Acquisition premium is defined as the amount the acquirer paid, which is higher than the fair value

600 WordsApr 23, 20193 Pages
Acquisition premium is defined as the amount the acquirer paid, which is higher than the fair value of the target company (AASB 3). In the case of the public companies, the acquisition premium is calculated as a percentage of the market capitalization of the target before the transaction is announced. Several factors explaining for the existence of acquisition premiums, synergies and control premium are most commonly identified. Synergies arise when the value of the combined business is larger than the sum of the values of individual business that would be achieved if not combined. Synergies can be classified into two classes; one is operational synergy and another is financial synergy. Operational synergies have effects of reducing…show more content…
Goodwill on acquisition need to be amortized and recognized as an expense on a straight line base in the profit and loss statement, during the whole period from the date of acquisition to the end of period benefits are expected to arise. According to AASB 1013, goodwill must be measured as the excess beyond the acquisition expenditure over the fair value of the identifiable asset. In order to determine the amount of goodwill on acquisition, the purchaser needs to recognize the fair value of all the identifiable assets acquired and the purchase consideration. Fair value of net identifiable assets equals the sum of company’s share equity. Purchase consideration is the amount that the acquirer is willing to pay for the target company. The goodwill on acquisition is the amount difference between the purchase consideration and the fair value of company’s identifiable assets. However, the cost directly relate to acquisition such as legal fees, stamp duty and other government charges, and professional fees need to be included to determine the cost of acquisition. Similarity and difference between acquisition premium and goodwill Both acquisition premium and goodwill arise from company combination when one company acquire another company by pay higher price than what the fair value of the acquired company is. However, goodwill on acquisition is an asset which show in the financial statement and the benefit of it could be

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