高級(jí)財(cái)務(wù)會(huì)計(jì)PPT1

1、Intercorporate Acquisitions and Investments in Other Entities1 2009 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin1-2The Development of Complex Business Structures Enterprise expansion as a means of survival and profitability Size often allows economies of scale New earning po

2、tential Earnings stability through diversification Management rewards for bigger company size Prestige associated with company size1-3Organizational Structure and Business Objectives A subsidiary is a corporation that is controlled by another corporation, referred to as a parent company, usually thr

3、ough majority ownership of its common stock Because a subsidiary is a separate legal entity, the parents risk associated with the subsidiarys activities is limited1-4Organizational Structure, Acquisitions, and Ethical Considerations Manipulation of financial reporting Usage of subsidiaries or other

4、entities to borrow money without reporting the debt on their balance sheets Using special entities to manipulate profits Manipulation of accounting for mergers and acquisitions Pooling-of-interests1-5Business Expansion and Forms of Organizational Structure Expansion from within: New subsidiaries or

5、entities such as partnerships, joint ventures, or special entities Motivating factors: Helps establish clear lines of control and facilitate the evaluation of operating results Special tax incentives Regulatory reasons Protection from legal liability Disposing of a portion of existing operations1-6B

6、usiness Expansion and Forms of Organizational Structure A spin-off Occurs when the ownership of a newly created or existing subsidiary is distributed to the parents stockholders without the stockholders surrendering any of their stock in the parent company A split-off Occurs when the subsidiarys sha

7、res are exchanged for shares of the parent, thereby leading to a reduction in the outstanding shares of the parent company1-7Business Expansion and Forms of Organizational Structure Expansion through business combinations Entry into new product areas or geographic regions by acquiring or combining w

8、ith other companies A business combination occurs when “. . . an acquirer obtains control of one or more businesses” The concept of control relates to the ability to direct policies and management 1-8Business Expansion and Forms of Organizational Structure Traditional view - Control is gained by acq

9、uiring a majority of the companys common stock However, it is possible to gain control with less than majority ownership or with no ownership at all Informal arrangements Formal agreements Consummation of a written agreement requires recognition on the books of one or more of the companies that are

10、a party to the combination1-9Frequency of Business Combinations 1960s - Merger boom Conglomerates 1980s - Increase in the number of business combinations Leveraged buyouts and the resulting debt 1990s - All previous records for merger activity shattered Downturn of the early 2000s, and decline in me

11、rgers Increased activity toward the middle of 2003 that accelerated through the middle of the decade Role of private equity Effect of the credit crunch of 2007-20081-10Organizational Structure and Financial Reporting Merger - A business combination in which the acquired companys assets and liabiliti

12、es are combined with those of the acquiring company results in no additional organizational components Financial reporting is based on the original organizational structure1-11Organizational Structure and Financial Reporting Controlling ownership - A business combination in which the acquired compan

13、y remains as a separate legal entity with a majority of its common stock owned by the purchasing company leads to a parentsubsidiary relationship Accounting standards normally require consolidated financial statements1-12Organizational Structure and Financial Reporting Noncontrolling ownership - The

14、 purchase of a less-than-majority interest in another corporation does not usually result in a business combination or controlling situation Other beneficial interest - One company may have a beneficial interest in another entity even without a direct ownership interest The beneficial interest may b

15、e defined by the agreement establishing the entity or by an operating or financing agreement1-13Creating Business Entities The company transfers assets, and perhaps liabilities, to an entity that the company has created and controls and in which it holds majority ownership The company transfers asse

16、ts and liabilities to the created entity at book value, and the transferring company recognizes an ownership interest in the newly created entity equal to the book value of the net assets transferred1-14 Recognition of fair values of the assets transferred in excess of their carrying values on the b

17、ooks of the transferring company is not appropriate in the absence of an arms-length transaction No gains or losses are recognized on the transfer by the transferring companyCreating Business Entities1-15Allen Company creates a subsidiary, Braine company, and transfers the following assets to Blaine

18、 in exchange for all 100,000 shares of Blaines $2 par common stock. (common stock is issued for the assets)1-16 item Cost Book Value Cash $ 70,000 Inventory $ 50,000 50,000 Land 75,000 75,000 Building 100,000 80,000 Equipment 250,000 160,000 $435,000 1-17Allen records the transfer with the following

19、 entry:Investment in Blaine Company Common Stock 435,000Accumulated Depreciation 110,000 Cash 70,000 Inventory 50,000 Land 75,000 Building 100,000 Equipment 250,000$110,000 = ($100,000 - $80,000) + ($250,000 - $160,000) 1-18Cash 70,000Inventory 50,000Land 75,000 Building 100,000Equipment 250,000 Acc

20、umulated Depreciation 110,000 Common Stock, $2 par 200,000 Additional paid-in Capital 235,000 Blaine Company records the transfer of assets and the issuance of stock at the book value of the assets transferred:1-19 If the value of an asset transferred to a newly created entity has been impaired prio

21、r to the transfer and its fair value is less than the carrying value on the transferring companys books, the transferring company should recognize an impairment loss and transfer the asset to the new entity at the lower fair valueCreating Business Entities1-20Forms of Business Combinations A statuto

22、ry merger The acquired companys assets and liabilities are transferred to the acquiring company, and the acquired company is dissolved, or liquidated The operations of the previously separate companies are carried on in a single legal entity A statutory consolidation Both combining companies are dis

23、solved and the assets and liabilities of both companies are transferred to a newly created corporation1-21Forms of Business Combinations A stock acquisition One company acquires the voting shares of another company and the two companies continue to operate as separate, but related, legal entities Th

24、e acquiring company accounts for its ownership interest in the other company as an investment Parentsubsidiary relationship For general-purpose financial reporting, a parent company and its subsidiaries present consolidated financial statements that appear largely as if the companies had actually me

25、rged into one1-22Forms of Business CombinationsAA CompanyBB CompanyAA Company(a) Statutory MergerAA CompanyBB CompanyCC CompanyAA CompanyBB CompanyAA CompanyBB Company(b) Statutory Consolidation(c) Stock Acquisition1-23Determining the Type of Business CombinationAA Company invests in BB CompanyAcqui

26、res net assetsAcquires stockRecord as statutorymerger or statutoryconsolidationAcquired companyliquidated?Record as stockacquisition andoperate as subsidiaryYesNo1-24Methods of Effecting Business Combinations Acquisition of assets Statutory Merger Statutory Consolidation Acquisition of stock A major

27、ity of the outstanding voting shares usually is required unless other factors lead to the acquirer gaining control Noncontrolling interest: The total of the shares of an acquired company not held by the controlling shareholder Acquisition by other means1-25Valuation of Business Entities Value of ind

28、ividual assets and liabilities Value determined by appraisal Value of potential earnings “Going-concern value” based on: A multiple of current earnings. Present value of the anticipated future net cash flows generated by the company. Valuation of consideration exchanged1-26 If $100,000 of 10-year,6

29、percent bonds, paying interest annually, had been issued at par three year ago, and the current market rate of interest for the same type of security is 10 percent, the value of the liability currently is computed as follows: Present value for 7 years at 10% of principle payment of $100,000($100,000

30、 .51316) $51,316Present value at 10% of 7 interest payment of $6,000 ($6,000 4.86842) 29,211Present value of bond $80,527 1-27 Bargain Company is expected to generate cash flows of $35,000 for each of the next 25 years, the present value of the firm at a discount rate of 10 percent is computed as fo

31、llows:Annual cash flow generated $ 35,000Present value factor for an annuity of 25annual payments at 10% 9.07704Present value of future earnings $ 317,6961-28Accounting for Business Combinations Two methods acceptable earlier: Purchase Pooling of interests 2001 - the FASB eliminated pooling of inter

32、ests 2007 - FASB 141R replaced the purchase method with the acquisition method This must be used to account for all business combinations for which the acquisition date is in fiscal years beginning on or after December 15, 2008 FASB 141R may not be applied retroactively1-29Acquisition Accounting The

33、 acquirer recognizes all assets acquired and liabilities assumed in a business combination and measures them at their acquisition-date fair values If less than 100 percent of the acquiree is acquired, the noncontrolling interest also is measured at its acquisition-date fair value Fair value measurem

34、ent The FASB decided in FASB 141R to focus directly on the value of the consideration given1-30Acquisition Accounting Points to consider: No separate asset valuation accounts related to assets acquired are recognized Long-lived assets classified at the acquisition date as held for sale are valued at

35、 fair value less cost to sell Deferred income taxes related to the business combination and assets and liabilities related to an acquirees employee benefit plans are valued in accordance with the relevant FASB standards 1-31Acquisition Accounting Points to consider: Costs of bringing about and consu

36、mmating a combination are charged to expense as incurred Costs of issuing equity securities used to acquire the acquiree are treated as a reduction in the paid-in capital associated with the securities1-32GoodwillComponents used in determining goodwill:1. The fair value of the consideration given by

37、 the acquirer2. The fair value of any interest in the acquiree already held by the acquirer3. The fair value of the noncontrolling interest in the acquiree, if anyThe total of these three amounts, all measured at the acquisition date, is compared with the acquisition-date fair value of the acquirees

38、 net identifiable assets, and the difference is goodwill1-33Goodwill: example1 Albert acquires all of the assets of Zanfor for $400,000 when the fair value of Zanfors net identifiable assets is $380,000.Fair value of consideration given $400,000 Fair value of net identifiable assets acquired (380,00

39、0)Goodwill $ 20,000 1-34Goodwill: example2 Albert acquires 75% of the common stock of Zanfor for $300,000 when the fair value of Zanfors net identifiable assets is $380,000.The fair value of the NCI is $100,000.Fair value of consideration given $300,000Fair value of NCI 100,000 $400,000Fair value of

40、 net identifiable assets acquired (380,000)Goodwill $ 20,000 1-35Acquisition Method - Illustration Market value of shares issued$610,000Legal and appraisal fees$40,000 Stock issue costs$25,000Point Corporation acquires all of the assets and assumes all of the liabilities of Sharp Company in a statut

41、ory merger by issuing to Sharp 10,000 shares of $10 par common stock.1-36Acquisition Method - Illustration 1-37Acquisition Method - Illustration 1-38Acquisition Accounting Testing for goodwill impairment: When goodwill arises in a business combination, it must be assigned to individual reporting uni

42、ts To test for impairment, the fair value of the reporting unit is compared with its carrying amount If the fair value of the reporting unit exceeds its carrying amount, the goodwill of that reporting unit is considered unimpaired If the carrying amount of the reporting unit exceeds its fair value,

43、an impairment of the reporting units goodwill is implied1-39Acquisition Accounting The amount of the reporting units goodwill impairment is measured as the excess of the carrying amount of the units goodwill over the implied value of its goodwill The implied value of its goodwill is determined as th

44、e excess of the fair value of the reporting unit over the fair value of its net assets excluding goodwill Goodwill impairment losses are recognized in income from continuing operations or income before extraordinary gains and losses1-40 Reporting unit A is assigned $100,000 of goodwill arising from

45、a business combination. The following assets and liabilities are assigned to Reporting Unit A:Item Carrying Amount Fair Value Cash and receivables $ 50,000 $ 50,000 Inventory 80,000 90,000Equipment 120,000 150,000Goodwill 100,000 Total assets $ 350,000 $290,000 Current payables (10,000) (10,000)Net

46、assets $ 340,000 $280,000 1-41 If the fair value of the reporting unit is estimated to be $360,000,no impairment of goodwill is indicated. If the fair value of the reporting unit is estimated to be $320,000,a second comparison must be made to determine the amount of impairment loss. Fair value of th

47、e unit- Fair value of net assets (excluding goodwill) = Implied value of Goodwill Carrying value of goodwill Implied value of goodwill = Impairment Loss $100,000 ($320,000 - $280,000) = $60,0001-42Acquisition Accounting Bargain Purchase Results when the fair value of the consideration given, along w

48、ith the fair value of any equity interest in the acquiree already held and the fair value of any noncontrolling interest in the acquiree, is less than the fair value of the acquirees net identifiable assets If acquisition-date valuations are appropriate, the acquirer recognizes a gain at the date of

49、 acquisition The amount of the gain must be disclosed, along with where the gain is reported and the factors that led to it Note: FASB 141R does not state a treatment for the situation opposite to that of a bargain purchase1-43Bargain Purchase: example In the previous example, Point is able to acqui

50、re Sharp for $500,000 cash even though the fair value of Sharps net identifiable assets is estimated to be $510,000.The following entry replaces entry (6)Cash and Receivables 45,000Inventory 75,000Land 70,000Buildings and Equipment 350,000Patent 80,000 Cash 500,000 Current liablilities 110,000 Gain

51、on Bargain purchase of S 10,0001-44Acquisition Accounting Combination effected through acquisition of stock The acquired company continues to exist, and the acquirer records an investment in the common stock of the acquiree rather than its individual assets and liabilities The acquirer records its i

52、nvestment in the acquirees common stock at the total fair value of the consideration given in exchange The acquiree may continue to operate as a separate company, or it may lose its separate identity and be merged into the acquiring company1-45Point Corporation exchanges 10,000 shares of its stock w

53、ith a total market value of $610,000 for all the shares of Sharp Company in a purchase transaction and incurs merger costs of $40,000 and stock issue costs of $25,000.Merger Expense 40,000Deferred Stock issue Costs 25,000 Cash 65,000Record merger and stock issue costs related to acquisition of Sharp

54、.Investment in Sharp Stock610,000Common Stock100,000Additional Paid-In Capital485,000Deferred Stock Issue Costs25,000 Record acquisition of Sharp stock.1-46Example: Combination Effected through Acquisition of Stock (Contd.) NOTE: With respect to the previous slide, identifiable assets and liabilitie

55、s are not recorded at the date of the business combination since Sharp is not dissolved.1-47Acquisition Accounting Financial reporting subsequent to a business combination Financial statements prepared subsequent to a business combination reflect the combined entity only from the date of combination

56、 When a combination occurs during a fiscal period, income earned by the acquiree prior to the combination is not reported in the income of the combined enterprise1-48Acquisition AccountingTo illustrate financial reporting subsequent to a business combination, assume the following information for Poi

57、nt Corporation and Sharp Company:Point acquires all of Sharps stock at book value on January 1, 20X1, by issuing 10,000 shares of common stock. The net income and earnings per share that Point presents in its comparative financial statements for the two years are as follows:1-49Acquisition Accountin

58、g 1-50Additional Considerations in Accounting for Business Combinations Uncertainty in business combinations Measurement Period FASB 141R allows for this period of time to properly ascertain fair values The period ends once the acquirer obtains the necessary information about the facts as of the acq

59、uisition date May not exceed one year1-51Measurement Period: exampleLand 10,000 Goodwill 10,000Adjust acquisition-date value of land acquired in business combination.Baine Company acquires land in a business combination and provisionally records the land at its estimated fair value of $100,000.Durin

60、g the measurement period, Brain receives a reliable appraisal that the land was worth $110,000 at the acquisition date.1-52Measurement Period: exampleImpairment Loss 35,000 Land 35,000Recognize decline in value of land held.Subsequently, during the same accounting period, a change in the zoning of a