Discussion Forum Prelim

Business Combination (Recognition and measurement)

1. What is business combination?

A business combination is when one company obtains control of one or more businesses.
Control exist when an investor holds more than 50% interest in the subsidiary’s voting rights.

2. Give the advantages of a business combination

1. The competition between similar entities is eliminated or lessened.

2. Results in greater productivity.
3. Business opportunities will increase and high earnings will be generated.
4. Operating costs of the combined entity may be reduced.
5. The cost of business expansion may be lessened when a company acquires another
company instead of putting up a branch.

3. Give the disadvantage of a business combination

1. The business combination brings a monopoly in the market which may have a negative impact
on society.
2. Management of the combined entity may become difficult due to incompatible internal
cultures, systems, and policies.
3. The identity of one or both of the combining constituents may cease, leading to loss of sense of
identity for existing employees and loss of goodwill.

4. When does a business combination occurs?

A business combination occurs when one company acquires another or when two or more
companies merge into one.

5. Differentiate an acquirer and acquiree

Parent or acquirer- company that obtains control over the other

Subsidiary or acquiree- other company that is controlled

6. Discuss the acquisition date

Acquisition date is the date on which the acquirer obtains control of the acquire

7. Differentiate Goodwill and Gain on a bargain purchase

Goodwill is an asset representing the future economic benefits arising from other assets
acquired in a business combination. Meanwhile, gain on a bargain purchase is recognized in
profit or loss in the year of acquisition only after the reassessment of the assets acquired and
liabilities assumed in the business combination.

8. What is non-controlling interest

Non-controlling interest (NCI) or “minority interest” is the equity in a subsidiary not attributable,
directly or indirectly, to a parent.
Business Combination (other topics)

Instruction: Please answer the following questions

1. Discuss the Account for business combinations

a. Accomplished through share for share exchange

b. Achieved in stages

c. Achieved without transfer of consideration.

2. Discuss the measurement period in relation to business combinations

3. Differentiate what is part of a business combination and what is part of a separate transactions.

4. Discuss or account for settlement of pre-existing relationship between an acquirer and an acquiree.

5. Discuss the methods of estimating goodwill

6. Discuss or account for reverse acquisitions.