Consolidating Students Loan
Consolidation or amalgamation is the act of merging a lot of things into one. In commerce, it often refers to the mergers and acquisitions of many smaller companies into much larger ones. In the context of financial secretarial, consolidation refers to the aggregation of financial statements of a group company as consolidate financial statement. The taxation term of consolidation refers to the behavior of a group of companies and other entities as one article for tax purposes. Under the Halsbury's Laws of England, 'amalgamation' is defined as "a blending together of two or more undertakings into one mission, the shareholders of each blending company, apt, substantially, the shareholders of the blended undertakings. present may be amalgamations, either by transfer of two or more undertakings to a new company, or to the transfer of one or more companies to an existing company". Thus, the two concepts are, substantially, the same. However, the term merger is more common when the organizations being merged are private schools or regiments.
Types of business amalgamation
There be three forms of business combinations:
Statutory Merger: a business combination that results in the insolvency of the acquired company’s assets and the survival of the purchasing company.
Statutory Consolidation: a business combination that creates a new company in which none of the previous companies survive.
Stock Acquisition: a manufacturing combination in which the purchase company acquires the majority, more than 50%, of the Common stock of the acquired company and both company survive.
Amalgamation: Means an existing corporation which is in use over by an additional existing company. In such course of amalgamation, the consideration may be paid in "cash" or in "kind", and the purchasing company survives in this process....
Terminology
Parent-subsidiary relationship: the result of a stock acquisition anywhere the parent is the acquiring company and the subsidiary is the acquired company.
Controlling Interest: When the parent company owns a majority of the familiar stock.
Non-Controlling Interest or Minority Interest: the rest of the common stock that the other shareholders own.
Wholly owned subsidiary: when the parent owns all the outstanding common stock of the subsidiary.
Company is shaped when in the process of the amalgamation, the joint company is formed out of the transaction. The compound company is otherwise called the transferee corporation. The company or companies, which merge keen on the new company, are called the transferor companies and, the company, into which the transferor companies merge, is known as the transferee company.
A parent friendship can acquire another company in two ways:
By purchasing the net assets.
By purchasing the common stock of another company.
Regardless of the method of acquisition; direct costs, costs of issue securities and indirect costs are treated as follows:
Direct costs, Indirect and general expenses: the acquiring company expenses all acquisition related costs as they are incurred.
Costs of issuing securities: these costs reduce the issuing price of the stock.
Purchase of Net Assets
Treatment to the acquire company: When purchasing the net assets the acquiring company records in its books the receipt of the net assets and the disbursement of cash, the creation of a liability or the issuance of stock as a form of payment for the transfer.
Treatment to the acquired company: The acquired corporation records in its books the elimination of its net possessions and the receiving of cash, receivables or investment in the acquiring company (if what was received from the transfer included common stock from the purchasing company). If the acquired company is liquidated then the companionship needs an extra entry to distribute the remaining assets to its shareholders.
Purchase of ordinary Stock
Treatment to the purchase company: When the purchasing group acquire the subsidiary through the purchase of its common stock, it records in its books the investment in the acquired company and the disbursement of the payment for the stock acquired.
Treatment to the acquired company: The acquired business records in its books the receipt of the payment from the acquiring company and the issuance of stock.
FASB 141 Disclosure Requirements: FASB 141 requires disclosures in the notes of the financial statements when business combinations occur. Such disclosures are:
The name and description of the acquired entity and the percentage of the voting equity interest acquired.
The primary reasons for acquisition and descriptions of factors that contributed to recognition of goodwill.
The period for which results of operation of acquire entity are included in the income statement of the combining entity.
The cost of the acquired entity and if it applies the number of shares of equity interest issued, the value assigned to those interests and the basis for determining that value.
Any contingent payments, selection or commitment.
The purchase and growth possessions acquired and written off.
Treatment of goodwill impairments:
If Non-Controlling curiosity (NCI) based on fair value of particular assets: impairment taken against parent's income & R/E
If NCI based on fair value of purchase price: harm taken against subsidiary's income & R/E
Reporting intercorporate interest — investments in common stock
1. 20% ownership or less
When a companionship purchases 20% or less of the outstanding common stock, the purchasing company’s influence over the acquired corporation is not significant. (APB 18 specifies conditions where ownership is less than 20% but there is significant influence).
The purchasing corporation uses the cost method to description for this type of investment. Under the cost method, the investment is recorded at cost at the time of purchase. The company does not need any entries to adjust this account balance unless the investment is considered impaired or there are liquidating dividends, both of which reduce the investment account.
Liquidating dividends : liquidate dividends occur when there is an surfeit of dividends declared over earnings of the acquired company since the date of acquisition. Regular dividends are recorded as dividend income whenever they are declared.
Impairment loss : An impairment loss occurs when there is a decline in the value of the investment other than temporary.
2. 20% to 50% ownership — connect company
When the amount of stock purchase is between 20% and 50% of the common stock outstanding, the purchasing company’s influence over the acquired company is often significant. To account for this type of investment, the purchasing company uses the equity method. Under the equity method, the purchaser records its investment at original cost. This balance increases with income and decreases for dividends from the subsidiary that accrue to the purchaser.
Treatment of Purchase Differentials: At the time of pay for, purchase differentials arise from the difference between the cost of the investment and the book value of the underlying assets.
Purchase differentials have two components:
The difference between the fair marketplace value of the underlying assets and their book value.
Goodwill: the difference between the cost of the investment and the fair marketplace value of the underlying assets.
Purchase differentials could do with to be amortized over their useful life; however, new accounting guidance states that goodwill is not amortized or reduced until it is undyingly impaired, or the underlying asset is sold.
3. More than 50% ownership — Subsidiar
When the sum of stock purchase is more than 50% of the outstanding common stock, the purchasing company has control over the acquired company. Control in this context is defined as ability to direct policies and management. In this type of relationship the controlling company is the parent and the controlled company is the subsidiary. The parent isolation needs to issue consolidated financial statements at the end of the year to reflect this relationship.
consolidate financial statements show the close relative and the supplementary as one single unit. During the year, the parent company can use the fairness or the cost method to description for its investment in the subsidiary. Each company keeps separate books. However, at the end of the year, a consolidation working paper is controlled to combine the separate balances and to eliminate the intercompany contact, the subsidiary’s stockholder equity and the parent’s investment account. The result is one set of financial statements with the purpose of reflect the financial results of the consolidated entity
