Business combinations Flashcards
3 types of combinations
Legal merger
Legal consolidation
Legal acquisition- the only one requiring consolidated financial statements
Legal merger
A and b combine, A survives
B ceases to exist and their stuff goes on the books of A
Legal Consolidation
A and B combine to form C
A and b cease to exist
Legal Acquisition
A acquires controlling interest in B, over 50% and both continue to exist separately!
B still keeps books and thus consolidated financial stmts
Legal merger - there could be goodwill recognized
Compare assets-liabilities
To the price paid
Goodwill is when you pay more than the fair value
Legal merger - could have “bargain purchase gain” or goodwill
Got a bargain on the acquisition of assets
Legal acquisition financial stnts
All statements separately except for SEC filing that has to be consolidated
On A’s company there is a JV for acquisition
D investment in B
C cash
Goodwill can be recorded on the consolidated stnts
Legal acquisition
Bargain purchase gain
Bargain purchase gain gets recognized on A’s books as part of the investment
Goodwill only gets recognized on the consolidated financial statements
Acquisition date
Announcement or close
Entries are based on when control passes which is the date of close
Acquisition- legal costs or consulting
Stock issue costs and registration
Legal costs or consulting related to the merger are expensed (affects net income)
Stock issue costs and registration reduce APIC
Sample JV in acquisition
D investment in subsidiary (fair value of the purchase)
D legal costs (expenses)
C common stock (shares X par)
C APIC (difference between purchase price and stock)
C cash ( legal costs)
Only additional is any entity registration fees which would lower APIC more and increase cash expense
Contractual contingency include
Non/contractual contingency include if the likelyhoid is more than 50 percent- recognized on consolidated financials
