Australian Requirement for Business Combinations

2775 Words Oct 1st, 2008 12 Pages
Australian Requirement for Business Combinations

Abstract:
The issue of accounting for Business Combinations, according to Australian standards, has been a cause of considerable concerns and controversies for both, accountants and academics. However, due to the enormity of transactions involved in it, it becomes highly important to understand its application. In this research, we will outline various concepts and definitions to business combinations and address some important issues such as reporting entity concept, determination of fair value of assets, nature and treatment of goodwill, fair value approach in determining the cost of business combinations. While doing this, we will keep in mind the major accounting practices
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The public sector largely uses the fund concept of reporting which implies a concern with reporting the results of individual funds. Electoral concept holds a broad concept based on accountability of elected representatives and appointed officials which have been employed in the public sector and preparing general purpose financial reports. Overall, SAC 1 adopts a concept of reporting entity which is tied to the information needs of the users and the nature of general purpose financial reports. In other words, the class of entity defined under these concepts may include some entities by virtue of the existence of users dependent on general purpose financial reports, whether they are identified as reporting or non-reporting. It should also be noted that the reporting entity concept does not depend on the sector within which the entity operates or the purpose for which it was created. It merely requires all entities, with users depending on their general purpose financial reports, to prepare such reports in accordance to chapter 2M of the Law. IMPLICATIONS OF REQUIREMENTS TO USE PURCHASE METHOD OF ACCOUNTING:
A Business Combination is handled in two different ways: 1) Pooling of interest method and 2) Purchase method
In the pooling of interest method, the consolidated balance sheet merely shows adding together the balance sheets of the combined entities.
The purchase method is based on the assumption that
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