Business Consolidation

In: Business and Management

Submitted By uamugla3590
Words 6516
Pages 27
TABLE OF CONTENTS 1. INTRODUCTION………………………………………………………………………………………………..3

2. CHAPTER 1 --- What is the Business Combination --- ………………………………….……4 3.1. Accounting For Business Combination General Approach…………………………………………………………………………………………………..5 3.2. Accounting For Business Combination Calculate………………………….………6-7

3. CHAPTER 2 --- What is the Business Merger and Acquisition ---……………………………8
3.1. Types of Merger………………………………………………………………………………………..9
3.2. Purpose of Merger and Acquisition……………………………………………………..9-10
3.3. The Process of Merger and Acquisition with Reference to an Organization…………………………………….………………………………………………………………...10
3.4. Stage of Integration……………………………………...………..…..11-12-13

4. CHAPTER 3 --- What is the Business Consolidation…….…..…………………………………..14
4.1. Significance of Consolidation……….…………………...…………………………………….14
4.2. Function of Consolidation…………….………………………………………………………….14
4.3. Effects of Consolidation…….…………………………………………………………………….15 5. CHAPTER 4 --- What is the Business Goodwill…………………….……………………………….15
5.1. What Creates Business Goodwill……………………………….……………………….……15
5.2. Types of Business Goodwill……………………………………………….……………….……16
5.3. Accounting View of Business Goodwill…………………………………………….….….16
5.4. Economic View of Business Goodwill……………………………………………….….….16
5.5. How Business Goodwill is Determined…………………..……………………….….17-18
5.6. How Do You Calculate Goodwill in Accounting?............................18-19-20
6. CHAPTER 5--- Fair Value/Cost and Equity Method………………………………………20-21-22 6.1. Accounting Procuders Under the Fair Value/Cost and Equity Method…..22-23

6. CONCLUSIONS……………………………….………………………………………………………….….…24 7. REFERENCES…………………………………………………………………………………………….…....25

INTRODUCTION

Companies the most important subject of nowadays economy world, in order to survive…...

Similar Documents

Venturing Into Consolidations

...previously to be a VIE. That is, an entity could become a VIE or cease being a VIE as a result of a reconsideration event under ASC 810-10-35-4 Such an event could also cause a reporting entity to no longer qualify for one of the scope exceptions in ASC 810-10-15-12 and ASC 810-10-15-17. Note that a reporting entity cannot elect to reconsider the status of an entity at times other than those in ASC 810-10-35-4. Upon reconsideration, the variable interest holders would need to consider all of the requirements of ASC 810-10-15-14 in determining whether the entity is a VIE. Each of the specific events cited is illustrated by examples in ASC 810-10-35-4:Analysis Under ASC 810-10-35-4(a) ASC 810-10-15-17d “A legal entity that is deemed to be a business need not be evaluated by a reporting entity to determine if the legal entity is a VIE under the requirements of the Variable Interest Entities Subsections unless any of the following conditions exist (however, for legal entities that are excluded by this provision, other generally accepted accounting principles [GAAP] should be applied): The reporting entity, its related parties (all parties identified in paragraph 810-10-25-43, except for de facto agents under paragraph 810-10-25-43(d)), or both participated significantly in the design or redesign of the legal entity. However, this condition does not apply if the legal entity is an operating joint venture under joint control of the reporting entity and one or more......

Words: 4421 - Pages: 18

Venturing Into Consolidations

...previously to be a VIE. That is, an entity could become a VIE or cease being a VIE as a result of a reconsideration event under ASC 810-10-35-4 Such an event could also cause a reporting entity to no longer qualify for one of the scope exceptions in ASC 810-10-15-12 and ASC 810-10-15-17. Note that a reporting entity cannot elect to reconsider the status of an entity at times other than those in ASC 810-10-35-4. Upon reconsideration, the variable interest holders would need to consider all of the requirements of ASC 810-10-15-14 in determining whether the entity is a VIE. Each of the specific events cited is illustrated by examples in ASC 810-10-35-4:Analysis Under ASC 810-10-35-4(a) ASC 810-10-15-17d “A legal entity that is deemed to be a business need not be evaluated by a reporting entity to determine if the legal entity is a VIE under the requirements of the Variable Interest Entities Subsections unless any of the following conditions exist (however, for legal entities that are excluded by this provision, other generally accepted accounting principles [GAAP] should be applied): The reporting entity, its related parties (all parties identified in paragraph 810-10-25-43, except for de facto agents under paragraph 810-10-25-43(d)), or both participated significantly in the design or redesign of the legal entity. However, this condition does not apply if the legal entity is an operating joint venture under joint control of the reporting entity and one or more......

Words: 4421 - Pages: 18

Consolidation of Financial

...Chapter 2 – Consolidation of Financial Information FASB allows reporting for businesses combined using the acquisition method. The acquisition method embraces a fair value measurement attribute. * Adoption of this attribute reflects the FASB’s increasing emphasis on fair value for measuring and assessing business activity. * In the past, reporting standards embraced the cost principle to measure and report the financial effects of business combinations. Expansion Through Corporate Takeovers Reasons for firms to combine: 1. Vertical integration of one firm’s output and another firm’s distribution or further processing. 2. Cost savings through elimination of duplicate facilities and staff. 3. Quick entry for new and existing products into domestic and foreign markets. 4. Economies of scale allowing greater efficiency and negotiating power. 5. The ability to access financing at more attractive rates. As firm size increases, negotiating power with financial institutions can increase also. 6. Diversification of business risk. 7. Continuous expansion of the organization, often into diversified areas (creating conglomerates). The Consolidation Process The consolidation of financial information into a dingle set of statements become necessary when the business combination of two or more companies creates a single economic entity – FASB ASC (810-10-10-1) * “There is a presumption that consolidated financial statements are more......

Words: 2340 - Pages: 10

Consolidation

...STUDENT ACTIVITY SECTION 1. SUMMARY OF THE LEARNING OBJECTIVES The preparation of the consolidated financial statements is done using a consolidation worksheet, the left-hand columns of which contain the financial statements of the members of the group. The adjustment columns contain the consolidation worksheet entries that adjust the left-hand columns to form the consolidated financial statements. The adjustment entries have no effect on the actual financial records of the parent and its subsidiaries. At acquisition date, an acquisition analysis is undertaken. The key purposes of this analysis are to determine the fair values of the identifiable assets, liabilities and contingent liabilities of the subsidiary, and to calculate any goodwill or gain on bargain purchase arising from the business combination. From this analysis, the main consolidation worksheet adjustment entries at acquisition date are the business combination valuation entries, to adjust carrying amounts of the subsidiaries’ assets and liabilities to fair value, and the pre-acquisition entries. In preparing consolidated financial statements in periods subsequent to acquisition date, the consolidation worksheet will contain valuation entries and pre-acquisition entries. However, these entries are not necessarily the same as those used at acquisition date. If there are changes to the assets and liabilities of the subsidiaries since acquisition date, or there have been movements in pre-acquisition......

Words: 4719 - Pages: 19

Accounting Standards for Business Consolidations

...Accounting standards for business consolidations XXXX ACC 407 Your name Date Accounting standards for business consolidations In competing market it is very common for one business to merge with another one. In order to survive in this rivalry marketplace, Companies need to expand business to the most profitable capacity. No matter what kind of reasons for company seeking extension under the ownership, the main one is to track potential profit. Today’s business environment Financial Accounting Standards Board (FASB), one of regulators represented concepts related with business combinations. Below is my briefly understanding of accounting standards of business combination. What is the history of account for business combinations? How many businesses are consolidated with each other? Companies often learn that entry into new product areas or geographic regions is more easily accomplished by acquiring or combining with other companies than through internal expansion. For example, SBC Communications, a major telecommunications company and one of the “Baby Bells,” significantly increased its service area by combining with pacific Telesis and Ameritech, later acquiring AT&T ( and adopting its name), and subsequently combining with BellSouth. Moreover, Cingular Wireless, the largest provider of mobile wireless communications in the United States and now part of AT&T, was operated as a joint venture of AT&T (Baker, R. E., Christensen, T., & Cottrell, D.......

Words: 2605 - Pages: 11

School Consolidation

...Do failing schools benefit from school consolidation? “YES” SIDE (Terrell) With the continuing economic decline and the increasing pressures for schools to show improvement, many districts are seriously considering the controversial issue of school consolidation. One way many districts are trying to avoid huge consolidations is by creating charter schools. Charter schools are viewed as great solutions because they allow districts to continue to receive public funding while not having to uphold the same rules and regulations as regular public schools. Many proponents view charter schools as a solution to the economic crisis facing public education because they recognize that it allows districts to continue to receive federal and state funding while serving fewer students. With many charter schools promising to challenge students more academically, more advanced students tend to leave public schools in favor of this promise. Charters decrease the quality of education for students who stay behind by bleeding off caring parents and motivated students (Clabaugh, 2009). As public schools lose more funding and the better performing students, the struggle to compete academically by purchasing updated computers and equipment, hiring more experienced faculty and staff, and increasing state and national test scores not only continues, but also increases. With charter schools being controlled by fewer rules and regulations than public schools, much room is left for......

Words: 1317 - Pages: 6

Consolidation

...CONSOLIDATION (25 MARKS) On 1 July 2010, Caspian Ltd acquired all the shares of Black Ltd for $330,000 on an ex-div basis. On this date, the equity and liabilities of Black Ltd included the following balances: Share Capital $200 000 General Reserve 25 000 Retained Earnings 45 000 Dividend payable 10 000 Provisions 169 500 At acquisition date, all the identifiable assets and liabilities of Black Ltd were recorded at amounts equal to fair value except for: Carrying Fair Amount Value Inventory $70 000 $80 000 Plant & Equipment (cost $300 000) 186 000 190 000 Machinery (cost $18 000) 15 000 16 000 Trademark 100 000 110 000 Land 50 000 70 000 Goodwill 25 000 55 000 Goodwill was not impaired in any period. The plant and equipment had a further five year life at acquisition date and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. The machinery, which was estimated to have a further four year life at acquisition date, was sold on 1 January 2012. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. During the year ended 30 June 2011, all inventories on hand at acquisition date were sold, and the land was sold on 1 June 2012. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed. Additional information: (i) Of the interim dividend paid by Black......

Words: 765 - Pages: 4

Consolidation

...which was carrying $100,000 worth of accumulated depreciation, had a remaining life of five years on January 1, 2010. The inventory was sold in 2010. Salem Company’s net income and dividends declared in 2010 and 2011 were as follows: * Year 2010 Net Income of $100,000; Dividends declared of $25,000 * Year 2011 Net Income of $110,000; Dividends declared of $35,000 Prepare a consolidated worksheet 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. This impairment was been recorded in the books of the parent under the equity method. December 31, 2012 Consolidation Worksheet Income Statement | Parent | Sub | Debit | Credit | Total | Sales | $1,100,000 | $450,000 | | | | Income from subsidiary | 77,200 | | | | | | | | | | | Cost of goods sold | (900,000) | (200,000) | | | | Depreciation expense | (40,000) | (30,000) | | | | Other expenses | (60,000) | (50,000) | | | | Consolidated net income | $177,200 | $170,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retained Earnings Statement | | | | | | Beginning retained earnings | $546,400 | $230,000 | | | | Net income | 177,200 | 170,000 | | | | Dividends declared | (90,000) | (60,000) | | | | Ending retained earnings | $633,600 |......

Words: 742 - Pages: 3

Capitalization and Consolidation

...billion to 25 billion on or before 31st December, 2005. Most banks resorted to mergers and acquisition as a survival strategy, which saw a reduction in the number of banks from 89 to 25. This study contributes to the concept of bank recapitalization by critically examining the impact of bank consolidation on the performance of banks using a sample of randomly selected Nigerian banks. It is the intention of the researcher to give more validity to empirical evidence that have been obtained by previous researchers on the subject matter. Relevance of the study The earliest set of studies evaluates the effects of bank consolidation through mergers and acquisitions comparing pre- and post- merger performance by measuring performance using either accounting or productive efficiency indicators.The results from both indicators have varied and at sometimes been contradictory. This can be explained by performance-influencing variables like size, brand name, diversification and cost reduction, there is still no reconciliation between these indicators. I intend to contribute to the determinants of bank performance by evaluating the possible performance impact of bank consolidation on banks. Consolidation is the key to improving the performance of banks with low capital base, without which they are bound to fail. 1.3 Background of study Aside being the highest contributor to the market capitalization of the Nigerian stock exchange and smooth and stable income provision to money and......

Words: 6693 - Pages: 27

Consolidation

...Trading Account 1.6. Profit and Loss Account 1.7. Balance Sheet 1.7.1. Definition 1.7.2. Objectives of Balance Sheet 1.7.3. Assets 1.7.4. Liabilities 1.8. Difference between a Trial Balance and a Balance Sheet 1.9. Let Us Sum Up 1.10 Lesson end Activities 1.11. Points for Discussion 1.12. Model answer to “Check your Progress” 1.13. Suggested Reading / References/ Sources 1.0 AIMS AND OBJECTIVES At the end of the lesson you be able to: Ø Understand basics of Final Accounts Ø Understand the difference between Profit and Loss Account with Trial Balance Ø Understand how to prepare Balance Sheet 1.1 INTRODUCTION All business transactions are first recorded in Journal or Subsidiary Books. They are transferred to Ledger and balanced it. The main object of keeping the books of accounts is to ascertain the profit or loss of business and to assess the financial position of the business at the end of the year. The object is better served if the businessman first satisfies himself that the accounts written up during the year are correct or al least arithmetically accurate. When the transactions are recorded under double entry system, there is a credit for every debit, when on a/c is debited; another a/c is credited with equal amount. If a Statement is prepared with debit balances on one side and credit balances on the other side, the totals of the two sides will be equal. Such a Statement is called Trial Balance. This watermark does not appear in the registered version -......

Words: 19905 - Pages: 80

Consolidation

... | |Use Equity Method |received (amortization may also be| | | | |required) | | | |Investor owns over 50% of stock or otherwise controls the |Consolidated financial statements |N/A |N/A | |corporation | | | | | | | | | |Consolidation required | | | | |Does a readily determinable fair value exist? |On BS at historical cost |N/A |Realized loss on | | | | |IS, new basis on | |If not, use Cost Method | | |BS | |For debt securities, does the enterprise have the positive intent |On BS at amortized cost |N/A |Realized loss on | |and ability to hold to maturity?...

Words: 1180 - Pages: 5

Consolidation

...Equipment (cost $300 000) 186 000 190 000 Machinery (cost $18 000) 15 000 16 000 Trademark 100 000 110 000 Land 50 000 70 000 At the date of acquisition, Beans Ltd had recorded goodwill of $25 000. Goodwill was not impaired in any period. The plant and equipment had a further five year life at acquisition date and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. The machinery, which was estimated to have a further four year life at acquisition date, was sold on 1 January 2014. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. During the year ended 30 June 2013, all inventories on hand at acquisition date were sold, and the land was sold on 1 June 2013. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed. Additional information: a) On 1 July 2013, Beans Ltd has on hand inventory worth $12 000, being transferred from Jelly Ltd in June 2013. The inventory had previously cost Jelly Ltd $8 000. This entire inventory was sold to external parties in the year ending 30 June 2014. b) On 31 March 2014, Beans Ltd transferred an item of plant with a carrying amount of $10 000 to Jelly Ltd for $15 000. Jelly Ltd treated this item as inventory. The item was still on hand at the end of the year. Beans Ltd had applied a 20% depreciation rate to this plant. c) On......

Words: 1180 - Pages: 5

Consolidation

...Ltd, Venus Ltd revalued the Equipment to fair value. The Equipment was expected to have a further five year useful life. Venus Ltd registered a patent on 28 June 2007 but has not yet recognized it as an asset. Neptune believes the fair value of the patent was $30 000. The patent is legally enforceable for a period of ten years. On 30th June 2008, Venus Ltd had determined that the patent was impaired by $9 000. On 1st January 2009, Venus Ltd sold the patent for $17 000. During the year ended 30 June 2008, all inventory on hand at acquisition date was sold, and the land was sold on 1 June 2009. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed. Additional information: The interim dividend of $5 000 was paid by Venus Ltd in the current year. Shareholder approval is not required in relation to payment of dividends. On 1 July 2008, Venus Ltd has on hand inventory worth $12 000, being transferred from Neptune Ltd in June 2008. The inventory had previously cost Neptune Ltd $8 000. All the inventory is sold to external parties in the year ending 30 June 2009. On 31 March 2009, Venus Ltd transferred an item of plant with a carrying amount of $10 000 to Neptune Ltd for $15 000. Neptune Ltd treated this item as inventory. The item was still on hand at the end of the year. Venus Ltd......

Words: 1356 - Pages: 6

Consolidation Project

...land (problem) * IFRS not on the exam! * Be careful, if asked what’s acquiring company’s journal entry, it’s equity method entry. (This is different from consolidation entries.) Do one more time: P1.4 P2.5 E4.3, 4.4, P4.6 P5-4, 5-5 E6.1 Review notes: * At the date of acquisition: only E & R needed. * The balance of treasury stock is Credit. (when there is TS, BV should decrease by this amount) * Gain on bargain purchase: total gain(=Acquisition cost+ NCI- FV of net assets) recorded by parent. (E5.4) * Gain on bargain purchase: in R, NCI should be adjusted to it’s fair value at the date f acquisition, so does investment account. (E5.4) * Step N: DR. NCI in net income of xx (similar to step C for controlling interest) CR. Dividend CR. NCI in xx * Summary of CERON (see handout of P5-5) * C&N has similar function: reverse Equity and investment accounts for both controlling interest and NCI * E is used to record stockholder’s equity of sub’s, always allocate by ownership * R is used to adjust BV of sub to FV, allocate by more complicated standard (based on whether it has goodwill or is a bargain purchase) * O is for write-off: see handout of P5-4 * If sub continue to exist, parent use equity method when finish acquisition, and do consolidation at the year-end. * For equity method, investment account equals FV of sub. * When record dividend, DR Cash (not div); when eliminate dividend,......

Words: 820 - Pages: 4

Business Combination and Consolidation

...1. How is goodwill measured in a business combination? ASC 805-30-30-1 Measurement of Goodwill Currently Viewing: 805 Business Combinations 30 Goodwill or Gain from Bargain Purchase, Including Consideration Transferred 30 Initial Measurement General > Measurement of Goodwill 30-1     The acquirer shall recognize goodwill as of the acquisition date, measured as the excess of (a) over (b): * a.  The aggregate of the following: * 1.  The consideration transferred measured in accordance with this Section, which generally requires acquisition-date fair value (see paragraph 805-30-30-7) * 2.  The fair value of any noncontrolling interest in the acquiree * 3.  In a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree. * 30-2     In a business combination in which the acquirer and the acquiree (or its former owners) exchange only equity interests, the acquisition-date fair value of the acquiree’s equity interests may be more reliably measurable than the acquisition-date fair value of the acquirer’s equity interests. If so, the acquirer shall determine the amount of goodwill by using the acquisition-date fair value of the acquiree’s equity interests instead of the acquisition-date fair value of the equity interests transferred. * Currently Viewing: * 805 Business Combinations * 30 Goodwill or Gain from Bargain Purchase, Including......

Words: 793 - Pages: 4