Purchase of net assets[edit]

Treatment to the acquiring company: When purchasing the net assets the acquiring company

records in its books the receipt of the net assets and the disbursement of cash, the creation of a

liability or the issuance of stock as a form of payment for the transfer.

Treatment to the acquired company: The acquired company records in its books the

elimination of its net assets and the receipt of cash, receivables or investment in the acquiring

company (if what was received from the transfer included common stock from the purchasing

company). If the acquired company is liquidated then the company needs an additional entry to

distribute the remaining assets to its shareholders.

Purchase of common stock[edit]

Treatment to the purchasing company: When the purchasing company acquires the subsidiary

through the purchase of its common stock, it records in its books the investment in the

acquired company and the disbursement of the payment for the stock acquired.

Treatment to the acquired company: The acquired company records in its books the receipt of

the payment from the acquiring company and the issuance of stock.

FASB 141 disclosure requirements: FASB 141 requires disclosures in the notes of the financial

statements when business combinations occur. Such disclosures are:

 The name and description of the acquired entity and the percentage of the voting equity

interest acquired.
  The primary reasons for acquisition and descriptions of factors that contributed to

recognition of goodwill.

 The period for which results of operations of acquired entity are included in the income

statement of the combining entity.

 The cost of the acquired entity and if it applies the number of shares of equity interest

issued, the value assigned to those interests and the basis for determining that value.

 Any contingent payments, options or commitments.

 The purchase and development assets acquired and written off.

Treatment of goodwill impairments:

 If Non-Controlling Interest (NCI) based on fair value of identifiable assets: impairment

taken against parent's income & R/E

 If NCI based on fair value of purchase price: impairment taken against subsidiary's

income & R/E