ACT4491 CH01 FA08 Revised

ACT4491 CH01 FA08 Revised - Advanced Accounting Chapter 1...

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Unformatted text preview: Advanced Accounting Chapter 1 Learning Objectives Describe the major economic advantages of business combinations Differentiate between accounting for an acquisition of assets and accounting for an acquisition of a controlling interest in the common stock of a company Explain the basics of the acquisition method Allocate the acquisition price to the assets and liabilities of the acquired company Demonstrate an understanding of the tax issues that arise in an acquisition Explain the disclosure that is required in the period in which an acquisition occurs Apply the impairment test to goodwill and adjust goodwill when needed Estimate the value of goodwill Economic Advantages Economies of Scale Structural Horizontal combination Vertical combination Conglomerate Possible tax advantages Accept stock to create a tax free reorganization Transferable carry-forward feature of net operating losses Net taxable income reported for the consolidated company Understanding the issues 1 Assets vs Controlling Interest Acquire net assets Acquisition of net assets (assets less liabilities) Acquire directly from target company Assume liabilities Payment in cash, debt, or equity Acquire controlling interest Acquisition of stock Greater than 50% targets voting common Creates parent/subsidiary relationship Separate legal entities remain Assets vs Controlling Interest Acquire net assets Record on acquiring companys books the assets and liabilities of the acquired company One combined set of accountsall transactions for either entity are recorded on the combined books One company ceases to exist Acquire controlling interest Acquiring company records Investment account Parent and subsidiary remain separate legal entities Separate sets of accounts and financial statements Consolidated financial statements are prepared to reflect the idea of common control Accounting Ramifications Understanding the Issues 4 Understanding the Issues 5 Basics of Acquisition Model Identify the acquirer Determine the acquisition date Date used to establish fair value of the company acquired Measure the fair value of the acquiree Record the acquirees assets and liabilities that are assumed Net assets = excess of assets over liabilities Fair values are determined per FASB Statement No. 157 Identifiable assets never include pre-existing goodwill Only new goodwill is recorded in an acquisition Basics of Acquisition Model Asset acquisition Entity transferring cash/assets is acquiring company Stock acquisition Typically, the company transferring cash/assets for a controlling interest in the voting common stock of the acquiree Factors to consider Voting rights entity with the largest share of voting rights is typically the acquirer Large minority interest minority interest purchaser may be acquirer if:...
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ACT4491 CH01 FA08 Revised - Advanced Accounting Chapter 1...

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