Beruflich Dokumente
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Introduction to Business
Combinations and the
Conceptual Framework
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Learning Objectives
1. Describe historical trends in types of business combinations.
2. Identify the major reasons firms combine.
3. Identify the factors that managers should consider in exercising due diligence in
business combinations.
4. Identify defensive tactics used to attempt to block business combinations.
5. Distinguish between an asset and a stock acquisition.
6. Indicate the factors used to determine the price and the method of payment for a
business combination.
7. Calculate an estimate of the value of goodwill to be included in an offering price by
discounting expected future excess earnings over some period of years.
8. Describe the two alternative views of consolidated financial statements: the economic
entity and the parent company concepts.
9. List and discuss each of the Statements of Financial Accounting Concepts (SFAC).
10. Describe some of the current joint projects of the FASB and the International
Accounting Standards Board (IASB), and their primary objectives.
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Introduction
These standards
Became effective for years beginning after December 15,
2008, and
Are intended to improve the relevance, comparability and
transparency of financial information related to business
combinations, and to facilitate the convergence with
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international standards.
Nature of the Combination
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Nature of the Combination
Defensive Tactics
1. Poison pill: Issuing stock rights to existing
shareholders; exercisable only in the event of a
potential takeover.
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Nature of the Combination
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Nature of the Combination
Review Question
The defense tactic that involves purchasing shares held
by the would-be acquiring company at a price
substantially in excess of their fair value is called
a. poison pill.
b. pac-man defense.
c. greenmail.
d. white knight.
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Business Combinations: Why? Why Not?
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LO 2 Reasons firms combine.
Business Combinations: Historical Perspective
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LO 1 Describe historical trends in types of business combinations.
Business Combinations: Historical Perspective
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LO 1 Describe historical trends in types of business combinations.
Terminology and Types of Combinations
3. Stock
Common Stock 4. Combination of
of S Company above
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LO 5 Distinguish between an asset and a stock acquisition.
Terminology and Types of Combinations
Statutory Merger
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LO 5 Distinguish between an asset and a stock acquisition.
Terminology and Types of Combinations
Statutory Consolidation
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LO 5 Distinguish between an asset and a stock acquisition.
Terminology and Types of Combinations
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LO 5 Distinguish between an asset and a stock acquisition.
Terminology and Types of Combinations
Review Question
When a new corporation is formed to acquire two or
more other corporations and the acquired corporations
cease to exist as separate legal entities, the result is a
statutory
a. acquisition.
b. combination.
c. consolidation.
d. merger
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LO 5 Distinguish between an asset and a stock acquisition.
Takeover Premiums
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LO 5 Distinguish between an asset and a stock acquisition.
Avoiding the Pitfalls Before the Deal
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LO 3 Factors to be considered in due diligence.
Avoiding the Pitfalls Before the Deal
Review Question
When an acquiring company exercises due diligence in
attempting a business combination, it should:
a. be skeptical about accepting the target company’s
stated percentages
b. analyze the target company for assumed liabilities as
well as assets
c. look for nonrecurring items such as changes in
estimates
d. all the above
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LO 3 Factors to be considered in due diligence.
Determining Price and Method of Payment
in Business Combinations
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LO 6 Factors affecting price and method of payment.
Determining Price and Method of Payment
in Business Combinations
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LO 6 Factors affecting price and method of payment.
Determining Price and Method of Payment
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LO 6 Factors affecting price and method of payment.
Determining Price and Method of Payment
Review Question
A potential offering price for a company is computed by
adding the estimated goodwill to the
a. book value of the company’s net assets.
b. book value of the company’s identifiable assets.
c. fair value of the company’s net assets.
d. fair value of the company’s identifiable net assets.
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LO 6 Factors affecting price and method of payment.
Determining Price and Method of Payment
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LO 7 Estimating goodwill.
Determining Price and Method of Payment
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LO 7 Estimating goodwill.
Determining Price and Method of Payment
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LO 7 Estimating goodwill.
Determining Price and Method of Payment
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LO 7 Estimating goodwill.
Determining Price and Method of Payment
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LO 7 Estimating goodwill.
Determining Price and Method of Payment
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LO 7 Estimating goodwill.
Determining Price and Method of Payment
Part B
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LO 7 Estimating goodwill.
Alternative Concepts of Consolidated
Financial Statements
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LO 8 Economic entity and parent company concepts.
Alternative Concepts
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LO 8 Economic entity and parent company concepts.
Alternative Concepts
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LO 8 Economic entity and parent company concepts.
Alternative Concepts
Review Question
According to the economic unit concept, the primary
purpose of consolidated financial statements is to
provide information that is relevant to
a. majority stockholders.
b. minority stockholders.
c. creditors.
d. both majority and minority stockholders.
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LO 8 Economic entity and parent company concepts.
Alternative Concepts
Intercompany Profit
Two alternative points of view:
2. Partial elimination
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LO 8 Economic entity and parent company concepts.
Conceptual Framework
Figure 1-2
Conceptual
Framework for
Financial
Accounting and
Reporting
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LO 8 Economic entity and parent company concepts.
FASB’s Conceptual Framework
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LO 8 Economic entity and parent company concepts.
FASB’s Conceptual Framework
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LO 8 Economic entity and parent company concepts.
FASB’s Conceptual Framework
Overview of FASB’s Conceptual Framework
The Statements of Financial Accounting Concepts issued by
the FASB include:
SFAC No.1- Objectives of Financial Reporting (replaced by SFAC
No. 8)
SFAC No.2 - Qualitative Characteristics of Accounting Information
(replaced by SFAC No. 8)
SFAC No.3 - Elements of Financial Statements (replaced by
SFAC No. 6)
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LO 9 Statements of Financial Accounting Concepts.
FASB’s Conceptual Framework
Overview of FASB’s Conceptual Framework
The Statements of Financial Accounting Concepts issued by
the FASB include:
SFAC No.4 - Objectives of Financial Reporting by Nonbusiness
Organizations
SFAC No.5 - Recognition and Measurement in Financial Statements
SFAC No.6 - Elements of Financial Statements (replaces SFAC No. 3)
SFAC No.7 - Using Cash Flow Information and Present Value in
Accounting Measurements
SFAC No.8 – The Objective of General Purpose Financial Reporting
(replaces SFAC No. 1 and No. 2)
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LO 9 Statements of Financial Accounting Concepts.
FASB’s Conceptual Framework
Slide LO 10 Describe some of the current joint projects of the FASB and the International
1-46 Accounting Standards Board (IASB), and their primary objectives.
Appendix: FASB Codification Project
Slide LO 10 Describe some of the current joint projects of the FASB and the International
1-47 Accounting Standards Board (IASB), and their primary objectives.
Appendix: FASB Codification Project
a. Financial Accounting Standards Board (FASB)
1. Statements (FAS)
2. Interpretations (FIN)
3. Technical Bulletins (FTB) Literature
4. Staff Positions (FSP)
5. Staff Implementation Guides (Q&A) included in the
6. Statement No. 138 Examples
b. Emerging Issues Task Force (EITF) Codification
1. Abstracts
2. Topic D
c. Derivative Implementation Group (DIG) Issues
d. Accounting Principles Board (APB) Opinions
e. Accounting Research Bulletins (ARB)
f. Accounting Interpretations (AIN)
g. American Institute of Certified Public Accountants (AICPA)
1. Statements of Position (SOP)
2. Audit and Accounting Guides (AAG)—only incremental accounting guidance
3. Practice Bulletins (PB), including the Notices to Practitioners elevated to Practice
Bulletin status by Practice Bulletin 1
4. Technical Inquiry Service (TIS)—only for Software Revenue Recognition
Slide LO 10 Describe some of the current joint projects of the FASB and the International
1-48 Accounting Standards Board (IASB), and their primary objectives.
Appendix: FASB Codification Project
Slide LO 10 Describe some of the current joint projects of the FASB and the International
1-49 Accounting Standards Board (IASB), and their primary objectives.
Appendix: FASB Codification Project
Slide LO 10 Describe some of the current joint projects of the FASB and the International
1-50 Accounting Standards Board (IASB), and their primary objectives.
Copyright
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