About Me
CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
2 3 5 Business Combinations and Consolidations Explained

3 5 Business Combinations and Consolidations Explained

Key Concepts

Business Combinations

Business combinations occur when one company (the acquirer) obtains control over one or more other companies (the acquirees). This can be achieved through mergers, acquisitions, or consolidations.

Acquisition Method

The acquisition method is the accounting approach used to account for business combinations. It involves recognizing the assets and liabilities of the acquiree at their fair values at the acquisition date.

Example: Company A acquires Company B for $10 million. Company B's assets are valued at $8 million, and its liabilities are valued at $2 million. The acquisition method recognizes the assets and liabilities at their fair values.

Consolidated Financial Statements

Consolidated financial statements present the financial position and results of operations of a parent company and its subsidiaries as if they were a single entity. This requires eliminating intercompany transactions and balances.

Example: A parent company owns 100% of its subsidiary. The consolidated financial statements will combine the assets, liabilities, revenues, and expenses of both entities, eliminating any transactions between them.

Goodwill

Goodwill is an intangible asset that arises when the acquirer pays more for the acquiree than the fair value of its net identifiable assets. It represents the future economic benefits expected from the acquisition.

Example: In the previous example, if Company A paid $10 million for Company B, and the fair value of Company B's net assets is $8 million, the goodwill is $2 million ($10 million - $8 million).

Non-Controlling Interest

Non-controlling interest (NCI) represents the equity in a subsidiary not attributable, directly or indirectly, to the parent company. It is reported as a separate component of equity in the consolidated financial statements.

Example: If a parent company owns 80% of its subsidiary, the remaining 20% is the non-controlling interest. The consolidated financial statements will show the subsidiary's assets and liabilities, with the NCI representing the 20% portion not owned by the parent.

Examples and Analogies

Consider business combinations as "merging families." The acquisition method is like "valuing the assets" of the new family members. Consolidated financial statements are akin to "pooling the resources" of the combined family.

Goodwill can be thought of as the "family heirlooms" that add value beyond the tangible assets. Non-controlling interest is like the "distant relatives" who still have a stake in the family's wealth.

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