Standards For Reporting Business Combinations

First, let’s get a little background on accounting for business combinations. The current accounting method for business combinations was issued in 2007 with the adjustment to SFAS 141(R), “Business Combinations” under FASB ASC 805. This change was made by the Financial Accounting Standard Board (FASB) in collaboration with International Accounting Standards Board (IASB) in order to make the U.S. accounting standards align more closely with the standards of the International Financial Reporting Standards (IFRS). The business combination accounting is initiated when a company gains control of a subsidiary either by obtaining or purchasing the

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Paragraph 805-10-50-1 identifies one of the objectives of disclosures about a business combination. To meet that objective, the acquirer shall disclose all of the following information for each business combination that occurs during the reporting period:

Major changes have occurred for financial reporting for business combinations beginning in 2009. These changes are documented FASB ASC Topic 805, “Business Combinations” and Topic 810, “Consolidation.” These standards require the acquisition method which emphasizes acquisition-date fair values for recording all combinations.

(a) In a merger agreement, the assets and liabilities of the firm which is being acquired end up being absorbed by the buyers firm. A merger could be the most effective and efficient way to enter a new market without the need of creating

A merger between one firm and another firm that is its supplier is known as a:

“More specifically, ASC 810-10-25-38 states a reporting entity shall consolidate a VIE when the reporting entity has a variable interest that will absorb a majority of the VIE’s expected losses, received a majority of the VIE’s expected residual returns, or both” (Chan, 2010). Consolidation can even be applicable if both firms remain as separate legal entities/ corporations. In this case, both companies will manage their own financial statements that list only their asset and liability account balances. In addition, the acquiring company will record this business combo under their investment account on their balance sheet while the subsidiary makes no note of this transaction. Therefore, stock is moved from the shareholders of the subsidiary to the parent. However, if the business results in a statutory merger, the firm would be the only one in existence after this acquisition thus the company will have to move all of the aquiree’s net assets into their own financial records since the acquiree is no longer a going concern entity. “On the date of combination, the surviving company records the various account balances from each of the dissolving companies. No further consolidation procedures are necessary since accounts are brought together

Target firm continues to exist, as long as there are dissident stockholders holding out. Successful tender offers ultimately become mergers. No shareholder approval is needed.

2. Acquisitions treated as pooling – All acquisitions were accounted for under the purchase method and accordingly the operating results of the acquired businesses are included in the consolidated results of operations of the company since their respective date of acquisition.

In Rel. Rul. 2003-51, there provides a successful example of Section 351 exchange that the transferor transfers property to a corporation in exchange stock and immediately after the transferor meets the requirement of in control of the corporation and involves the issue of the “pursuant to a binding agreement” with a third party before the exchange. Corporation W engages in businesses A, B, C. Another unrelated Corporation to W that is called Corporation X also engages in business A through X’s wholly owned domestic subsidiary, Y. At the same time, W and X wants to consolidated their business and form a new corporation from their operations in business A. In order to reach this goal and pursuant to a prearranged binding agreement, W then forms a Corporation called Z and transfers all of the assets from business A to Z to exchange Z’s stock that is their first transfer. Immediately thereafter, W transfers all of its Z stock to Y in order to exchange Y’s stock that is their second transfer. X then transfers $30x to Y to meet business A’s capital needs simultaneously that is the third transfer. After that, Y transfers the $30x from X and its assets from business A to Z that is the fourth transfer. W and X can own 40 percent and 60 percent outstanding stocks in Y after second and third transfers. Each of the first transfer, the combined second and third transfers and the fourth transfer qualifies to be Section 351 transaction. In the “Analysis” of Rel.

It is believed that at the root of any business strategic merger is to expand. This expansion could be in the form of a larger operations leveraging resources, enhanced opportunities or too simply unite with another business to reduce expenses. Ford and Volvo explored the option of teaming up in hop of lowering manufacturing cost.

However, after further negotiations, the Italian company settled a $4.35 billion deal to buy the remaining shares (41.5%) from UAW in early January 2014, avoiding a planned IPO of the third-biggest American carmaker . As a result of the buyout, Chrysler became a wholly-owned subsidiary of Fiat.

extracted from the combination of the two businesses. For example, such a consolidation would allow

AASB 3 Business combinations para.14 requires that the acquisition method be used to account for business combinations. This method requires the identification of the acquirer. For example, para.17 states that “an acquirer shall be identified for all business combinations”.

In merger: The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stocks. Two companies become one, decison is mutual. They are not idependent anymore