Describe accounting concept of a business combination, Financial Accounting

Describe the accounting concept of a business combination.

Business Combination:

According to International Financial Reporting Standard-3 Business Combinations

"A business combination is a transaction or event in which an acquirer obtains control of one or more than one businesses. A business can be defined as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return directly to investors or other members, owners or participants"

Steps in Accounting for Business combinations

Acquisition Method: The acquisition method is used for all BCs..

How to apply acquisition method:

  1. identification of the acquirer
  2. Calculation of the acquisition date
  3. Recognition and measurement of the identifiable assets acquired, liabilities assumed and any NCI in the acquiree.
  4. A gain from a bargain purchase or Recognition and measurement of goodwill.

Is dissolution of all but one of the separate legal entities necessary in order to have a business combination?

The dissolution of all but one of the separate legal entities are not adequate for a BC. An example of business combination in which the separate legal entities are not dissolved is when one corporation becomes a subsidiary of another entity. In case of a parent-subsidiary relationship, each combining entity continues to exist as a separate legal entity even though both companies are under the control of a single management.

Posted Date: 3/12/2013 2:47:42 AM | Location : United States

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