 60,000

Beg. Retained Earnings ‑ Porter Co. 60,000

من المحتجزة االرباح في الزيادة مقدار من احتساب المحتجزة االرباح في الزيادة مقدار 20112011\\11\\11حتى حتى 20102010\\11\\11احتساب **


Subsequent Year

Salem 2010 income $100,000

Salem 2010 dividends declared - 25,000

Total 75,000

Ownership percentage 80%

$ 60,000*

To establish reciprocity/convert to equity as of 1/1/2011

P5-4:P5-4: C. 1. Prepare the worksheet entries for Dec. 31, 2011.

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Beg. retained earnings - Salem 1/1/2011* 155,000Common stock - Salem 550,000Difference between Cost and Book 432,500


Investment (450.000+60.000)910,000


NCI (212,500+15,000)227,500

Subsequent Year

*Beg. retained earnings = 80000+100000-75000=155.000

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Noncontrolling interest (20% of previous year’s COGS) 8,000

Land 65,000



Goodwill 197,500


(To allocate the amount of difference between IV and BV at date of acquisition to specific assets and liabilities).

1/1 Retained Earnings (80% of previous year’s COGS) 32,000

Subsequent Year

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Depreciation Expense (current year) ($130,000/5) 26,0001/1 Retained Earnings (80% of previous year’s depreciation expense) 20,800Noncontrolling interest (20% of previous year’s expense) 5,200 Plant and equipment (accumulated depreciation) 52,000

(To depreciate the amount of difference between the IV and BV allocated to equipment).

Note: the adjustment in year 2 (and future years) is split between the CI and NCI in equity.

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P5-4:P5-4: D. Prepare a consolidated financial statements

workpaper for the year ended December 31, 2012.

Although no goodwill impairment was reflected at the

end of 2010 or 2011, the goodwill impairment test

conducted at December 31, 2012 revealed implied

goodwill from Salem to be only $150,000. The

impairment has not been recorded in the books of the

parent. (Hint: You can infer the method being used by the

parent from the information in its trial balance.)


Subsequent Year

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Investment in Salem(150,000*80%) 120,000

Beg. Retained Earnings ‑ Porter Co. 120,000



Subsequent Year

Acquisition date retained earnings - Salem $ 80,000

Retained earnings 1/1/12 - Salem 230,000

Increase 150,000

Ownership percentage 80%

$ 120,000

To establish reciprocity/convert to equity as of 1/1/2012

P5-4:P5-4: D. Explanations of worksheet entries for Dec. 31, 2012.

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Beg. retained earnings 1-1-2012 230,000

Common stock - Salem 550,000

Difference between Cost and Book 432,500


Investment (850,000+120,000)970,000


NCI (212500+30,000)242,500

Subsequent Year

P5-4P5-4 D. W Worksheet entries for Dec. 31, 2012.

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Noncontrolling interest 8,000

Land 65,000




Goodwill 197,500


1/1 Retained Earnings – Porter 32,000

Subsequent Year


30 LO 4 Allocation of difference in a partially owned subsidiary.LO 4 Allocation of difference in a partially owned subsidiary.


Depreciation expense (current year)($130,000/5) 26,000

Plant and equipment78,000

Noncontrolling interest (previous 2 years) 10,400

1/1 Retained Earnings – Porter (previous 2 years) 41,600

Subsequent Year

Impairment loss ($197,500 - $150,000) 47,500

Goodwill47,500To record goodwill impairment


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ConsolidatedIncome Statement Porter Salem Debit Credit NCI BalancesSales 1,100,000$ 450,000$ 1,550,000$ Dividend income 48,000 48,000

Total revenue 1,148,000 450,000 1,550,000 Cost of goods sold 900,000 200,000 1,100,000 Depreciation expense 40,000 30,000 26,000 96,000 Impairment loss 47,500 47,500 Other expenses 60,000 50,000 110,000

Total cost and expense 1,000,000 280,000 1,353,500 Net income 148,000 170,000 196,500 Noncontrolling interest 19,300 (19,300) Net income 148,000$ 170,000$ 121,500$ 19,300$ 177,200$

Retained Earnings StatementRetained earnings, 1/1/12 500,000 230,000 32,000 120,000 546,400

Porter 41,600 Salem 230,000

Net income 148,000 170,000 121,500 19,300 177,200 Dividends declared (90,000) (60,000) 48,000 (12,000) (90,000) Retained earnings, 12/31/12 558,000$ 340,000$ 425,100$ 168,000$ 7,300$ 633,600$

Eliminations

P5-4: D. 2012 Year Subsequent of Acquisition

* Noncontrolling Interest in Income =.2 $170,000 – (.2 x $26,000) – (.2 x $47,500) = $19,300


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ConsolidatedIncome Statement Porter Salem Debit Credit NCI BalancesCash 70,000$ 65,000$ 135,000$ Accounts receivable 260,000 190,000 450,000 Inventory 240,000 175,000 415,000 Investment in Sid 850,000 120,000 970,000 Difference (IV & BV) 432,500 432,500 Land 320,000 65,000 385,000 Plant and equipment 360,000 280,000 130,000 78,000 692,000 Goodwill 197,500 47,500 150,000

Total assets 1,780,000$ 1,030,000$ 2,227,000$ -

Accounts payable 132,000$ 110,000$ 242,000$ Notes payable 90,000 30,000 120,000 Common stock 1,000,000 550,000 550,000 1,000,000 Retained earnings 558,000 340,000 425,100 168,000 7,300 633,600 1/1 NCI in net assets 8,000 242,500 224,100

10,400 12/31 NCI in net asset 231,400 231,400

Total liab. & equity 1,780,000$ 1,030,000$ 1,938,500$ 1,938,500$ 2,227,000$

Eliminations

LO 4 Allocation of difference in a partially owned subsidiary.LO 4 Allocation of difference in a partially owned subsidiary.Subseque

nt Year

P5-4: D. 2012 Year Subsequent of Acquisition


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Consolidated Statements – Partial and Consolidated Statements – Partial and Complete Equity MethodsComplete Equity MethodsConsolidated Statements – Partial and Consolidated Statements – Partial and Complete Equity MethodsComplete Equity Methods

The equity methods (partial and complete) reflect

the effects of certain transactions more fully than

the cost method on the books of the parent.

However consolidated totals are the same

regardless of which method is used by the Parent

company.

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Notes payable, long-term debt, and other obligations of an acquired company should be valued for consolidation purposes at their fair values.

Quoted market prices are the best. If unavailable,

then management’s best estimate based on

debt with similar characteristics or

valuation techniques such as present value.

Additional Considerations Relating to Treatment Additional Considerations Relating to Treatment ofofDifference Between Implied and Book ValuesDifference Between Implied and Book Values

Additional Considerations Relating to Treatment Additional Considerations Relating to Treatment ofofDifference Between Implied and Book ValuesDifference Between Implied and Book Values

Allocation of Difference between Implied and Book Values to Debt

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On the date of acquisition, sometimes the

fair value of an asset is less than the amount

recorded on the books of the subsidiary.

fair value of long-term debt may be greater rather

than less than its recorded value on the books of the

subsidiary.

Allocating the Difference to Assets (Liabilities) with Fair Values Less (Greater) Than Book Values

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E5-1E5-1 (Variation):(Variation): On January 1, 2010, Pam Company

purchased an 85% interest in Shaw Company for $540,000. On

this date, Shaw Company had common stock of $400,000 and

retained earnings of $140,000. An examination of Shaw

Company’s assets and liabilities revealed that their book value

was equal to their fair value except for marketable securities

and equipment: Book Value Fair Value Diff erenceMarketable securities 20,000$ 45,000$ 25,000$ Equipment (5 year life) 120,000 100,000 (20,000)

Allocating the Difference to Assets (Liabilities) with Fair Values Less (Greater) Than Book Values

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E5-1:E5-1: A. Prepare a Computation and Allocation Schedule for the difference between book value of equity acquired and the value implied by the purchase price.





Difference between implied and book value 81,000 14,294 95,294 Marketable securities (21,250) (3,750) (25,000) Equipment 17,000 3,000 20,000 Balance 76,750 13,544 90,294 Record new goodwill (76,750) (13,544) (90,294) Balance -$ -$ -$

Cost Method

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E5-1 (variation):E5-1 (variation): At the end of the firstfirst year, the workpaper entries are:


Marketable securities 25,000

Equipment20,000

Goodwill 90,294


95,294

Equipment,net 4,000

Depreciation expense ($20,000 / 5 years)

4,000Note: the overvaluation of equipment will be amortized over the life of the asset as a reduction of depreciation expense.

LO 8 Allocating when the fair value is below book value.LO 8 Allocating when the fair value is below book value.

Cost Method

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E5-1 (variation):E5-1 (variation): At the end of the secondsecond year, the workpaper entries are:


Marketable securities 25,000

Equipment20,000

Goodwill 90,294


95,294

Equipment, net 8,000

Beg. retained earnings - Pam

3,400

LO 8 Allocating when the fair value is below book value.LO 8 Allocating when the fair value is below book value.

Noncontrolling interest in equity

600Depreciation expense ($20,000 / 5 years)

4,000

Cost Method

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E5-7:E5-7: On January 1, 2011, Packard Company purchased an

80% interest in Sage Company for $600,000. On this date Sage

Company had common stock of $150,000 and retained

earnings of $400,000. Sage Company’s equipment on the date

of Packard Company’s purchase had a book value of $400,000 $400,000

and a fair value of $600,000. $600,000. All equipment had an estimated

useful life of 10 years on January 2, 2006.

Required: Prepare the December 31 consolidated financial

statements workpaper entries for 2011 and 2012, recording

accumulated depreciation as a separate balance.

Reporting Accumulated Depreciation in Consolidated Financial Statements as a Separate Balance

LO 9 Depreciable assets at net and gross values.LO 9 Depreciable assets at net and gross values.


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E5-7:E5-7: Prepare a Computation and Allocation Schedule.





Difference between implied and book value 160,000 40,000 200,000 Equipment (160,000) (40,000) (200,000) Balance -$ -$ -$


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Assume that P company acquires a 90% interest in Assume that P company acquires a 90% interest in S company on January 1, 2011 and that the S company on January 1, 2011 and that the difference (IV &BV) in the amount of $200,000 is difference (IV &BV) in the amount of $200,000 is entirely attributable to equipment with an original entirely attributable to equipment with an original life of nine years and a remaining life on January life of nine years and a remaining life on January 1, 2011, of five years. Pertinent information 1, 2011, of five years. Pertinent information regarding the equipment is presented as follows:regarding the equipment is presented as follows:

Fair Value Book Value

Diff.

Equipment (gross) $1200,000 900,000 300,000 X

- Accumulated Dep. 400,000 300,000 100,000 1/3 X

Equipment (net) 800,000 600,000 200,000 2/3X

X – 1/3X = 2/3 X X – 1/3X = (200,000)X = 300,000 ،1/3 X = 100,000

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When accumulated depreciation is reported as a separate When accumulated depreciation is reported as a separate balance in the consolidated financial statements, the balance in the consolidated financial statements, the workpaper entry to allocate and depreciate the difference workpaper entry to allocate and depreciate the difference between IV and BV must be slightly modified.between IV and BV must be slightly modified.

Let;Let;Amount of difference allocated to Equipment (gross) = XAmount of difference allocated to Equipment (gross) = X

Amount of the difference allocated to Accumulated depreciation = 5/10 XAmount of the difference allocated to Accumulated depreciation = 5/10 X

The total difference allocated to Equipment (net) = 5/10 XThe total difference allocated to Equipment (net) = 5/10 X

X – 5/10X = 5/10XX – 5/10X = 5/10X

0.5X = 200,0000.5X = 200,000

X = 400,000X = 400,000

Allocated to Allocated to EquipmentEquipment = 400,000 = 400,000

Allocated to Allocated to Accumulated DepreciationAccumulated Depreciation = 400000 * 5/10= 200,000 = 400000 * 5/10= 200,000

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E5-7: E5-7: Prepare the December 31 consolidated financial statements workpaper entries for 2011 and 2012.


Equipment 400,000

Accumulated depreciation

200,000Difference between Implied and Book

200,000Depreciation Expense ($400,000/10) 40,000

Accumulated Depreciation

40,000

Cost & Partial Equity Method


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E5-7: E5-7: Prepare the December 31 consolidated financial statements workpaper entries for 2011 and 2012.


Equipment 400,000

Accumulated depreciation

200,000Difference between Implied and Book

200,0001/1 Retained Earnings -Packard Co. 32,000

1/1 Noncontrolling interest 8,000

Depreciation Expense ($400,000/10) 40,000

Accumulated Depreciation

80,000


* Complete equity method: debit to 1/1 Retained Earnings – Packard Co. would be replaced with a debit to Investment in Sage Company

Cost & Partial Equity Method

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Disposal of Depreciable Assets by Subsidiary



In the year of sale, any gain or loss recognized by the subsidiary on the disposal of an asset to which any of the difference between implied and book value has been allocated must be adjusted in the consolidated statements workpaper.

Depreciable Assets Used in Manufacturing

When the difference between implied and book values is allocated to depreciable assets used in manufacturing, workpaper entries may be more complex because the current and previous years additional depreciation may need to be allocated among work in process, finished goods, and cost of goods sold.

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Push Down AccountingPush Down AccountingPush Down AccountingPush Down Accounting

Push down accounting is the establishment of a new

accounting and reporting basis for a subsidiary company.

The valuation implied by the price of the stock to the

parent company is “pushed down” to the subsidiary and

used to restate its assets (including goodwill) and

liabilities in its separate financial statements.

48 LO 10 Push down of accounting to the subsidiary’s books.LO 10 Push down of accounting to the subsidiary’s books.


Arguments for and against Push Down AccountingThree important factors that should be considered in

determining the appropriateness of push down accounting are:

1. Whether the subsidiary has outstanding debt held by the public.

2. Whether the subsidiary has outstanding a senior class of capital

stock not acquired by the parent company.

3. The level at which a major change in ownership of an entity

should be deemed to have occurred, for example, 100%, 90%,

51%.

49 LO 10 Push down of accounting to the subsidiary’s books.LO 10 Push down of accounting to the subsidiary’s books.


Status of Push Down Accounting

As a general rule, the SEC requires push down accounting

when the ownership change is greater than 95% and

objects to push down accounting when the ownership

change is less than 80%.

In addition, the SEC staff in SAB No. 54 expresses the view that

the existence of outstanding public debt, preferred stock, or a

significant noncontrolling interest in a subsidiary might impact

the parent company’s ability to control the form of ownership. In

these circumstances, push down accounting, though not

required, is an acceptable accounting method.

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