...Abstract Business combination is an accounting theory bringing together separate entities or businesses as if it is one operating entity. The theory behind business combination is that the acquiring entity has control of one or more businesses, whilst those entities still retained their normal operation and report its financial information as a reporting unit. The objective of the accounting standard is to specify the financial reporting by an entity when it undertakes a business combination. The proposed accounting standards addresses the accounting principles and method that is relevant for reporting acquisition of business entities. When an entity acquired another entity as a business combination it should account for the business acquired at its fair value at the acquisition date. Financial accounting standard board propose in their statement of accounting standard that financial reporting of all business enterprises shall recognize this standard except “formation of a joint venture, transactions or events between entities under common control, combinations between non-for-profit organizations, or acquisitions of a for profit business by a non-for-profit organization” (FASB). Accounting standards are written policy documents issued by expert accounting body or by government or other regulatory body covering the aspects of recognition, treatment, measurement, presentation and disclosure of accounting transactions and events in the financial. The objective of...
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...Introduction Financial Statement: It is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by accountants. For a business enterprise, all the relevant financial information, presented in a structured manner and in a form easy to understand, are called the financial statements. They typically include four basic financial statements, accompanied by a management discussion and analysis: 1. Statement of Financial Position: also referred to as a balance sheet, reports on a company's assets, liabilities, and ownership equity at a given point in time. 2. Statement of Comprehensive Income: also referred to as Profit and Loss statement, reports on a company's income, expenses, and profits over a period of time. A Profit & Loss statement provides information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state. 3. Statement of Changes in Equity: explains the changes of the company's equity throughout the reporting period 4. Statement of cash flows: reports on a company's cash flow activities, particularly its operating, investing and financing activities. Different countries have developed their own accounting principles over time, making international comparisons of companies difficult. To ensure...
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...Accounting standards for business consolidations XXXX ACC 407 Your name Date Accounting standards for business consolidations In competing market it is very common for one business to merge with another one. In order to survive in this rivalry marketplace, Companies need to expand business to the most profitable capacity. No matter what kind of reasons for company seeking extension under the ownership, the main one is to track potential profit. Today’s business environment Financial Accounting Standards Board (FASB), one of regulators represented concepts related with business combinations. Below is my briefly understanding of accounting standards of business combination. What is the history of account for business combinations? How many businesses are consolidated with each other? Companies often learn that entry into new product areas or geographic regions is more easily accomplished by acquiring or combining with other companies than through internal expansion. For example, SBC Communications, a major telecommunications company and one of the “Baby Bells,” significantly increased its service area by combining with pacific Telesis and Ameritech, later acquiring AT&T ( and adopting its name), and subsequently combining with BellSouth. Moreover, Cingular Wireless, the largest provider of mobile wireless communications in the United States and now part of AT&T, was operated as a joint venture of AT&T (Baker, R. E., Christensen, T., & Cottrell, D. (2011))...
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...Accounting for Business Combinations: A Test for Long-Term Market Memory By Pongprot Chatraphorn Dissertation submitted to the faculty of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY In Business Administration with a Concentration in Accounting Dr. John A. Brozovsky, Chair Dr. Anthony J. Amoruso Dr. Robert M. Brown Dr. Frederick M. Richardson Dr. Keying Ye December 19, 2001 Blacksburg, Virginia Keywords: Business Combinations, Mergers, Acquisitions, Pooling, Purchase Accounting Copyright 2001, Pongprot Chatraphorn Accounting for Business Combinations: A Test for Long-Term Market Memory Pongprot Chatraphorn ABSTRACT The purpose of this research is to examine whether accounting methods for business combinations (purchase and pooling-of-interests accounting) have a different effect on firms’ market value of equity in the combination year and thereafter. In particular, after the accounting method is no longer disclosed in the financial statements, does it have an impact on market value of equity of the combined firms because the accounting figures are different? A five-year period subsequent to a particular business combination is used because public companies are not required to disclose the details of the combination for more than three years after the effective date of the combination. This research, thus, tests whether market participants still take into...
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...In spite of the new accounting approach there are still lots of discussions, which indicate that the field is still not properly regulated. Finally, the article offers possible directions for future research and reporting practice. Key words: goodwill treatment, impairment of goodwill, intangible assets 1 Introduction We are facing a new era of economic development with a growing significance of intangible assets. Goodwill constitutes a significant asset for numerous companies, especially those which are operating in high technology industries. According to the growing importance of intangibles there has also been a significant change in standards associated with accounting for goodwill. In 2004 International Accounting Standard Board (IASB) issued...
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...regarding the accounting for goodwill in US and abroad had existed since the early 1900s. The controversy focused on the recognition of goodwill as an asset, on its treatment and its link to the income statement. A search of the accounting literature yields two definitions of goodwill. One is that goodwill is the excess of purchase price over fair value of the net assets acquired. Alternatively, goodwill is defined as the price paid for excess earnings where excess earnings are defined as the difference between the earnings of the acquired asset over the normal earnings for a similar business. Historically, there are three views on the treatment of goodwill. The first suggests that goodwill should be written off immediately against retained earnings. The second view holds that goodwill is a wasting asset and it should be amortized over a useful life. Further, the amount of goodwill amortized should be allocated to periods where it contributes to company’s earnings. Goodwill arises is calculated as the difference between the value of the business as a whole and the aggregate of the fair values of its various identifiable assets both tangible and intangible. As outlined in Financial Accounting Standards Board Accounting Standards Codification 350: Intangibles - Goodwill and Other (formerly Statement of Financial Accounting Standards No. 142), Goodwill is “an asset representing future economic benefits arising from other assets acquired in a business combination...
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...Examine the statement of equity(or equivalent) section of the accounts and investigate if the data provided conform to the relevant Accounting Standards. Statement of equity is a ‘Financial statement showing the beginning balance, additions to and deductions from, and the ending balance of the shareholders' equity account, for a specified period’.(http://www.businessdictionary.com/definition/statement-of-owners-equity.html viewed April 20th) The statement of equity for the toll company is displayed in a table format clearly, with two-sub headings total comprehensive income for the year, and transactions with owners, recorded directly in equity. Underneath the heading there are sub headings, which clearly identifies in which category the figures go. At the bottom of the table it shows the balance of that financial year. The statement of equity report is useful to the owners as its vital to their future decision- making and it shows how much profit or loss is left over for the individual equity. Accounting standards have been established to govern the use of appropriate measurement and reporting rules in the financial statements. The statements report is on a monetary terms. The reports are to be presented fairly, clearly and completely of the entity. The statement of Equity for the toll company is reported in the annual report, which is prepared at the end of each financial year. In the year 2009, the balance was two million five hundred and ninety nine dollars and...
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...No. 2014-17 November 2014 Business Combinations (Topic 805) Pushdown Accounting a consensus of the FASB Emerging Issues Task Force An Amendment of the FASB Accounting Standards Codification® The FASB Accounting Standards Codification® is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. An Accounting Standards Update is not authoritative; rather, it is a document that communicates how the Accounting Standards Codification is being amended. It also provides other information to help a user of GAAP understand how and why GAAP is changing and when the changes will be effective. For additional copies of this Accounting Standards Update and information on applicable prices and discount rates contact: Order Department Financial Accounting Standards Board 401 Merritt 7 PO Box 5116 Norwalk, CT 06856-5116 Please ask for our Product Code No. ASU2014-17. FINANCIAL ACCOUNTING SERIES (ISSN 0885-9051) is published quarterly by the Financial Accounting Foundation. Periodicals postage paid at Norwalk, CT and at additional mailing offices. The full subscription rate is $242 per year. POSTMASTER: Send address changes to Financial Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. | No. 406 Copyright © 2014 by Financial Accounting Foundation. All rights reserved. Content copyrighted by Financial Accounting Foundation may not be reproduced, stored in a retrieval...
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...| Goodwill | Research paper | | | ACC 620 - Advance entities Contents: Introduction 2 Accounting standards of goodwill development 3 Affection on SFAS 141 and SFAS 142 4 The definition of goodwill 4 Contribution to the creation of goodwill 5 Goodwill inclusion and exclusion 6 Identification of goodwill and intangible assets 7 Calculation of goodwill 7 Goodwill impairment 10 Comparison IFRS with U.S. GAAP for goodwill 11 Conclusion 13 References 14 Introduction: When one company gains control over the others, a business combination is established. As a part of this process, reciprocal accounts and intra-entity transactions must be adjusted or eliminated to ensure that all reported balances truly represent the single entity and current financial reporting standards require the acquisition method to account for business combinations. However, in many cases, the parent records both the consideration transferred and the individual amount of the identified assets acquired and liabilities assumed at their acquisition-date fair values are difference. Thus, GAAP requires the acquirer recognizes the asset goodwill as the excess of the consideration transferred over the collective fair values of the net identified assets acquired and liabilities assumed. Nevertheless, in a business combination, assets of the purchase price and book value of assets varies greatly. Such as the 1989 Time and Warner merged the two companies...
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...for measuring and assessing business activity. * In the past, reporting standards embraced the cost principle to measure and report the financial effects of business combinations. Expansion Through Corporate Takeovers Reasons for firms to combine: 1. Vertical integration of one firm’s output and another firm’s distribution or further processing. 2. Cost savings through elimination of duplicate facilities and staff. 3. Quick entry for new and existing products into domestic and foreign markets. 4. Economies of scale allowing greater efficiency and negotiating power. 5. The ability to access financing at more attractive rates. As firm size increases, negotiating power with financial institutions can increase also. 6. Diversification of business risk. 7. Continuous expansion of the organization, often into diversified areas (creating conglomerates). The Consolidation Process The consolidation of financial information into a dingle set of statements become necessary when the business combination of two or more companies creates a single economic entity – FASB ASC (810-10-10-1) * “There is a presumption that consolidated financial statements are more meaningful than separate financial statements and that they are usually necessary for a fair presentation when one of the entities in the consolidated group directly or indirectly has a controlling financial interest in the other entities.” * Business combination: refers to a transaction or...
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...IAS 38 International Accounting Standard 38 Intangible Assets In April 2001 the International Accounting Standards Board (IASB) adopted IAS 38 Intangible Assets, which had originally been issued by the International Accounting Standards Committee in September 1998. That standard had replaced IAS 9 Research and Development Costs, which had been issued in 1993, which itself replaced an earlier version called Accounting for Research and Development Activities that had been issued in July 1978. The IASB revised IAS 38 in March 2004 as part of the first phase of its business combinations project. In January 2008 the IASB amended IAS 36 again as part of the second phase of its business combinations project Other IFRSs have made minor consequential amendments to IAS 38. They include IAS 16 Property, Plant and Equipment (issued December 2003), IAS 1 Presentation of Financial Statements (as revised in September 2007) and Improvements to IFRSs (issued May 2008 and April 2009). © IFRS Foundation A1027 IAS 38 CONTENTS from paragraph INTRODUCTION IN1 INTERNATIONAL ACCOUNTING STANDARD 38 INTANGIBLE ASSETS OBJECTIVE 1 SCOPE 2 DEFINITIONS 8 Intangible assets 9 Identifiability Control Future economic benefits 11 13 17 RECOGNITION AND MEASUREMENT 18 Separate acquisition 25 Acquisition as part of a business combination Intangible asset acquired in a business combination Subsequent expenditure on an acquired in-process research and development project 33 35 42 Acquisition...
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...In April 2001 the International Accounting Standards Board adopted IAS 12. IAS 12 has to do with the accounting treatment for Income Taxes. There have been many amendments and changes over the years with the last one being in 2010. The objective of International Accounting Standard 12 is to advise on the accounting treatment for income taxes. The main issue in accounting for income taxes is how to account for the current and future tax consequences of certain items. One item it advises on is the future recovery or settlement of the carrying amount of assets or liabilities that are recognized in an entity’s statement of financial position. The second main item the standard covers is transactions and other events of the current period that are recognized in an entity’s financial statements. It is essential in the recognition of an asset or liability that the reporting entity expects to recover or settle the carrying amount of that asset or liability. If it is probable that the recovery or settlement of that carrying amount will make future tax payments increase or decrease, this standard requires an entity to recognize a deferred tax asset or deferred tax liability with certain limited exceptions. Tax consequences of transactions and events are accounted for in the same way they transactions and events are accounted for. This means that if an event or transaction affects profit or loss then the tax consequence will also affect profit or loss. If an event or transaction...
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...When it comes to business combinations, the International Financial Reporting Standards and Canadian GAAP have a few similarities, but many differences. They both define the business combination as a transaction in which an acquirer obtains control over one or more businesses. Both sets of standards also define the date of acquisition as the date which control is transferred. However, that’s where the similarities end. The key differences between IFRS and Canadian GAAP arise when accounting for a business combination. First, under Canadian GAAP, when an acquirer purchases less than 100% of an acquire, the assets and liabilities are adjusted by fair value increment only to the extent of the acquirer’s percentage ownership of the acquiree. For example, if Best Buy acquired 74% of Fry’s Electronics, Best Buy could only recognize up to 74% of the fair value of Fry’s identifiable assets and liabilities under Canadian GAAP unlike 100% under IFRS. Next, there is discrepancy between the way Canadian GAAP and IFRS measure non-controlling interest. Under Canadian GAAP, the non-controlling interest is calculated as the portion of ownership interest of the carrying amount of net assets of the acquiree that are not acquired by the acquiree. Under IFRS, the non-controlling interest is measured using either the fair value of the non-controlling interest or the proportionate interest of the fair value of net identifiable assets of the entity acquired. If we continued from the previous example...
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...Assignment 1: Business Combinations Cindy Yoon Professor Robert Neely ACC 401 – Advanced Accounting October 24, 2013 Abstract In this paper, I will provide an explanation for the business combination method I selected in expanding the corporation by acquiring another firm, the reason for selecting that business combination method, and how the purchase will grow the business. I will also analyze the accounting requirements for the business combination method I selected and how I determined goodwill was impaired and the financial impact of such impaired goodwill. The business combination method I selected is the acquisition method. Business combinations have implemented the newly created accounting treatment called the “acquisition method.” The major changes in the acquisition method include changes to fair value measurement, goodwill recognition, and non-controlling interests. In acquisition method, the parent company reports the net assets of the acquired company at the price that it was paid for. This price includes any cash payment, the fair market value of any shares issued, and the present value of any promises to pay cash in the future. A key point of the purchase method is that the parent consolidates the book value of all the subsidiary’s assets and liabilities and then the fair value, broken down between Net Book Value and Fair Market Value increments, of the subsidiary's assets and liabilities are added to the parent's own assets and liabilities...
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...delivering applicable as well as cost effective online publicity and providing other goods. This document represents a full study of the industry of Google Inc as well as its performance for a period of 3 years. I will focus on the years between 2009 and 2011. The International Financial Reporting Standards (IFRS) are standards and interpretations adopted by the International Accounting Standards Board (IASB). The functions of the IFRS foundation can be divided into two main areas: Governance and oversight, and operations. The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) are committed to crafting one set of accounting standards. The goal of the convergence project is to unify accounting standards, which in turn should improve comparability of financial statements across national jurisdictions (Shim, Siegel, 2010). Google has a reputation as an innovative company, but in fact it owes a lot of its success to acquisitions. Merging with or acquiring another firm represents a considerable change that can affect the interests of stakeholders beneficially or detrimentally. Since its emergence the Google Inc. has made more than 175 business combinations. Some of them were prior to 2009 and some after it. A scrutiny of annual reports and form 10K of Google from 2009 reveals that the company has followed all the prescribed reporting guidelines as per ASC 805. The auditors of...
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