Classification of Business Combination
1. Acquisition of Assets
a. Statutory Merge
r (merge-
Retain one) => A+B=A; A+B=B
b. Statutory Consolidatio
n (consolidatio-
New corp.) => A+B=C
2. Stock Acquisition => Parent-Subsidiary Relationship
Matrix
*Less than 20% = Investment in Stocks (Cost Method)
*20% - 50% = Investment in Associate (Equity Method)
*More than 50% = Investment in Subsidiary
*1. Accounting for Acquisition of Assets
a. Measure Acquired Assets (and Liabilities) at Fair Value
b. Recognize Goodwill or Gain on Acquisition(Bargain Purchase)
If Consideration Transferred > Net Fair Value of Interest , GOODWILL
If Consideration Transferred < Net Fair Value of Interest, GAIN ON ACQUISITION
c. Expenses in Acquisition
Direct/Indirect Costs = Expense outright
Liability Issue Transaction = Liability (Bond Issue Costs)
Equity Issue Transaction = Deduct from Share Premium or APIC
*2. Accounting for Stock Acquisition(Investment in Subsidiary in Parent's Books)
a. Parent and Subsidiary maintain separate records
b. Recognize Goodwill or Gain on Acquisition(Bargain Purchase)
If Consideration Transferred > Net Fair Value of Interest , GOODWILL
If Consideration Transferred < Net Fair Value of Interest, GAIN ON ACQUISITION
*Partial Goodwill = Parent recognizes its share in the Goodwill only.
*Full Goodwill = Parent recognizes its share
plus non-controlling interest's share in Goodwill.
c. Expenses in Acquisition
Direct/Indirect Costs = Expense outright
Liability Issue Transaction = Liability (Bond Issue Costs)
Equity Issue Transaction = Deduct from Share Premium or APIC
d. Consolidation of Financial Statements
Eliminate INTERCOMPANY Transactions (Either downstream or upstream)
*Upstream/Downstream Sales
*Upstream/Downstream Cost of Sales
*Unrealized Gross Profit, year end (Adjust based on end inventory)
*Dividend Income from Subsidiary
*Gain/Loss on Upstream/Downstream Sale of Plant Assets
*Depreciation Expense (Adjust by eliminating gross profit from sale of plant assets)
*Consider: Consolidated = Interest of Parent (NIATOP) + Non-controlling Interest (NCINAS)
*Consolidated Accumulated Profits = Accumulated Profits of Parent + NCINAS (non-controlling)
*Consolidated Accumulated Profits on the Financial Statement = Accumulated Profits of Parent only
*Test Cash Generating Unit (CGU) for Impairment of Goodwill, but carrying value of an item in the CGU must not be below its recoverable amount.