BUSINESS COMBINATION ADVANTAGE OF BUS.COM.

-RECOGNITION & MEASUMENT (Part 1)  COMPETITION IS ELIMINATEDOR LESSENED

 SYNERGY
 INCREASED BUSINESS OPPORTUNITIES AND
BUSINESS COMBINATION EARNINGS POTENTIAL
 REDUCTION O OPERATING COST
 PFRS 3
 COMBINATION UTILIZE ECONOMIES OF
 SECTION 19 OF THE PFRS SME’s SCALE
 When one company acquires another or when two or  COST SAVING ON BUSINESS EXPANSION
more companies merge into one.  FAVORABLE TAC IMPLICATION
 Is a transaction or other event in which an acquirer
obtains control of one or more businesses.
Transactions referred to as “true mergers” or “merger
of equals” are also BussCom. DISADVANTAGE OF BUS.COM

SME’s- Small and Medium-sized Enterprise  Business combination brings monopoly to the market
which may have a negative impact to the society.
Are non- subsidiary, independent firms which  The identity of one or both of the combining
employ fewer than a given number of employees. constituents may cease, leading to loss, leading to
loss of sense of identity for existing employees and
loss goodwill.
 Management of the combined entity may become
PARENT or ACQUIRER difficult due to incompatible internal cultures,
 The company gains control over the other systems, and policies.
SUBSIDIARY or ACQUIREE  Business combination may result in
overcapitalization, which, in turn, may result to
 The other company that is controlled. diffusion in market price per share and attractiveness
of the combined entity’s equity instrument to
potential investors.
BUS. COM MAY ALSO  The combined entity may be subjected to sticker
DESCRIBE AS: regulation and scrutiny combination poses by the
 HORIZONTAL COMBINATION government, most specially if the Business
 VERTICAL COMBINATION combination poses a threat to customer’s interests.
 CONGLOMERATE

HORIZONTAL COMBINATION
 Two or more entities with similar
BUSINESS COMBINATION ARE CARRIED OUT
Businesses. EITHER THROUGH:
Ex: Bank acquires another Bank.
VERTICAL COMBINATION  ASSET ACQUISITION
 STOCK ACQUISITION
 Two or more entities operating at different levels in
marketing chain.
Ex: A Manufacturer acquires its supplier of
raw materials. ASSET ACQUISITION
CONGLOMERATE COMBINATION  The acquirer purchase the assets and assumes
 Two or more entities with dissimilar businesses. the liabilities of the acquiree in exchange of
Ex: A Real Estate developer acquires a Bank. cash or non-cash consideration.

AFTER THE ACQUISTION:

- The acquired entity normally ceases to exist
as a separate legal or accounting entity.
ACQUIRER RECORDS:
ADVANTAGE & DISADVANTAGE OF BUS.COM - Asset & Liabilities in its
BOOK OF ACCOUNTS
UNDER CORPORATION CODE
- Asset Acquisition may either: ESSENTIAL ELEMENT IN THE DEFINITION OF
 MERGER BUSS. COM.
 CONSOLIDATION  CONTROL
 BUSINESS

MERGER CONTROL
 Two or more Companies merge into a single entity  An Investor control the Investee
EX: A Co. + B Co. = A Co. / B Co.  When the Investor has the power to direct the
CONSOLIDATION Investee’s relevant activities (operating & Financing
Activities) thereby affecting the variability of the
 Two or more Companies consolidate into a single
investor’s investment returns from the investee.
entity
EX: A Co. + B Co. = C Co.

STOCK ACQUISITION
 The Acquirer obtains control over the Acquire by
acquiring a major ownership interest (50% or more
than) Voting rights of the Acquire.
- Instead of acquiring the asset and assuming the
liabilities
AFTER THE ACQUISTION/ AFTER BUS.COM. :
- A Parent and Subsidiary retain their separate
legal existence.
- A Parent and Subsidiary continue to maintain
their own separate accounting book, recording
separately their asset, liabilities and the
transactions they enter into.
FINANCIAL REPORTING PURPOSE:
- Both Parent and Subsidiary are viewed as a
Single Reporting Entity.
PARENT RECORDS OWNERSHIP INTEREST:
- Acquired as “Investment in Subsidiary” in its
separate accounting book.
INVESTMENT IS ELIMINATED:
- When the group prepares “Consolidated
Financial Statement”

PARENT - Known as “Acquirer”

SUBSIDIARY- Known as “Acquire”