ACCT 434- Mod 4 Flashcards
What is a business combination?
When one company obtains control of another company
What are some reasons for business combinations?
Defend a competitive position
Diversify/Enter a new market
Access to new customers, technology or expertise
When a business combination occurs, what must we do with the financial statements?
Combine them
How do we determine control?
Investor has the power to direct activities of the investee
50% +1
Investor has exposure to risk and rewards of investee
Contractual arrangement
Parent owns debt, bonds or rights that if excersized would give control
What are the three main ways that a business combination can occur?
Purchase of net assets
Acquiring enough voting shares to have control
Contractual arrangement
What costs are excluded from Acquisition Cost?
Professional fees
Cost of issuing shares
What is a contingent liability?
Something specific must occur to trigger the Liability
What is Acquisition Differential and how is it calculated?
Difference between the price paid for the company and the carrying (book) value of the identifiable net assets
What is Goodwill?
The amount paid for a company above the fair value of the assets and liabilities
What is negative goodwill?
Bargain purchase. You paid less for the company than the FV of their assets and liabilities
How is negative goodwill reported on the income statement?
Reported as a gain on the income statement
What is the only theory that we will use for consolidations?
Entity Theory
Describe the Entity Theory for consolidations?
Once a parent has control, 100% of subsidiaries assets and liabilities (measured at fair value) should be reported by the parent
What is NCI and what does it mean?
Non controlling interest.
The equity in a subsidiary not attributable to the parent
What is a reverse takeover?
When the parent becomes the subsidiary
