8.5-8.7 Business Combinations Flashcards
Business Combinations (IFRS)
business combinations are not differentiated based on the structure of the surviving entity
Business Combinations (US GAAP)
Merger.
Acquisition.
Consolidation.
Merger
The acquiring firm absorbs all the assets and liabilities of the acquired firm
Acquisition
Both entities continue to exist in a parent-subsidiary relationship
Consolidation
A new entity is formed that absorbs both of the combining companies.
accounting method used for business combinations
acquisition method
Balance Sheet Acquisition Method
Consolidated with a minority interest
Income Statement Acquisition Method
Consolidated subtracting minority share
Full goodwill (required under U.S. GAAP; allowed under IFRS):
full goodwill = (fair value of equity of whole subsidiary) − (fair value of net identifiable assets of the subsidiary)
Partial goodwill (only allowed under IFRS):
partial goodwill = purchase price − (% owned × FV of net identifiable assets of the subsidiary)
or
partial goodwill = % owned × full goodwill