8.1 lLecture_14_Sept_Business_Combinations

8.1 lLecture_14_Sept_Business_Combinations - ACIS 211...

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ACIS 211 Company Accounting 2009 Business Combinations Bill Foster Room 619 bill.foster@canterbury.ac.nz
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Tutorial exercises: week commencing 21 September part 1 Alfredson Exercise 12-1 2008 Business combination tutorial problem In your own time: week commencing 21 September part 1 Alfredson Exercise 12-10 parts (1) and (3)
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Overview I. Reasons for Corporate Expansion II. Definition of a business combination III. Common forms of business combinations IV. Accounting for business combinations V. Definition of acquirer VI. Methods of effecting business combinations VII. Acquisition method continued VIII. Acquisition method example #1 IX. Acquisition method example #2 X. Acquisition method example #3 XI. What if cost is less than fair? XII. Combined results of operations in the year of acquisition
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XIII. Sample problem XIV. Disclosures
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Reading NZ IFRS 3 (Revised 2008) Deegan and Samkin Chapter 24 (ignore deferred taxes) Alfredson Chapter 12
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I. Reasons for Corporate Expansion 1. Economies of scale with regard to production and distribution costs 2. Develop new earning potential by expanding into new markets or acquiring companies already in those markets 3. Companies in cyclical industries can add greater stability to earnings through diversification 4. In some cases expand the scope of operations in response to government incentives, such as encouraging trade with certain countries 5. Corporate management is often rewarded with higher salaries as company size increases
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6. Prestige frequently increases with the size of a company and with a reputation for successful acquisition of other companies
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II. Definition of a business combination A business combination is a transaction or other event in which the acquirer obtains control of one or more businesses Transactions sometimes referred to as “true mergers” or “mergers of equals” are also business combinations as that term is used in this NZ IFRS (NZ IFRS 3 Appendix A)
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A business in an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return …… A business consists of inputs and processes applied to those inputs that have the ability to create outputs NZ IFRS 3 B.7 If a business is not acquired, the transaction is accounted for as an asset acquisition
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III. Common forms of business combinations A merger is a business combination where one of the combining companies survives and the other loses its identity The assets and liabilities of the acquired company are transferred to the acquiring company, and the acquired company is dissolved or liquidated A Co B Co A Co A Co B Co B Co
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A consolidation is a business combination in which both combining companies are dissolved and the assets and liabilities of both companies are transferred to a newly created company A Co B Co C Co
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A stock acquisition occurs when one company (A Co) acquires the voting shares of another company (B Co) and the two companies continue to operate as separate, but related, entities
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This note was uploaded on 12/23/2009 for the course BCOM ACIS 211 taught by Professor Susanwild during the Spring '09 term at Canterbury.

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8.1 lLecture_14_Sept_Business_Combinations - ACIS 211...

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