IFM 2

10 flashcards · Other · by Daniel F.

  1. Business Expansion

    Internal Expansion: company grows by creating a new business unit from its own existing resources. External Expansion: company grows by acquiring control over another existing business. This is what we typically call a merger or acquisition (M&A).

  2. Internal Expansion, the how and why

    How: parent company (P) takes some of its own assets (like cash, buildings, inventory) and transfers them to a brand-new legal entity, a subsidiary (S). In return, the parent company gets ownership (stock) of that new subsidiary Why: Control: To create a clear management structure for a specific business line. Specialization: To allow a unit to focus on one activity (e.g., a manufacturing company creating a separate subsidiary just for R&D). Regulatory Reasons: Some industries (like banking or…

  3. Accounting for Internal Expansion

    The Concept: This exercise tests the accounting for an internal expansion, where assets are transferred at book value, not fair value. The trick is to remember to account for depreciation. no transaction with an outside party has occurred, there is no change in the value of the assets Parent's Journal Entry: Remove assets to transfer them (credit) Remove their acc. dep. (debit to remove contra-asset) Add common stock (transferred assets - transferred acc. deps) Investment in X common stock Subs…

  4. Spin-offs and Split-offs

    Assets & Liabilities: In both cases, the parent company is transferring a whole segment (with its assets and liabilities) to a new, separate entity. Therefore, from the parent company's perspective, its total assets and liabilities are Reduced in both a spin-off and a split-off. Outstanding Shares: This is the key difference. S Spin-off: Think of this as a "gift" or a dividend. The parent company gives the shares of the new subsidiary to its existing shareholders. The shareholders don't give up…

  5. External Expansion: Business Combinations How to gain control Forms or Business Combinations why is one option of them better

    Gain control: ability to direct the policies and management of another company The Usual Way: Owning more than 50% of the voting stock. The Unusual Way: Through contracts or other arrangements that give effective control even without majority ownership. Forms Statutory Merger: Company A acquires Company B. Company B is dissolved, and only Company A survives as a legal entity. Statutory Consolidation: Company A and Company B both dissolve. A brand-new company, Company C, is formed to take over t…

  6. Accounting for Acquisition of Net Assets, Statutory Merger (External Expansion)

    Fair Value Measurement: The acquiring company must recognize all the assets and liabilities of the company it bought at their acquisition-date fair values, not their book values. record assets/liabilities at fair value and expense acquisition-related costs. Goodwill: This is a special intangible asset that arises when an acquirer pays more for a company than the fair value of its identifiable net assets things you can't put on a balance sheet: a strong brand name, a talented workforce, customer…

  7. Accounting for Stock Acquisition (External Expansion)

    acquirer issues shares to buy 100% of ackquiree add (debit) Investment in ackquiree to assets credit common stock par value credit Additional Paid-in Capital

  8. Segment Reporting

    process of disaggregating the financial statements to provide more transparency doesn't report on every single division. It only reports on "operating segments" that are significant enough to matter to an investor

  9. Which segments to disaggregate

    Identify Operating Segments Engages in activities to earn revenues and incur expenses. Whose results are regularly reviewed by the chief decision-maker for performance assessment and resource allocation. For which separate financial information is available. Apply the Quantitative Thresholds (10% tests): segment only needs to pass one test 10% Revenue Test: The segment's total revenue (both external and intersegment) is 10% or more of the combined total revenue of all operating segments. 10% Pr…

  10. Enterprise-Wide Disclosures as "non operating segments"

    Information about Products and Services: Revenue from external customers for each major product line. Information about Geographic Areas: Revenue and long-lived assets for the company's home country and for all foreign countries in total. If a specific foreign country is material, it must be disclosed separately. This helps investors assess geopolitical risk and the degree of multinationalism. domestic country must always be reported separately For foreign countries, apply a 10% materiality tes…