Professional Documents
Culture Documents
Advanced Accounting
Advanced Accounting
1-1
1
Introduction to Business
Combinations and the
Conceptual Framework
Learning Objectives
1.
Introduction
On December 4, 2007, FASB released two new standards,
These standards
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Figure 1-1
3. Stock
Common Stock
of S Company
4. Combination of
above
corporation.
Greater flexibility in filing individual or consolidated
tax returns.
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Statutory Merger
A Company
B Company
A Company
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Statutory Consolidation
A Company
B Company
C Company
Financial
Statements of
B Company
Consolidated
Financial
Statements of
A Company and
B Company
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Takeover Premiums
Takeover Premium the excess amount agreed upon in an
acquisition over the prior stock price of the acquired firm.
Possible reasons for the premiums:
Acquirers stock prices may be at a level which makes it
attractive to issue stock in the acquisition.
Credit may be generous for mergers and acquisitions.
Bidders may believe target firm is worth more than its
current market value.
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LO 7 Estimating goodwill.
960,000
50,000
300,000
250,000
LO 7 Estimating goodwill.
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LO 7 Estimating goodwill.
15%
$15,000,000
8,800,000
6,200,000
15%
$ 930,000
LO 7 Estimating goodwill.
$ 1,200,000
(288,000)
$
1,500,000
(288,000)
1,212,000
950,000
300,000
912,000
(288,000)
962,000
3,086,000
$ 1,028,667
LO 7 Estimating goodwill.
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$1,028,667
930,000
$ 98,667
LO 7 Estimating goodwill.
$ 98,667
25%
= $394,668
Estimated
Goodwill
Net assets
Estimated goodwill
Implied offering price
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$6,200,000
394,668
$6,594,668
LO 7 Estimating goodwill.
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LO 7 Estimating goodwill.
98,667
2.28323
Estimated goodwill
225,279
6,200,000
$ 6,425,279
LO 7 Estimating goodwill.
Alternative Concepts
Consolidated Net Income
Parent Company Concept, consolidated net income
consists of the combined income of the parent company
and its subsidiaries after deducting the noncontrolling
interest in income as an expense in determining
consolidated net income.
Economic Entity Concept, consolidated net income
consists of the total combined income of the parent
company and its subsidiaries. Total combined income is
then allocated proportionately to the noncontrolling
interest and the controlling interest.
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Alternative Concepts
Consolidated Balance Sheet Values
Parent Company Concept, the net assets of the subsidiary
are included in the consolidated financial statements at
their book value plus the parent companys share of the
difference between fair value and book value on the date
of acquisition.
Economic Entity Concept, on the date of acquisition, the
net assets of the subsidiary are included in the
consolidated financial statements at their book value plus
the entire difference between their fair value and their
book value.
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Alternative Concepts
Review Question
According to the economic unit concept, the primary
purpose of consolidated financial statements is to
provide information that is relevant to
a. majority stockholders.
b. minority stockholders.
c. creditors.
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Alternative Concepts
Intercompany Profit
Two alternative points of view:
1. Total (100%) elimination
2. Partial elimination
Under total elimination, the entire amount of unconfirmed
intercompany profit is eliminated from combined income
and the related asset balance. Under partial elimination,
only the parent companys share of the unconfirmed
intercompany profit is eliminated.
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Conceptual
Figure 1-2
Conceptual
Framework for
Financial
Accounting and
Reporting
SFAC
Nos. 1 & 2
Objectives:
Provide Information:
1. Usefulness in
investment and credit decisions
2. Usefulness in future cash flows
3. About enterprise resources, claims
to resources, and changes
SFAC No. 2
Qualitative
Characteristics
1. Relevance
2. Reliability
3. Comparability
4. Consistency
Also:Usefulness,Understandability
Framework
SFAC No. 6
(replaced SFAC No. 3)
Elements of Financial
Statements
Provides definitions
of key components
of financial statements
Objectives
Fundamental
Operational
1. Historical
Assumptions
Principlescost
Constraints
1. Economic entity
Historical
cost
1. Cost-benefit
2. 1.
Revenue
recognition
2. Going concern
2. Revenue recognition
2. Materiality
3. Matching
3. Monetary unit
3. Matching
3. Industry practice
4. Full
disclosure
4. Periodicity
4. Full
disclosure
4. Conservatism
SFAC No. 7: Using future cash flows & present values in accounting measures
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LO 10 Describe some of the current joint projects of the FASB and the International
Accounting Standards Board (IASB), and their primary objectives.
LO 10 Describe some of the current joint projects of the FASB and the International
Accounting Standards Board (IASB), and their primary objectives.
Literature
included in the
Codification
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LO 10 Describe some of the current joint projects of the FASB and the International
Accounting Standards Board (IASB), and their primary objectives.
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LO 10 Describe some of the current joint projects of the FASB and the International
Accounting Standards Board (IASB), and their primary objectives.
Copyright
Copyright 2011 John Wiley & Sons, Inc. All rights reserved.