A classification Scheme ■ Horizontal Acquisition --in the same industry Vertical Acquisition --at the different steps of the production process Conglomerate Acquisition -not related to each other slide 5
slide 5 A classification Scheme A classification Scheme Horizontal Acquisition -- in the same industry Vertical Acquisition -- at the different steps of the production process Conglomerate Acquisition -- not related to each other
The tax forms of acquisitions Bill Evans started SM 15 years ago and buy the equipment by $80,000.The assets have been depreciated using the straight-line method over 10 years and have no salvage value.Because of inflation,the fair market value of the machinery is $200,000.Another company has bid $200,000 for all of the outstanding stock of SM. slide 6
slide 6 The tax forms of acquisitions The tax forms of acquisitions Bill Evans started SM 15 years ago and buy the equipment by $80,000. The assets have been depreciated using the straight-line method over 10 years and have no salvage value. Because of inflation, the fair market value of the machinery is $200,000. Another company has bid $200,000 for all of the outstanding stock of SM
Accounting for Acquisitions ■Firm A Cash 4 Equity 20 Land 16 Building 0 Total 20 20 Firm B Cash 2 Equity 10 Land 0 Building 8 Total 10 10 slide 7
slide 7 Accounting for Acquisitions Accounting for Acquisitions Firm A Cash 4 Equity 20 Land 16 Building 0 Total 20 20 Firm B Cash 2 Equity 10 Land 0 Building 8 Total 10 10
The purchase method The purchase method of reporting acquisitions requires that the assets of the acquired firm be reported at their fair market value on the books of the acquiring firm. Firm AB Cash 6 Debt 19 Land 16 Equity 20 Building 14 Goodwill 3 Total 39 39 slide 8
slide 8 The purchase method The purchase method The purchase method of reporting acquisitions requires that the assets of the acquired firm be reported at their fair market value on the books of the acquiring firm. Firm AB Cash 6 Debt 19 Land 16 Equity 20 Building 14 Goodwill 3 Total 39 39
Pooling of Interests The assets of the new firm are valued at the same level at which they were carried on the books of the acquired and acquiring firms. Firm AB Cash 6 Equity 30 Land 16 Building 8 Total 30 30 slide 9
slide 9 Pooling of Interests Pooling of Interests The assets of the new firm are valued at the same level at which they were carried on the books of the acquired and acquiring firms. Firm AB Cash 6 Equity 30 Land 16 Building 8 Total 30 30