Mergers Acquisition Pooling of interests method, Finance, Other Engineering

Mergers Acquisition

Mergers and acquisitions involve complex accounting treatment a merger, defined as amalgamation in India, involves the absorption of the target company by the acquiring company which results in the uniting of the interests of the two companies the merger should be structured as pooling of interest. In the case of acquisition, where the acquiring company purchases the shares of the target company, the acquisition should be structured as a purchase.

Pooling of interests method

In the pooling of interest method of accounting the balance sheet items and the profit and loss items of the merged firms are combined without recording the effects of merger. This implies that asset, liabilities and other items of the acquiring and the acquired firms are simply added at the book values without making any adjustments. Thus there is no revaluation of assets or creation of goodwill.

Purchase method

Under the purchase method, the assets and liabilities of the acquiring firm after the acquisition of the target firm may be stated at their exiting carrying amounts or at the amounts adjusted for the purchases price paid to the target company. The assets and liabilities after merger are generally revalued under the purchase method. If the acquirer pays a price greater than the fair market value of assets and liabilities, the excess amount is shown as goodwill in the acquiring company’s books.

Leveraged buy-outs

A leveraged buy-out (LBO) is an acquisition of a company n which the acquisition is substantially financed through debt when the managers buy their company from its owners employing debt, the leveraged buy-out is called management buy-out (MBO). Debt typically forms 70-90 per cent of the purchase price and it may have a low credit rating. In the USA, the LBO shares are not bought and sold in the stock market, and the equity is concentrated in the hands of a few investors. Debt is obtained on the basis of the company’s future earnings potential; LBOs generally involve payment by cash to the seller.

LBO are very popular in the USA. It has been found there that in LBOs, the sellers require very high premium, ranging from 50 to 100 per cent, and the main motivation in LBOs is to increase wealth rapidly in a short span of time. A buyer would typically go public after four or five years, and make substantial capital gains.
Posted Date: 2/1/2012 12:07:05 AM | Location : United States







Related Discussions:- Mergers Acquisition Pooling of interests method, Finance, Assignment Help, Ask Question on Mergers Acquisition Pooling of interests method, Finance, Get Answer, Expert's Help, Mergers Acquisition Pooling of interests method, Finance Discussions

Write discussion on Mergers Acquisition Pooling of interests method, Finance
Your posts are moderated
Related Questions
HOW WOULD YOU JUDGE THE POTENTIAL PROFIT OF BAJAJ ELECTRONICS ON THE FIRST YEAR OF SALES TO BOOTH PLASTICS AND GIVE YOUR VIEWS TO INCREASE THE PROFIT?

Q 1.what is the difference between BJT and FET.What is Biasing?Discuss abt diffrent Biasing techniques?Write the advantages and Volatage divider biasing over other biasing?what is


what is the basic operation of gas turbine engine?

Combustion process: Air from the engine compressor enters the combustion chamber at a velocity up to 500 feet per second, but because at this velocity the air speed is far too

I have a 30'' simple span beam, braced at the supports only. Uniform load is 1200 plf. I need deflection limited to L/400. What size steel beam do I need?

• ''Discussed Since the promised return on Russian government debt is much higher than the promised return on US government debt, you should invest your money in Russia

The commonly used moulding materials for mould making can be broadly classified into the following two groups :             (a) Metals : Including grey cast iron, steel and an

Suggest an example of a decision from your own experience which you feel is best treated as a decision without probabilities. What principle of choice would seem appropriate?

how to create a chart of time motion study