Accounting for Business Combination Essay Example | Topics and Well Written Essays - 1500 words

Accounting for Business Combination - Essay Example The acquirer gains command over the assets and the associated liabilities. It is worthy of stating that when interchange in business takes place, it can be termed as business combination. It is significant for all the business combinations to be accounted for utilising the purchase process of accounting. Control can be gained by purchasing the assets themselves or by means of purchasing control over the corporation possessing the assets (Grant Thornton, 2011). The main objective of the paper is to discuss about accounting for business combination, to identify the current issues and thus to critically analyse them. The paper will endeavour to discuss numerous standards that can be applicable in resolving the issues related to accounting for business combination. Business Combinations One of the main goals of the business organisation is to attain growth. It is often stated by the top managements that growth or expansion is the major goal of the business organisation. A company may dev elop steadily by mounting its range of products. A number of the companies have attained their objective of growth by way of business combinations. The accounting for business combinations is primarily controlled with the help to four principles such as IFRS3, IAS 27, IAS 36 as well as IAS 38.The factor worth considering is that a business combination may be either friendly or might as well be unfriendly. When friendly combination takes place, it is the duty of the boards of directors of both the combining companies to bargain upon communally satisfying terms related to planned combinations. After that the stockholders of the combining companies need to approve the proposal. On the other hand, an unfriendly combination takes place when the board of directors of the company oppose the combination. In such cases, mostly by way of tender offer the acquiring company is capable of interacting with the individual shareholders (Qfinance, 2012). Advantages and Disadvantages of Business Comb ination There are numerous ways through which the companies may expand. A few of the companies might want to expand internally while others may choose to expand externally. An organisation may choose to expand internally by involving themselves in research and development. In case of external expansion, the companies attempt to expand through acquiring one or more companies. Along with quick expansion, there are numerous benefits of external expansion or business combination method in comparison to internal expansion (Deloitte, 2012). When the combination is vertical or horizontal, such combination with an existing company tends to present the management of the acquiring company with a business unit which is established possessing experienced personnel, productive facilities, regular suppliers as well as distribution channels. Furthermore, such business combinations assist companies to compete in an effective way in the international market. Most of the times, it is apparent that th e companies go for business combinations in order to take benefit of the income tax laws. By means of filing a consolidated tax return, the profitable corporations’ tax liability might be minimised because of the losses of unbeneficial affiliates. Diversification occurring from such combinations provides the combining companies with numerous benefits such as greater flexibility, an internal capital market, rise in the debt capacity of the company, greater shield from the rivals over proprietary information, and at times capability to make better use of the organisational resources (PwC, 2012). In spite of its innumerable benefits, business combinat