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business combination is the process of forming a single economic entity by the uniting of two or more organizations under common ownership.

business combination is the process of forming a single economic entity by the uniting of two or more organizations under common ownership. The term also refers to the entity that results from this process. When the subsidiary is dissolved, the acquirer records in its books the fair value of individual assets and liabilities acquired as well as the resulting goodwill from the acquisition. However, when separate incorporation is maintained, the acquirer only records the total fair value of assets and liabilities acquired, as well as the resulting goodwill, in one account as an investment.

In recent years, the treatment of the intangible asset "goodwill" has undergone significant change as a result of the implementation of FASB 142. Goodwill is the value of a going concern. You cannot touch it. You cannot bank it. You cannot sell it separately. By itself, it is valueless. Assuming that all unrelated acquisitions are at "arm's length," why is the accurate valuation of goodwill so important? Why should you be concerned about it?

Please discuss the following:

1.Different types of legal arrangements that can take place to create a business combination.
2.What the term consolidated financial statements means.
3.Within the consolidation process, discuss the purpose of a worksheet.
4.Peter Company obtains all of the common stock of Sam Inc. by issuing 50,000 shares of its own stock. Under these circumstances, why might the determination of an acquisition price be difficult?
5.What is the accounting basis for consolidating assets and liabilities in a business combination recorded using the acquisition method?
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Grading Criteria
The different types of legal arrangements that can take place to create a business combination 20%
Discuss what does the term consolidated financial statements means. 20%
Discuss the purpose of a worksheet. 15%
Give the specific situation explained, discuss why the determination of an acquisition price might be difficult. 15%
Discuss the accounting basis for consolidating assets and liabilities in a business combination recorded using the acquisition method. 15%
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This question was asked on Jan 14, 2013.

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