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WIKIBOOKS
DISPONIBILI
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ART
- Great Painters
BUSINESS&LAW
- Accounting
- Fundamentals of Law
- Marketing
- Shorthand
CARS
- Concept Cars
GAMES&SPORT
- Videogames
- The World of Sports

COMPUTER TECHNOLOGY
- Blogs
- Free Software
- Google
- My Computer

- PHP Language and Applications
- Wikipedia
- Windows Vista

EDUCATION
- Education
LITERATURE
- Masterpieces of English Literature
LINGUISTICS
- American English

- English Dictionaries
- The English Language

MEDICINE
- Medical Emergencies
- The Theory of Memory
MUSIC&DANCE
- The Beatles
- Dances
- Microphones
- Musical Notation
- Music Instruments
SCIENCE
- Batteries
- Nanotechnology
LIFESTYLE
- Cosmetics
- Diets
- Vegetarianism and Veganism
TRADITIONS
- Christmas Traditions
NATURE
- Animals

- Fruits And Vegetables


ARTICLES IN THE BOOK

  1. Account
  2. Accountancy
  3. Accountant
  4. Accounting cycle
  5. Accounting equation
  6. Accounting methods
  7. Accounting reform
  8. Accounting software
  9. Accounts payable
  10. Accounts receivable
  11. Accrual
  12. Adjusted basis
  13. Adjusting entries
  14. Advertising
  15. Amortization
  16. Amortization schedule
  17. Annual report
  18. Appreciation
  19. Asset
  20. Assets turnover
  21. Audit
  22. Auditor's report
  23. Bad debt
  24. Balance
  25. Balance Sheet
  26. Banking
  27. Bank reconciliation
  28. Bankruptcy
  29. Big 4 accountancy firm
  30. Bond
  31. Bookkeeping
  32. Book value
  33. British qualified accountants
  34. Business
  35. Business process overhead
  36. Capital asset
  37. Capital goods
  38. Capital structure
  39. Cash
  40. Cash flow
  41. Cash flow statement
  42. Certified Management Accountant
  43. Certified Public Accountant
  44. Chartered Accountant
  45. Chartered Cost Accountant
  46. Chart of accounts
  47. Common stock
  48. Comprehensive income
  49. Consolidation
  50. Construction in Progress
  51. Corporation
  52. Cost
  53. Cost accounting
  54. Cost of goods sold
  55. Creative accounting
  56. Credit
  57. Creditor
  58. Creditworthiness
  59. Current assets
  60. Current liabilities
  61. Debentures
  62. Debits and Credits
  63. Debt
  64. Debtor
  65. Default
  66. Deferral
  67. Deferred tax
  68. Deficit
  69. Deloitte Touche Tohmatsu
  70. Depreciation
  71. Direct tax
  72. Dividend
  73. Double-entry bookkeeping system
  74. Earnings before interest and taxes
  75. Earnings Before Interest, Taxes and Depreciation
  76. Earnings before Interest, Taxes, Depreciation and Amortization
  77. Engagement Letter
  78. Equity
  79. Ernst a& Young
  80. Expense
  81. Fair market value
  82. FIFO and LIFO accounting
  83. Finance
  84. Financial accounting
  85. Financial audit
  86. Financial statements
  87. Financial transaction
  88. Fiscal year
  89. Fixed assets
  90. Fixed assets management
  91. Fixed Assets Register
  92. Forensic accounting
  93. Freight expense
  94. Fund Accounting
  95. Furniture
  96. General journal
  97. General ledger
  98. Generally Accepted Accounting Principles
  99. Going concern
  100. Goodwill
  101. Governmental accounting
  102. Gross income
  103. Gross margin
  104. Gross profit
  105. Gross sales
  106. Historical cost
  107. Hollywood accounting
  108. Imprest system
  109. Income
  110. Income tax
  111. Indirect tax
  112. Insurance
  113. Intangible asset
  114. Interest
  115. Internal Revenue Code
  116. International Accounting Standards
  117. Inventory
  118. Investment
  119. Invoice
  120. Itemized deduction
  121. KPMG
  122. Ledger
  123. Lender
  124. Leveraged buyout
  125. Liability
  126. Licence
  127. Lien
  128. Liquid asset
  129. Long-term assets
  130. Long-term liabilities
  131. Management accounting
  132. Matching principle
  133. Mortgage
  134. Net Income
  135. Net profit
  136. Notes to the Financial Statements
  137. Office equipment
  138. Operating cash flow
  139. Operating expense
  140. Operating expenses
  141. Ownership equity
  142. Patent
  143. Payroll
  144. Pay stub
  145. Petty cash
  146. Preferred stock
  147. PricewaterhouseCoopers
  148. Profit
  149. Profit and loss account
  150. Pro forma
  151. Purchase ledger
  152. Reserve
  153. Retained earnings
  154. Revaluation of fixed assets
  155. Revenue
  156. Revenue recognition
  157. Royalties
  158. Salary
  159. Sales ledger
  160. Sales tax
  161. Salvage value
  162. Shareholder
  163. Shareholder's equity
  164. Single-entry accounting system
  165. Spreadsheet
  166. Stakeholder
  167. Standard accounting practice
  168. Statement of retained earnings
  169. Stock
  170. Stockholders' deficit
  171. Stock option
  172. Stock split
  173. Sunk cost
  174. Suspense account
  175. Tax bracket
  176. Taxes
  177. Tax expense
  178. Throughput accounting
  179. Trade credit
  180. Treasury stock
  181. Trial balance
  182. UK generally accepted accounting principles
  183. United States
  184. Value added tax
  185. Value Based Accounting Standards and Principles
  186. Write-off
 



ACCOUNTING
This article is from:
http://en.wikipedia.org/wiki/Consolidation_%28business%29

All text is available under the terms of the GNU Free Documentation License: http://en.wikipedia.org/wiki/Wikipedia:Text_of_the_GNU_Free_Documentation_License 

Consolidation (business)

From Wikipedia, the free encyclopedia

 

Consolidation is the act of merging many things into one. In business, it often refers to the mergers or acquisitions of many smaller companies into much larger ones. The financial accounting term of consolidation refers to the aggregated financial statements of a group company as consolidated account. The taxation term of consolidation refers to the treatment of a group of companies and other entities as one entity for tax purposes.

Business Consolidations

Types of Business Consolidations

There are three forms of business combinations:

  • Statutory Merger: a business combination that results in the liquidation of the acquired company’s assets and the survival of the purchasing company.
  • Statutory Consolidation: business combination that creates a new company in which none of the previous companies survive.
  • Stock Acquisition: a business combination in which the purchasing company acquires the majority, more than 50%, of the common stock of the acquired company and both companies survive.

Common Terminology Used in Business Consolidations

  • Parent-subsidiary relationship: the result of a stock acquisition where the parent is the acquiring company and the subsidiary is the acquired company.
  • Controlling Interest: When the parent company owns a majority of the common stock.
  • Non-controlling interest or Minority interest: the rest of the common stock that the other shareholders own.
  • Wholly owned subsidiary: when the parent owns all the outstanding common stock of the subsidiary.

Accounting treatment

A company can acquire another company in two ways:

  • By purchasing the net assets.
  • By purchasing the common stock of another company.

Regardless of the method of acquisition direct costs, costs of issuing securities and indirect costs are treated:

  • Direct costs: the acquiring company capitalizes direct costs paid to outside parties as part of the total acquisition cost.
  • Costs of issuing securities: these costs reduce the issuing price of the stock.
  • Indirect and general costs: the acquiring company expenses these costs as they are incurred.
  1. Purchase of Net Assets
    1. 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.

    1. 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.

  1. Purchase of common stock
    1. 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.

    1. 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.

Reporting Intercorporate Interest – Investments in Common Stock

1. 20 % ownership or less:

When a company purchases 20% or less of the outstanding common stock, the purchasing company’s influence over the acquired company is not significant. (APB 18 specifies conditions where ownership is less than 20% but there is significant influence).

To account for this type of investment 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. 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. Regular dividends are recorded as dividend income whenever they are declared.

Impairment loss: An impairment loss occurs when there is a decline in the value of the investment other than temporary.

2. 20% to 50% ownership

When the amount of stock purchased is from 20% to 50% of the common stock outstanding the purchasing company’s influence over the acquired company is often significant; however the deciding factor is significant influence, so if other factors exist that reduce the influence or if significant influence is gained at ownership percentage less than 20% the equity method may then be appropriate (FASB interpretation 35 underlines the circumstances where the investor is unable to exercise significant influence). To account for this type of investment the purchasing company uses the equity method. Under the equity method the purchaser records its investment at the original cost. This balance increases with income and decreases for the dividends from the subsidiary that accrue to the purchaser.

Treatment of Purchase Differentials: At the time of purchase, purchase differentials arise from the difference between the cost of the investment and the book value of the underlying assets.

Purchase differentials have two components:

  • The difference between the Fair market value of the underlying assets and their book value.
  • Goodwill: the difference between the cost of the investment and the fair market value of the underlying assets.

Purchase differentials need to be amortized over their useful life; however, new accounting guidance states that goodwill is not amortized or reduced until it is permanently impaired, or the underlying asset is sold.

3. More than 50% ownership

When the amount of stock purchased is 50% of the outstanding common stock, the purchasing company has control over the acquired company. Control in this context is defined as ability to direct policies and management. In this type of relationship the controlling company is the parent and the controlled company is the subsidiary. The parent company needs to issue consolidated financial statements at the end of the year to reflect this relationship. Consolidated financial statements show the parent and the subsidiary as one single entity. During the year, the parent company can use the equity or the cost method to account for its investment in the subsidiary. Each company keeps separate books. However at the end of the year a consolidation working paper is prepared to combine the separate balances and to eliminate the intercompany transactions, the subsidiary’s stockholder equity and the parent’s investment account. The result is one set of financial statements that reflect the financial results of the consolidated entity.

See also

  • consolidated account
  • tax consolidation
  • Arrangements between railroads
Retrieved from "http://en.wikipedia.org/wiki/Consolidation_%28business%29"

  

 

 


 

 
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