Business Combination

Question 1

How do you find the Goodwill or Gain from Bargain Purchase?

Answer 1

Price Paid
Less: FVINA
—————–
Goodwill (Gain on Bargain Purchase)

FVINA = Fair Value of Identifiable Net Assets

Question 2

What type of account is Goodwill?

Answer 2

Asset

Question 3

What type of account is Gain on Bargain Purchase?

Answer 3

Income

Question 4

How do you find price paid or total value given up?

Answer 4

Cash Paid
Noncash Assets Transferred (at FV)
Shares issued (at FV)
ELCC (at FV)
Debt Securities Issued (FV)
———————
Price Paid

Question 5

How do you find FVINA?

Answer 5

BVINA
Less: Overvaluation of Asset
Add: Undervaluation of Asset
Add: Overvaluation of Liability
Less: Undervaluation of Liability
——————————-
FVINA

or

FV of Asset
Less: FV of Liabilities
———————–
FVINA

Question 6

How do you find Combined Common Stock after acquisition?

Answer 6

Common stock of Acquirer (par value)
Add: Addtl. Common Stock Issued by Acquirer (par value)
————————————-
Combined Common Stock

Question 7

How do you find combined share premium after acquisition?

Answer 7

Share Premium of Acquirer
Add: Addtl. Share Premium
Less: Stock Issuance Costs
—————————-
Combined Share Premium

Question 8

How do you find Combined Retained Earnings after acquisition?

Answer 8

Retained Earnings (from Acquirer)
Add: Gain on Bargain Purchase
Less: Acquisition Related Costs
Less: Excess SIC
——————–
Combined RE

Question 9

How do you find Combined Total Liabilities after acquisition?

Answer 9

Liabilities of Acquirer (at FV)
Liabilities of Acquiree (at BV)
Est. ELCC
Unpaid costs of acquisition
————————————
Combined Total Liabilities

Question 10

How do you find the Combined Total Assets after acquisition?

Answer 10

Assets of Acquirer (at BV)
Assets of Acquiree (at FV)
Goodwill
Less: All cash paid
————————
Combined total assets

All cash paid: Cash paid, costs related to acquisition, SIC

Question 11

What are two types of Business Combinations?

Answer 11

1. Merger
2. Consolidation

Question 12

What is the difference between merger and consolidation?

Answer 12

Merger: Acquirer survives while acquiree dissolves
Consolidation: Both dissolve and a new one forms

Question 13

What are two forms of business combination?

Answer 13

1. Net asset acquisition
2. Stock acquisition

Question 14

What is the main objective of business combination?

Answer 14

Acquirer obtains control over acquiree.

Question 15

What method does business combination use?

Answer 15

Acquisition method

Question 16

How do you find the carrying value of net identifiable assets?

Answer 16

TSHE-Acquiree
Less: Pre-existing Goodwill
—————————
CVNIA

Question 17

What is the difference between full pfrs and pfrs for SMEs?

Answer 17

FULL PFRS: Acquisition costs are expensed immediately
PFRS for SMES:(1) Direct Costs - included in price paid (2) Indirect Costs - Expensed immediately