What is purchase accounting for merger or acquisition?

Finance ManagementBanking & FinanceGrowth & Empowerment

<p>Either two or more companies merge or a company acquires another. In either of the processes, one company purchases another company asset for the union of their business. Accounts are maintained for these transactions.</p><h2>Accounting for merger and acquisition transactions</h2><p>Identification of business combination&minus; To achieve some synergy form.</p><p>Identification of acquirer &minus; Governs financial and operating policies of combined business entities.</p><ul class="list"><li><p>Entity having greater fair value, likely to be an acquirer.</p></li><li><p>Management who are dominating in deals, likely to be an acquirer.</p></li><li><p>Entities who are giving up cash/other assets, likely to be acquirers.</p></li></ul><p>Cost of transaction measured &minus; Fair values (at the time of acquisition) + equity instruments + direct cost (attributes to business).</p><p><strong>Attributable cost</strong> includes the following &minus;</p><ul class="list"><li>Fees paid to accountants.</li><li>Fees paid to legal advisers.</li><li>Fees paid to valuators/consultants.</li></ul><p>Allocation of cost of combined business&minus; Acquirer allocates cost of business (assets, liabilities, contingent liabilities of acquiree), which satisfies the criteria.</p><ul class="list"><li><p>In assets, other than the intangible assets, which have future economic benefits will go to the acquirer.</p></li><li><p>In liabilities, other than the contingent liabilities, which have embodying economic benefits will be required to settle an obligation and its fair value is measured reliably.</p></li><li><p>For intangible assets and contingent liabilities, their fair value can be measured reliably.</p></li></ul><p>Intangible assets (Acquiree&rsquo;s) are as follows &minus;</p><ul class="list"><li>Identified separately.</li><li>Resources controlled by entities.</li><li>Probable source for future economic benefits.</li><li>Fair value measured reliably.</li></ul><p>Intangible assets that are separately recognized are mentioned below &minus;</p><ul class="list"><li><p>Customer base</p></li><li><p>Patented technology</p></li><li><p>Trade names</p></li><li><p>Licenses/ing</p></li><li><p>Non-compete agreements</p></li><li><p>Account for goodwill&minus; Identified intangible asset is recognized as goodwill in the acquirer&rsquo;s balance sheet.</p></li></ul>
Updated on 17-May-2022 13:39:19