BUSINESS COMBINATION REVIEWER:

CHAPTER 1 (Recognition& Measurement)

Related standards:
PFRS 3 Deals with accounting for business combination at the acquisition date.
PFRS 10 Deals with preparation and presentation of consolidated financial statements
after the business combination.
Section 19 of the PFRS for SMEs

Define Business Combination:

 Occurs when one company acquires another or when two or more companies
merge into one.
Business combinations are carried out either through:
1. Asset acquisition- the acquirer purchases the assets and assumes the liabilities
of the acquiree in exchange for cash or other non-cash consideration (which may
be the acquirer’s own shares).
 Merger- when 2 or more companies merge into a single entity which shall be one
of the combining companies.
 Consolidation- when 2 or more companies consolidate into a single entity which
shall be the consolidated company.

2. Stock acquisition- more than 50% in the voting rights of the acquiree, the
Acquirer obtains control over the acquiree is known as the subsidiary

Consolidated Financial Statements:

 A report of company’s financial position using the aggregated financials of the
parent company and its subsidiaries, shareholders, creditors, executive
management, board members and stakeholders use consolidated financial
statements to gauge the health of the overall company.
Group:
 A parent and its Subsidiaries.
Parent:
  That has controlling interest in another company giving it control of its operations.
Subsidiary:
 It’s a company owned and controlled by another company.
 Owning company is called a parent or holding company.
Business combination may also be described as:
1. Horizontal combination- 2 or more entities with similar business (bank
acquires another bank).
2. Vertical combination- 2 or more entities operating at different levels in
marketing chain. (a manufacturing acquires its supplier of raw materials.
3. Conglomerate- two or more entities with dissimilar business. (real estate
developer acquires bank).
Advantage of business combination:
a. Competition is eliminated or lessened- competition between the combining
constituents with similar business. – eliminated competition from other market
participants is lessened.
b. Synergy-the whole is greater than the sum of its parts. 1plus 1= 3
c. Increased business opportunities and earnings potential- business
opportunity increased.
Variety products or services available, decreased dependency or limited number
of products and services.
Products or services and better access to new markets.
Research and development, secret processes, and other information.
Investment opportunities due to increased capital or
d. Combinations utilize economics.