Question

2) Know what must be accounted for in a business combination?

Answer 1

Business combination is a transaction in which the acquirer obtains the control of another business directly.

When there is a business consolidation, the acquirer thereafter reports consolidated results that combine its own financial statements with those of the acquiree. The acquirer does not include in this consolidation the financial statements of the acquiree for any reporting periodsprior to the acquisition date.

A business combination must be accounted for using a technique called the “acquisition method”

Under the acquisition method, first of all once the acquiree is identified, we need to calculate the assets, liabilities and net capital investment at fair values at the acquisition date. Now, whetever will be the difference between the net assets acquired and consideration paid, is the goodwill.