Mergers & Acquisitions

Abstract

The paper aims at discussing the differences between FASB standard No.141R and FASB standard No. 164. It highlights the theme and accounting methods proposed by the two standards when entities go through mergers and acquisitions. It the n goes onto discuss the two accounting methods i.e. the carry over method and acquisition method. In the context of consolidated financial statements it talks about the calculation of goodwill and non controlling interest (NCI). The paper presents discussion and analysis of the consolidated financial statements required for not-for-profit organizations The paper is concluded by recommending improvements on how the requirements of the FASB Standard No. 141R and164 could be improved for better and more reliable consolidated financial statements.

Keywords: FASB standard No.141R; FASB standard No. 164; Mergers & Acquisitions; Carry over method; Acquisition method; Goodwill; NCI; Consolidated FS; Recommendation

Abstract2

Introduction4

Discussion and Analysis4

Key requirements of FASB standard No. 141R4

Accounting treatment of Goodwill6

Accounting treatment of non controlling interest6

Key requirements of FASB standard No. 1647

Application of carryover method8

Application of Acquisition method9

Accounting treatment of Goodwill10

Accounting treatment of non controlling interest10

Conclusion11

Mergers & Acquisitions

Introduction

Organizations have always gone through merger and acquisition decisions but the only difference there has been is in the way it was accounted for when preparing and presenting consolidated Financial Statements. In 2007, FASB issued the accounting standard No. 141R “Business Combinations” and required the use of the Acquisition Method to prepare the consolidated financial statements for all business combinations. In 2009, FASB then issued the Standard No. 164 “Not-For-Profit Entities: Mergers and Acquisitions”. The standard realized the unique features of the not-for-profit organizations and presented a conceptual framework to account for their mergers and acquisitions. The standards have been of immense importance since their development and require careful discussion and analysis (Koonce et al, 2011).

Discussion and Analysis

Key requirements of FASB standard No. 141R

Key requirements of standard No.141R revolves around determining acquiring costs relating to a target entity. The assets and liabilities of acquiree are identified at the date of acquisition. Together with this non controlling interest and historical carrying values of assets and liabilities relating to the non controlling interest are also identified. The standard defines transfer of control when the acquirer takes control of acquiree's assets and/or equity (Frost et al, 2009). It states that the transfer of consideration is not important to carry out the acquisition in the following cases:

Contractual agreement results in a control of business

Minority veto rights that gave control to majority control lapse

Investee share buyback

The standard gives a clear definition of acquirer as an entity that gains control of the acquirtee as a result of consideration transfer, gains majority voting rights and decides the composition of senior management and governing body (Mard et al, 2007).

The date of acquisition is the closing date on which the acquiree loses control and the acquire gains control. It is the date on which liabilities are assumed, assets are acquired and consideration is transferred. The requirements pertaining to consideration are that consideration is effectively transferred when the price paid by the acquirer and ...