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    Business Combination

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    Sam
    The document defines a business combination as when an acquirer obtains control of one or more businesses (the acquiree). It discusses identifying a business and obtaining control through asset or stock acquisitions. The two main methods for accounting for a business combination are the purchase method, where assets and liabilities are measured at fair market value, and the pooling of interest method, where they are measured at book value. The document outlines the step-by-step process for the purchase method, including identifying the acquirer, determining the acquisition date, consideration given, and recognizing identifiable assets to calculate any resulting goodwill or gain.

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    Business Combination

    Uploaded by

    Sam
    90 views21 pages
    The document defines a business combination as when an acquirer obtains control of one or more businesses (the acquiree). It discusses identifying a business and obtaining control through asset or stock acquisitions. The two main methods for accounting for a business combination are the purchase method, where assets and liabilities are measured at fair market value, and the pooling of interest method, where they are measured at book value. The document outlines the step-by-step process for the purchase method, including identifying the acquirer, determining the acquisition date, consideration given, and recognizing identifiable assets to calculate any resulting goodwill or gain.

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    The document defines a business combination as when an acquirer obtains control of one or more businesses (the acquiree). It discusses identifying a business and obtaining control through asset or stock acquisitions. The two main methods for accounting for a business combination are the purchase method, where assets and liabilities are measured at fair market value, and the pooling of interest method, where they are measured at book value. The document outlines the step-by-step process for the purchase method, including identifying the acquirer, determining the acquisition date, consideration given, and recognizing identifiable assets to calculate any resulting goodwill or gain.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    90 views21 pages

    Business Combination

    Uploaded by

    Sam
    The document defines a business combination as when an acquirer obtains control of one or more businesses (the acquiree). It discusses identifying a business and obtaining control through asset or stock acquisitions. The two main methods for accounting for a business combination are the purchase method, where assets and liabilities are measured at fair market value, and the pooling of interest method, where they are measured at book value. The document outlines the step-by-step process for the purchase method, including identifying the acquirer, determining the acquisition date, consideration given, and recognizing identifiable assets to calculate any resulting goodwill or gain.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 21

    BUSINESS

    COMBINATION
    Business Combination. . .
    Transaction wherein an acquirer
    obtains control to one or more
    businesses (the acquiree).
    Identification of a business. . .
    A business consists of inputs, processes
    and output.
    Other factors:
    1. has begun the operations
    2. has employees
    3. Is pursuing a plan to produce outputs
    4. have access to customers that will purchase the
    output.
    Obtaining Control. . .
    a. Acquiring the assets
    (Net Asset Acquisition)

    b. Acquiring a controlling interests


    (Stock Acquisition)
    Methods of Business Combination
    a. Purchase Method
    (Assets and Liabilities of the acquired
    Company are measured at FMV)
    b. Pooling of Interest Method
    (Assets and Liabilities of the acquired
    Company are measured at BV)
    Step by Step Procedure for Purchase Method:
    a. Identify the Acquirer
    b. Determine the Acquisition Date
    c. Determine the Consideration
    d. Recognize and measure the identifiable
    assets. Goodwill or Gain on the
    Acquisition should be recognized.
    Identifying the Acquirer:
    Entity transferring Cash, Property
    and/or Issuing Share Capital.
    Determine the Acquisition Date:
    -Date when the Acquirer obtains control

    -Acquirer transfers the consideration

    -Critical for the determination of Fair


    Market Values
    Determine the Consideration(s) given:
    - Cash, Non Cash, Share Capital
    - Contingent Consideration
    Additional Consideration to be given by the
    Acquirer if Specified Condition(s) is (are)
    met.
    (Establish Financial Liability-Cash or Equity
    Instrument-Stocks)
    Determine the Consideration Given:
    Changes in the Contingent Consideration:
    FACTS existed in the acquisition date and within
    the measurement date?
    - Goodwill or Gain is adjusted
    FACTS existed after the acquisition date
    - Charge Profit or Loss for the difference
    Determine the Consideration Given:
    Changes in the FV of Contingent Considerations:
    - Achieved Within the Measurement Period:
    No adjustments on the costs of business
    combination and the Goodwill.
    - Not Achieved Within the Measurement Period:
    Adjustment must me made on the cost of
    combination and accordingly to the Goodwill
    or Gain recognized.
    Determine the Consideration Given Cont…
    - Acquisition Related Costs
    Expensed as incurred

    - Stock Issuance Costs


    Charged to Share Premium or Retained
    earnings
    Record the Identifiable Assets. . .
    - Record all Identifiable Assets at FMV
    - Goodwill is not recorded (But new goodwill is
    recognized)

    - Goodwill is recognized IF the consideration


    exceeds the FMV of identifiable assets.
    - Gain is recognized IF the consideration is less
    than the FMV of identifiable assets.
    FMV not Available. . .
    - Use independent Valuations
    - Any Information Relevant
    - Temporary values are allowed up to 1 year after
    the acquisition with appropriate disclosures.
    - Reclassification is necessary once the FMV are
    available.
    Acquiring a Controlling Interests
    • Purchase of STOCKS
    - No Goodwill or Gain is recognized from the
    acquisition
    - It is recognized in the Consolidated Financial
    Statement
    - Consolidated FS is prepared during acquisition and
    every BS date thereafter. (Next Discussion)
    Recognizing Goodwill or Gain. . .
    • Goodwill or Gain is the difference between:
    - The Considerations Given (Cash, Property, Contingent)
    - The amount of any NCI based on Fair Value or
    Proportionate Share in the Net Assets.
    - Acquirer’s previously held Interest re-measured at FMV
    AND
    - Net amount of Identifiable Assets and Assumed
    Liabilities as of the Acquisition Date
    To Illustrate…
    • P Company acquires S Company by paying 800M
    representing 80% interests. The aggregate value of
    S Company Net Assets is 600M. The FMV of NCI as
    of the acquisition date amounts to 185M.
    NCI BASED ON NCI BASED ON NET ASSETS
    FAIR VALUE
    CONSIDERATION 800M 800M
    TRANSFERRED
    NCI 185M 120M
    (600m X 20%)
    TOTAL CONSIDERATION 985M 920M

    NET ASSETS 600M 600M

    GOODWILL 385M 320M


    To Illustrate Further. . .
    • The Parent Company acquired some years ago a 30% non-controlling
    equity interests in the Subsidiary for a historical costs of 300,000.
    Immediately before the acquisition of another 30% share of the
    subsidiary (acquisition costs = 465,000, including 45, 000 premium for
    acquiring a controlling interests) the Parent classified the previously
    acquired as an available for sale financial asset. After the acquisition
    of the 30% additional shares, the FV of the assets & Liabilities of the
    Subsidiary are as follows: Current Assets 700,000; Land 450,000;
    Machinery 750,000; Equipment 350,000 and the liabilities 1,100,000.
    GOODWILL NCI BASED ON FAIR VALUE
    COMPUTATION
    CONSIDERATION 465,000
    TRANSFERRED
    NCI MEASURED AT FMV 560,000
    ((465,000 – 45,000) / 30%) X 40%

    REMEASURED INTERESTS 420,000


    (465,000 – 45,000) / 30% x 30%

    TOTAL CONSIDERATION 1,445,000

    NET ASSETS 1,150,000


    GOODWILL 295,000
    GOODWILL NCI BASED ON PROPORTIONATE AMOUNT TO NET
    COMPUTATION ASSETS
    CONSIDERATION 465,000
    TRANSFERRED
    NCI MEASURED AT A 460,000
    PROPORTIONATE 1,150,000 X 40%
    AMOUNT TO NET ASSETS
    REMEASURED INTERESTS 420,000
    (465,000 – 45,000) / 30% x 30%

    TOTAL CONSIDERATION 1,345,000

    NET ASSETS 1,150,000


    GOODWILL 195,000

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