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Advanced Accounting
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The acquisition of one company by another is a commonplace business activity. Frequently, a company is groomed for sale. Also, the recent proliferation of new technology businesses and financial services firms that merge into larger companies is an expected, and often planned for, occurrence. For three decades, prior to 2001, accounting standards for business combinations had remained stable. Two models of recording combinations had coexisted. The pooling-of-interests method brought over the assets and liabilities of the acquired company at existing book values. The purchase method brought the acquired company’s assets and liabilities to the acquiring firm’s books at fair market value. FASB Statement No. 141, issued in July of 2001, ended the use of the pooling method and gave new guidance for recording business combinations under purchase accounting principles.
Two new FASB Statements issued in 2007 brought major changes to accounting for business combinations. FASB Statement 141r required that all accounts of an acquired company be recorded at fair value, no matter the percentage of interest acquired or the price paid. FASB
Statement 160 required new rules for accounting for the interest not acquired by the acquiring firm. This interest is known as the noncontrolling interest. It is now recorded at fair value on the acquisition date and is considered a part of the stockholders’s equity of the consolidated firm.
There are two types of accounting transactions to accomplish a combination. The first is to acquire the assets and liabilities of a company directly from the company itself by paying cash or by issuing bonds or stock. This is called a direct asset acquisition and is studied in Chapter 1. All of the theory involving acquisitions is first explained in this context.
The more common way to achieve control is to acquire a controlling interest, usually over 50%, in the voting common stock of another company. When two companies are under common control, a single set of consolidated statements must be prepared. Chapters 2 through 8 provide the methods for consolidating the separate statements of the affiliated firms into a consolidated set of financial statements. The consolidation process becomes a continuous activity, which is further complicated by continuing trans- actions between the affiliated companies.
Paul Marcus Fischer - Personal Name
10th Edtion
10: 0-324-37905-6
NONE
Advanced Accounting
Accounting
English
South-Western, Cengage
2006
USA
1-182
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