Group reporting Flashcards
what is a group?
where one entity controls another
group should be presented as a whole
what is a subsidiary?
the parent company buys the majority or all of the share in another company - creating a new subsidiary
owns 50% or more of another company
what is an affiliate?
owns less than 50% of another company
what is a merger?
the combining of two business entities under common ownership
what is a horizontal merger>
the two companies that merge are engaged in the same activity
what is a vertical merger?
where different stages of the production chain merge
what is an acquisition?
buying an existing business - buys sufficient voting shares to be able to exercise control or even complete ownership
what is a synergy?
the benefits that mergers can bring to the shareholders in terms of positive cash flows and reduction of risk
combined entity will have a present value greater than the sum of its parts
value is created from a merger when the gain is greater than the transaction cost
two firms together are worth more than the value of the firms apart
what are the motives for a merger or acquisition?
synergy
bargain buying
managerial motives
third party motives
benefits as debt as a source of financing a merger or acquisition?
incurs risk
creates binding obligations to the bidder as regards interest and capital repayments and will alter the level of gearingb
benefits of equity as source of financing a merger or acquisition?
ordinary shares may be attractive to recipients
would cease being a shareholder in one company and become a shareholder in another
No CGT effect
benefits of cash as source of financing a merger or acquisition?
gives the recipients something they can use immediately
but will be treated as disposal and many shareholders will not welcome this change
under which circumstances can a company avoid consolidation?
control is likely to be temporary
control does not rest with the majority owner
How is an income statement consolidated?
add together line by line the individual income statements of all the companies in the group
any intra-group items are cancelled out
intra-group sales are included in the sales revenue of the selling company and in the cost of sales of the buying company
how is a balance sheet consolidated?
prepare individual accounts of each subsidiary
add together all assets and liabilities
cancel out common items - which appear as an asset in one and a liability in another
