Advane accounting - summarize chaper one PDF

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Summarizing the first unit of an advanced accounting course Name:Ali jehad salameh

Submitted to:Dr. alaa jarar

Business combiation IFRS 3 sets principles and requirements in the business combination process and the principles are:the acquisition cost must be measured in fair value and this cost for assets and liabilities and if the cost is higher than net assets the difference is goodwill and if the opposite is gain on bargain and gain on bargain is recognized at the time of investment and not time Liquidation of the acquired company.

 The business combination: process is for the buyer company to take control of another company, a method that companies use for growth and development.  When the business is combination, the acquirer must disclose all financial statements of the parent company and the acquiring company to enable users to assess the nature of the acquisition, as it cannot disclose before the acquisition. types of business combination:  vertical: a business combination between two companies is not the same as the industry and production line, but one is a resource for the other.  Horizontal: are competitive and merged with each other.

Reasons for business combination: I. II. III.

IV.

V.

Cost Advantage: cost reduction encourages to business combination (manufacturers in the same field). Lower Risk: The process of combination with a company is less risky than the company's business again. fewer operating delays: If company( A) would start a new production line that would need a long period of time in order to open this line, but if it merged with another company( B) from the same field, would reduce the following steps, followed by company (A )until it opened and thus reduce the time period. Avoidance of Takeovers: business combination reduces the risk of acquisition and companies combination with other companies to avoid having someone control them. Acquisition of Intangible Assets: If Company(A) possesses intangible assets such as a patent, the right to use it is only for them, but if it merges with Company(B), the two companies have a surplus of intangible assets that both parties have the right to use them.

Net assets the assets remaining after deduction of Liabilities , and we use the term net assets instead of the term equity because of profit-seeking companies three types:  proprietorship  partner ship  corporation

 Equity is the capital of the first two types of companies, and equity is stock in the last type of company  The components of equity differ in these companies, so we call them the term net assets.  In the general form in the business combination , the price should be at the market value, which is the purchase price, and this price is fair for both parties. The company (A)will purchase from the owners of the company (B)It is not a condition in the buying process that it be in cash, but it is possible to offer shares or against company assets or a long-term debt.  The other company is composed of identifiable assets such as: the land and not identifiable assets such as: goodwill.  When the combination process, the investment record in the debtor and the method of payment such as cash, land or shares, etc., the restrictions of the liquidation process may not be recorded upon purchase because the acquired company does its work because the purchase from the owners when the company is liquidated, the assets and liabilities are transferred to the company that Made the purchase.  When purchasing from the owners of the other company at the time of preparing the financial statements, a goodwill evaluation must be made for the company, the following is the evaluation purchased through: 1 Look at the company’s value in general if it increases or remains as it is, It does not go to the next step. If I say, move the next step2. if goodwill increase or remains as it is i do nothing , if decreases do imperiment loss.  if before company liquidation :decrease in the investment becouse to goodwill has not yet passed to the buyer.  if after company liquidation:decrease in the goodwill in book the buyer becouse to goodwill has passed to the buyer.  Contingent consideration  Compulsory debt, I pay it under a specific condition, and payment is only made if the condition is fulfilled.

Types of Contingent consideration:  liability :you are to going to pay an amount of money.  equity :you are going to issue stock. liability under consideration  assume A purchase B (A) it was estimated that(B) equals 200 because it expects to achieve future revenues of 15 annually, but (B) estimated that it settles 240 and not 200 because it expects to achieve annual profits of 40 and each party holds an opinion. Solution:(A) pays its price now 200, and if in the next four years, she achieved(B) more than 20 will paid 40, and if she not achieves what we pay her 40.  When a period ends, if the condition is not fulfilled, the payment is not made and is considered gain.  A conditional commitment may change its value from one year to another according to expected profits from one year to another .  Since about exist the time value of money in this case, we recording The amount is at the present value .  Every time I need to do an evaluation we will see the present value of how much it has become.  1-Change the time value of money - interest expense.  A estimated - gain or loss.  If the amount decreases,, it is considered gain and if it increases, it is considered a loss.  Equity under consideration:  The issuance of shares to the people I want to buy from them according to certain conditions.  Here we do not evaluate each year the time value of money.

 The change in expectation is borne by the (APIC), so it does not show loss, gain, or interest expense .  The possible change is not on the number of shares, but the market value  You expect to issue shares and at the end of the period, you will be paid through shares and the difference going to (APIC). Preferred stock 1 cumultive: In the year in which profits are announced and what is distributed in the senior year, pay the dividends to them before the ordinary shareholders. 2-non-cumultive: For the year in which profits are not declared, you will be Forget.

 dividends in arrears are part of retained earnings and are restricted retained earnings.  When purchasing the fair value of identifiable assets minus preferred shares →not we own, we offer them because we do not pay their shares. The price is as follows using 4 cases: I. II. III.

If there is a callable price, use it. if there no callable price we use Market value at acquisition. If there is no market value at the time of acquisition, we use the nominal value at the time of issuance.

IV.

If there is no market value at the time of issuance, we use the nominal value....