Accounting consolidating financial statements
Regardless of the method of acquisition; direct costs, costs of issuing securities and indirect costs are treated as follows: 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 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.
There may be amalgamations, either by transfer of two or more undertakings to a new company, or to the transfer of one or more companies to an existing company".
Consolidation is the practice, in business, of legally combining two or more organizations into a single new one.
The purchasing company uses the cost method to account for this type of investment.
Under the cost method, the investment is recorded at cost at the time of purchase.Under the equity method, the purchaser records its investment at original cost.This balance increases with income and decreases for dividends from the subsidiary that accrue to the purchaser.The result is one set of financial statements that reflect the financial results of the consolidated entity. horizontal integration:is the combination of firms in the same business lines and markets. vertical integration: is the combination of firms with operations in different but successive stages of production or distribution or both. Conglomeration: is the combination of firms with unrelated and diverse products or services functions, or both.Consolidating financial statements for parent and subsidiary companies or related companies can provide investors and other interested parties with a comprehensive overview of the financial operations of the entities.The taxation term of consolidation refers to the treatment of a group of companies and other entities as one entity for tax purposes.Under the Halsbury's Laws of England, 'amalgamation' is defined as "a blending together of two or more undertakings into one undertaking, the shareholders of each blending company, becoming, substantially, the shareholders of the blended undertakings.The company does not need any entries to adjust this account balance unless the investment is considered impaired or there are liquidating dividends, both of which reduce the investment account.Liquidating dividends : Liquidating dividends occur when there is an excess of dividends declared over earnings of the acquired company since the date of acquisition.Upon consolidation, the original organizations cease to exist and are supplanted by a new entity.A parent company can acquire another company by purchasing its net assets or by purchasing a majority share of its common stock.