What is carryover method accounting?

Finance ManagementBanking & FinanceGrowth & Empowerment

Carryover method of accounting is used when there is a merger of two or more non-profit entities into a new entity. Their assets and liabilities are merged and come into effect on the date of merger transactions.

Following adjustments are required in carryover method accounting −

  • Modifications of contracts − Alters terms and conditions of contract.

  • Reclassifications − If companies are using different accounting methods, adjustments for consistent accounting methods are required.

  • Intra entity transactions − If there are any prior transactions between merged companies, those are removed from merged assets, liabilities and net assets.

Assets like internally developed intangible assets and other liabilities are permitted to recognize in merger accounting, these are allowed in acquisition transactions. Merger entities or newly created entities will not record any prior merger date activities.

Disclosures

Following disclosures are needed to the readers for evaluating their nature of business and financial transaction effects −

  • Details of merged entities (name, description of entities).

  • Merger date.

  • Reason for merger.

  • Major class of assets, liabilities, net assets and other unrecognised significant assets/liabilities (nature and amount) of merged entities.

  • Amount and nature of eliminated intra entity transactions (if any).

  • For publicly held entities, revenue and changes in net assets are disclosed, though merger may not happen in the beginning of the respective fiscal year.

  • Additional information like comparative information is to be provided for the previous years. If they are unable to provide the previous years’ information, they have to give reasons for that.

raja
Updated on 17-May-2022 13:44:06

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