Chapter 1 - Introduction to business combinations and the conceptual framework. This chapter introduces you to a fascinating topic which will occupy a considerable part of your course – Business Combinations. Many new terms will be reviewed, and a little history will help you to get a perspective of the quickly changing role of business combinations in our current business climate. | Introduction to Business Combinations and the Conceptual Framework 1 Learning Objectives Describe historical trends in types of business combinations. Identify the major reasons firms combine. Identify the factors that managers should consider in exercising due diligence in business combinations. Identify defensive tactics used to attempt to block business combinations. Distinguish between an asset and a stock acquisition. 2 2 Learning Objectives (continued) Indicate the factors used to determine the price and the method of payment for a business combination. Calculate an estimate of the value of goodwill to be included in an offering price by discounting expected future excess earnings over some period of years. Describe the two alternative views of consolidated financial statements: the economic entity and the parent company concepts. Discuss the Statements of Financial Accounting Concepts (SFAC). Describe some of the current joint projects of the FASB and the International Accounting Standards Board (IASB), and their primary objectives. 3 ) 3 Introduction On December 4, 2007, FASB released two new standards, FASB Statement No. 141 R, Business Combinations, and FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. FASB ASC 805, “Business Combinations” and FASB ASC 810, “Consolidations. These standards Became effective for years beginning after December 15, 2008, and Are intended to improve the relevance, comparability and transparency of financial information related to business combinations, and to facilitate the convergence with international standards. 4 Nature of the Combination Business Combination - operations of two or more companies are brought under common control. A business combination may be: Friendly - the boards of directors of the potential combining companies negotiate mutually agreeable terms of a proposed combination. Unfriendly (hostile) - the board of directors of a company targeted for acquisition resists the | Introduction to Business Combinations and the Conceptual Framework 1 Learning Objectives Describe historical trends in types of business combinations. Identify the major reasons firms combine. Identify the factors that managers should consider in exercising due diligence in business combinations. Identify defensive tactics used to attempt to block business combinations. Distinguish between an asset and a stock acquisition. 2 2 Learning Objectives (continued) Indicate the factors used to determine the price and the method of payment for a business combination. Calculate an estimate of the value of goodwill to be included in an offering price by discounting expected future excess earnings over some period of years. Describe the two alternative views of consolidated financial statements: the economic entity and the parent company concepts. Discuss the Statements of Financial Accounting Concepts (SFAC). Describe some of the current joint projects of the FASB and the International .
