lec18 - Accounting for Business Combinations 15.511...

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1 Accounting for Business Combinations 15.511 Corporate Accounting Summer 2004 Professor SP Kothari Sloan School of Management Massachusetts Institute of Technology July 8, 2004
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2 Investments and Acquisitions Agenda ¾ Understand that the accounting method used for acquisitions depends on the extent to which the investor exerts influence over the investee. ¾ Understand the effects of dividends received and investee income on the financial statements of the investor under the equity method. ¾ Understand the effects of consolidated accounting on the balance sheet and income statement of the investor.
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Investments in the Stock of Other Companies 3 ¾ The accounting method for stock investments depends on the degree of influence the investing company has on the decisions of the investee. ¾ Three methods of accounting for this investment: Ownership: <20% 20-50% >50% Influence: “passive” “significant influence” “controlling” Reporting Method: Mark-to- market Equity Consolidation
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Equity Investment Accounting Rationale 4 ¾ For any company: Ending RE = Beginning RE + Net Income – Dividends ¾ Following the same logic => Ending value of investment on investing company’s books = Beginning value of investment + investor’s share of investee’s net income – investor’s share of investee’s dividends
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This note was uploaded on 04/05/2010 for the course FINANCE AN FRE6003 taught by Professor Marshall,ingridm during the Spring '09 term at NYU Poly.

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lec18 - Accounting for Business Combinations 15.511...

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