Chapter 5Objectives of the ChapterSlide 3Slide 4Business CombinationsBusiness Combinations (contd.)Slide 7Types of Business CombinationsReasons for Business CombinationsReasons for Business Combinations (contd.)Four Methods for Carrying Out Business CombinationsFour Methods for Carrying Out Business Combinations (contd.)Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Establishing the Price for a Business CombinationMethods of Accounting for Business CombinationsSlide 21Methods of Accounting for Business Combinations (contd.)Slide 23Slide 24Slide 25Purchase AccountingCost of A Combinee (contd.)Slide 28Accounting Treatment for Contingent ConsiderationAccounting Treatment for Contingent Consideration(contd.)Assigning Values to a Purchased Combinee’s Identifiable Assets and Liabilities (Based on APB Opinion No. 16)Assigning Values to a Purchased Combinee’s Identifiable Assets and Liabilities (Based on APB Opinion No. 16) (contd.)Goodwill Computation under Purchase AccountingGoodwill Computation under Purchase Accounting (contd.)Example I: Purchase Accounting For Statutory Merger, with GoodwillExample I: Purchase Accounting For Statutory Merger, with Goodwill (contd.)Example I (contd.): Out of Pocket CostsExample I (contd.): Out of Pocket Costs (contd.)Example I (contd.): Mason Company’s Condensed B/S Prior to The MergerExample I (contd.): Mason Company’s Condensed B/S Prior to The Merger (contd.)Example I (contd.):Example I (contd.): Fair Value of Identifiable Net Assets of CombineeExample I (contd.): Combinor’s Journal Entries for Business CombinationExample I (contd.): Combinor’s Journal Entries for Business Combination (contd.)Example I (contd.): Combinor’s Journal Entries for Business Combination (contd.)Slide 46Example I (contd.): Combinee’s J.E. for The Dissolution of the Company after Statutory MergerExample I (contd.): Combinee’s J.E. for The Dissolution of The Company after Statutory Merger (contd.)Example II: Purchase Accounting for Acquisition of Net Assets, with Negative Goodwill (Bargain-Purchase Excess)Example II: Purchase Accounting with Negative GoodwillExample II (contd.):Combinee’s B/S Prior to Statutory MergerExample II (contd.):Combinee’s B/S Prior to Statutory Merger (contd.)Example II (contd.) : Computing the Negative GoodwillExample II (contd.) : Computing the Negative Goodwill (contd.)Example II (contd.) : Allocation of Negative GoodwillExample II (contd.)Example II (contd.) : Combinor’s J.E. for The Acquisition of Net AssetsExample II (contd.) : Combinor’s J.E. for the Acquisition of Net Assets (contd.)Example II (contd.): Note to the Journal EntriesPooling-of-Interests AccountingPooling-of-Interests Accounting (contd.)Slide 62Example III: Pooling-of-Interests Accounting for Statutory MergerExample III : Pooling-of-Interests Accounting for Statutory Merger (contd.)Slide 65Example III (contd.): Notes to the exampleExample III (contd.): Notes to the example (contd.)Slide 68Advantage of Using Pooling Accounting on Financial NumbersAdvantage of Using Pooling Accounting on Financial Numbers (contd.)Slide 71Slide 72Slide 73Slide 74Slide 75Slide 76Slide 77Slide 78Slide 79Slide 80Slide 81Historical Perspective of Accounting for Business CombinationsHistorical Perspective of Accounting for Business Combinations (contd.)Slide 84Slide 85Past Abuses of Pooling AccountingPast Abuses of Pooling Accounting (contd.)Slide 88Slide 89Past Abuses of Purchase Accounting (in the period of 1950-1960)Action by the AICPA to Curtail The AbusesConditions Requiring Pooling Accounting in APB Opinion No. 16Conditions Requiring Pooling Accounting in APB Opinion No. 16) (contd.)Slide 94APB Opinion No. 16APB Opinion No. 16 (contd.)Slide 97Slide 98Slide 99Slide 100Discussion of Four ConditionsDiscussion of Four Conditions (contd.)Slide 103Slide 104discussion of Four Conditions (contd.) Example to illustrate the independence and 90% of voting common stock tests Discussion of Four Conditions (contd.) Example to illustrate the independence and 90% of voting common stock tests (contd.) Slide 107Slide 108Slide 109Slide 110Slide 111Slide 112Slide 113Financial Statements Following a Business CombinationFinancial Statements Following a Business Combination (contd.)Slide 116Slide 117Financial Statements Following a Business Combination (contd.) Example IV:Financial Statements Following a Business Combination (contd.) Example IV (contd.)Financial Statements Following a Business Combination (contd.) Example IV (contd.)Financial Statements Following a Business Combination (contd.) Example IV (contd.)Notes to Financial Statements Following a Business CombinationNotes to Financial Statements Following a Business Combination (contd.)Notes to Financial Statements Following a Business Combination (contd.)Slide 125Slide 126Comparison of Purchase and Pooling AccountingComparison of Purchase and Pooling Accounting (contd.)Slide 129Slide 130Slide 131Slide 132Purchase-Type Statutory ConsolidationPurchase-Type Statutory Consolidation (contd.) Example V :Purchase-Type Statutory Consolidation (contd.) Example V (contd.):Slide 136Slide 137Slide 138Purchase-Type Statutory Consolidation (contd.) Example V(contd.):Slide 140Slide 141Slide 142Slide 143Slide 144Slide 145Subsequent Issuance of Contingent ConsiderationSlide 147Subsequent Issuance of Contingent Consideration (contd.)Slide 149Slide 150IAS 22, “Accounting for Business Combinations”The Current Development on the Business Combination Standards (Excerpts from News Release of the FASB dated 7/20/01)The Current Development on the Business Combination Standards (Excerpts from News Release of the FASB dated 7/20/01) (contd.)Slide 154Slide 155Slide 156Slide 157Summary of Statement No. 142: (source: FASB Publication of Summary of Statement No. 142)Summary of Statement No. 142: (source: FASB Publication of Summary of Statement No. 142) (contd.)Slide 160Slide 161Slide 162Slide 163Slide 164ACCT 501Chapter 5Business CombinationsBusiness Combinations2Objectives of the Chapter 1. To discuss the general view of business combinations. 2. To learn accounting for business combinations (purchase versus pooling methods) on date of combination for statutory merger type of business combinations.Business Combinations3Objectives of the Chapter 3. To discuss the development of two alternatives for business combinations from a historical perspective.4. Preparing financial statements following a business combination for statutory