CPA Financial Accounting and Reporting (FAR)
Certified Public Accountant Financial Accounting and Reporting examination.
Advanced Topics
Business Combinations and Consolidations
Merging and Combining Companies
Business combinations occur when one company acquires another, requiring complex accounting to combine financials. Consolidations involve reporting the results of multiple entities as one.
Key Steps in Business Combinations
- Identify the acquirer and acquisition date.
- Measure identifiable assets and liabilities at fair value.
- Recognize goodwill or gain from a bargain purchase.
Consolidation Basics
- Combine the financials of the parent and subsidiaries.
- Eliminate intercompany transactions and balances.
Real-World Impact
These accounting rules ensure that companies present an accurate, unified financial picture, helping investors understand the true scope of a business.
Examples
A tech giant acquires a startup and consolidates their financial statements, showing the combined results.
A parent company eliminates sales made to its subsidiary when preparing consolidated financials.
In a Nutshell
Business combinations and consolidations help present the financials of merged companies as one entity.