8.5-8.7 Business Combinations

Question 1

Business Combinations (IFRS)

Answer 1

business combinations are not differentiated based on the structure of the surviving entity

Question 2

Business Combinations (US GAAP)

Answer 2

Merger.
Acquisition.
Consolidation.

Question 3

Merger

Answer 3

The acquiring firm absorbs all the assets and liabilities of the acquired firm

Question 4

Acquisition

Answer 4

Both entities continue to exist in a parent-subsidiary relationship

Question 5

Consolidation

Answer 5

A new entity is formed that absorbs both of the combining companies.

Question 6

accounting method used for business combinations

Answer 6

acquisition method

Question 7

Balance Sheet Acquisition Method

Answer 7

Consolidated with a minority interest

Question 8

Income Statement Acquisition Method

Answer 8

Consolidated subtracting minority share

Question 9

Full goodwill (required under U.S. GAAP; allowed under IFRS):

Answer 9

full goodwill = (fair value of equity of whole subsidiary) − (fair value of net identifiable assets of the subsidiary)

Question 10

Partial goodwill (only allowed under IFRS):

Answer 10

partial goodwill = purchase price − (% owned × FV of net identifiable assets of the subsidiary)

or

partial goodwill = % owned × full goodwill