1. What is the accounting concept of business combination?
Business combination occurs when one company acquires another or when two or more companies merge into one and after that, one company gains control over the other (Milan, 2020). Also, Business Combinations are accounted for using the acquisition method which requires identifying the acquirer, determining the acquisition date, and recognizing and measuring goodwill. 2. What is the difference between statutory merger, statutory consolidation and stock acquisition? The difference between the three is that statutory merger and statutory consolidation is under asset acquisition which means that the acquirer purchases the assets and assumes the liabilities of the acquire while stock acquisition means that the acquirer obtains control over the acquire by acquiring a majority ownership in the voting rights of the acquire. Differentiating statutory merger to statutory consolidation, the former occurs when two or more companies merge into a single entity which shall be one of the combining companies while the latter occurs when two or more companies consolidate into a single entity which shall be the consolidated company (Milan, 2020). 3. When does goodwill result from a business combination? How does goodwill affect reported net income after a business combination? Goodwill arises during business combinations when the price that one company pays to acquire another firm is greater than the value of the target firm's combined value of its assets minus its liabilities. Goodwill affects the reported net income after a business combination when a gain on bargain purchase or negative goodwill occurs.