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Business Combinations. Chapter 1. Learning Objective 1. Memahami motivasi ekonomi yang mendasari penggabungan bisnis. Business Combinations. Penggabungan bisnis terjadi manakala ada dua atau lebih usaha terpisah yang bergabungmenjadi satu entitas akuntansi tunggal. - PowerPoint PPT Presentation
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Business Combinations
Chapter 1
Learning Objective 1
Memahami motivasi ekonomi yang mendasari
penggabungan bisnis.
Business Combinations
Penggabungan bisnis terjadi manakala ada dua atau lebih usaha terpisah yang
bergabungmenjadi satu entitas akuntansi tunggal
Alasan Penggabungan Business
Keunggulan Cost
Resiko yg lebih rendah
Lesedikit operasi yang tertunda
Menghindari pengambil-alihan
Akuisisi intangible assets
Alasan Lain
Tujuan Pembelajaran 2
Mempelajari alternatif
bentuk penggabungan usaha,
dari sudut pandang hukum
dan akuntansi
The Legal Form ofBusiness Combinations
Penggabungan Usaha
Merger
Akuisis
Konsolidasi
The Legal Form ofBusiness Combinations
A B
AMerger
The Legal Form ofBusiness Combinations
A B
CConsolidation
The Accounting Concept ofBusiness Combinations
Konsep yang menekankan pada penciptaan entitas Tunggal dan kebebasan dari
Perusahaan-perusahaan yang bergabung sebelum penyatuan
Pembubaran entitas legal menjadi tidak Penting menurut konsep akuntansi.
Konsep AkuntansiPenggabungan Usaha
Manajemen Tunggal
The Accounting Concept ofBusiness Combinations
Satu atau lebih perusahaan menjadi aak perusahaan
Satu perusahaan menyerahkan aset bersih kepada perusahaan lain
Tiap-tiap perusahaan menyerahkan aset bersihnyaKepada perusahaan baru yang dibentuk
Background on Accounting forBusiness Combinations
Sebagian besar kontroversi berkenaan dengan ketentuan
Akuntansi requirements for business combinations historicallyinvolved the pooling of interest method.ARB No. 40 introduced an alternative method:
the purchase method.
Background on Accounting forBusiness Combinations
Until 2001, accounting requirements for businesscombinations were found in APB Opinion No. 16.
APB No. 16 recognized both the poolingand purchase methods.
Background on Accounting forBusiness Combinations
FASB Statement No. 141 eliminated thepooling of interest method for transactions
initiated after June 30, 2001.
Combinations initiated after this datemust use the purchase method.
Prior combinations will be grandfathered.
Learning Objective 3
Understand alternative
approaches to the financing
of mergers and acquisitions.
Pooling Method
Pooling uses historical book values to recordcombinations rather than recognizing fairvalues of net assets at the transaction date.
Most of the detailed issues related to poolingsconcern the original recording of the combination.
Purchase Method
Purchase accounting requires the recordingof assets acquired and liabilities assumed attheir fair values at the date of combination.
Learning Objective 4
Introduce concepts of accounting
for business combinations
emphasizing the purchase method.
Accounting for Business Combinations
Under the Purchase Method
Poppy Corporation issues 100,000 shares of$10 par common stock for the net assets of
Sunny Corporation in a purchase combinationon July 1, 2003.
Poppy Corporation issues 100,000 shares of$10 par common stock for the net assets of
Sunny Corporation in a purchase combinationon July 1, 2003.
The market price of Poppy is $16 per shareThe market price of Poppy is $16 per share
Accounting for Business Combinations
Under the Purchase MethodAdditional direct costs:Additional direct costs:
SEC fees $ 5,000Accounting fees $10,000Printing and issuing $25,000
Finder and consulting $80,000
SEC fees $ 5,000Accounting fees $10,000Printing and issuing $25,000
Finder and consulting $80,000
How is the issuance recorded?How is the issuance recorded?
Accounting for Business Combinations
Under the Purchase MethodInvestment in Sunny 1,600,000
Common Stock, $10 par 1,000,000Additional Paid-in Capital 600,000
To record issuance of 100,000 shares of $10 parcommon stock with a market value of $16 per sharein a purchase business combination with Sunny.
Investment in Sunny 1,600,000Common Stock, $10 par 1,000,000Additional Paid-in Capital 600,000
To record issuance of 100,000 shares of $10 parcommon stock with a market value of $16 per sharein a purchase business combination with Sunny.
How are the additional direct costs recorded?How are the additional direct costs recorded?
Accounting for Business Combinations
Under the Purchase Method
Investment in Sunny 80,000Additional Paid-in Capital 40,000
Cash (other assets) 120,000To record additional direct costs of combiningwith Sunny: $80,000 finder’s and consultants’fees and $40,000 for registering and issuingequity securities.
Investment in Sunny 80,000Additional Paid-in Capital 40,000
Cash (other assets) 120,000To record additional direct costs of combiningwith Sunny: $80,000 finder’s and consultants’fees and $40,000 for registering and issuingequity securities.
Accounting for Business Combinations
Under the Purchase MethodThe total cost to Poppy of acquiring
Sunny is $1,680,000.The total cost to Poppy of acquiring
Sunny is $1,680,000.
This is the amount entered into theinvestment in the Sunny account.This is the amount entered into theinvestment in the Sunny account.
Goodwill
Goodwill is an intangible asset that ariseswhen the purchase price to acquire asubsidiary company is greater thanthe sum of the market value of the
subsidiary’s assets minus liabilities.
Learning Objective 5
See how firms make cost
allocations in a purchase
method combination.
Cost Allocation in a PurchaseBusiness Combination
Determine the fair values of all identifiabletangible and intangible assets acquired
and liabilities assumed.
FASB Statement No. 141 provides guidelines for assigning amounts to specific categories
of assets and liabilities.
Cost Allocation in a PurchaseBusiness Combination
No value is assigned to goodwill recordedon the books of an acquired subsidiary.
Such goodwill is an unidentifiable asset.
Goodwill resulting from thecombination is valued directly.
Recognition and Measurement ofIntangible Assets Other than
Goodwill
Recognizable intangibles
Separabilitycriterion
Contractual-legal criterion
Contingent Consideration in aPurchase Business Combination
Contingent consideration that is determinableat the date of acquisition is recorded as
part of the cost of combination.
Future earningslevel
Security prices
Cost and Fair Value Compared
Investment costTotal fair value ofidentifiable assets
less liabilities
Cost and Fair Value Compared
Investment cost Net fair value>
Goodwill
2
Identifiable netassets accordingto their fair value
1
Illustration of a PurchaseCombination
Pitt Corporation acquires the net assets ofSeed Company on December 27, 2003.
Pitt Seed
Illustration of a PurchaseCombination
BookValue
AssetsCash $ 50 $ 50Net receivables 150 140Inventories 200 250Land 50 100Buildings, net 300 500 Equipment, net 250 350Patents 50
Total assets $1,000 $1,440
FairValue
Illustration of a PurchaseCombination
BookValue
LiabilitiesAccounts payable $ 60 $ 60 Notes payable 150 135Other liabilities 40 45
Total liabilities $250 $ 240Net assets $ 50 $1,200
FairValue
Illustration of a PurchaseCombination
Pitt pays $400,000 cash and issues 50,000shares of Pitt Corporation $10 par commonstock with a market value of $20 per share.
50,000 × $10 = $500,000
Investment in Seed 1,400,000Cash 400,000Common Stock 500,000Additional Paid-in Capital 500,000
To record issuance of 50,000 shares of $10 parcommon stock plus $400,000 cash in a purchasebusiness combination with Seed Company
Illustration of a PurchaseCombination
Illustration of a PurchaseCombination
Cash 50Net receivable 140Inventories 250Land 100Buildings, net 500Equipment, net 350Patents 50
Accounts payable 60Notes payable 135Other liabilities 45Investment in Seed Company 1,400
$1640 – 1,440 = 200
Goodwill 200
Illustration of a PurchaseCombination
Pitt issues 40,000 shares of its $10 par commonstock with a market value of $20 per share and
also gives a 10%, five-year note payable for$200,000 for the net assets of Seed Company.
40,000 × $10 = $400,000
Investment in Seed 1,000,000Common Stock 400,000Additional Paid-in Capital 400,00010% Note Payable 200,000
To record issuance of 40,000 shares of $10 parcommon stock plus $200,000, 10% note in apurchase business combination with Seed Company
Illustration of a PurchaseCombination
Illustration of a PurchaseCombination
Cash 50Net receivable 140Inventories 250Land 80Buildings, net 400Equipment, net 280Patents 40
Accounts payable 60Notes payable 135Other liabilities 45Investment in Seed Company 1,000
Illustration of a PurchaseCombination
$1,200,000 fair value is greater than $1,000,000purchase price by $200,000.
Amounts assignable to assets are reduced by 20%.
The Goodwill Controversy
Under FASB Statement No. 142, goodwill is nolonger amortized for financial reporting purposes.
– income tax controversies– international accounting issues
The Goodwill Controversy
Under FASB Statements No. 141 and No. 142, the FASB requires that firms periodically assess
goodwill for impairment of its value.
An impairment occurs when the recorded value of goodwill is less than its fair value.
Recognizing and MeasuringImpairment Losses
Carrying values
Compare
Fair values
Cost and Fair Value Compared
Fair value Carrying amount <
Measurement of theimpairment loss
Amortization versusNonamortization
Firms must amortize intangible assets witha finite useful life over that life.
Firms will not amortize intangible assets with an indefinite useful life that cannot be estimated.
End of Chapter 1