Accounting for Corporate Combinations & Associations

Corporate combinations promote growth.

Corporations combine from a merger, consolidation or acquisition as a growth strategy to benefit from joint resources or to strengthen market position. The Financial Accounting Standards Board (FASB) provides accounting standards for corporate combinations in the United States.

Valuation

Properly value the transaction.

The purchase (acquisition) method is used to measure and record the transaction. This method requires select elements of the transaction be measured at fair value on the acquisition date, including the assets and liabilities of the acquiree and the consideration and minority (non-controlling) interest of the acquirer. Other elements may be measured at fair value or using other valuation methods and dates.

Disclosure

Disclose methods and values.

The acquiring company must disclose the element values, valuation methods used and key assumptions of the transfer. The purpose of the combination and any goodwill or gain resulting from the transaction must be disclosed. This information is used to analyze operations prior to, and after, the combination.

Importance

Corporate combinations are increasing.

Global increase in corporate combinations and associations occurs in every industry. Accounting for these transactions must be performed with competence and due diligence so transactions are represented on the financial statements.

References

• Energy M&A at Highest Point Ever in 2010
• The New M&A Accounting

Resources

• FASB standard on business combinations