In: Accounting
1. Discuss the effect of a business combination on cash flow
When one business gains control of a separate business it is
known as a business combination. Business combinations are a way
for a business to grow externally and expand their business by
acquiring a larger share of the market they already operate in or
by acquiring a company in a different business altogether to expand
their footprint. This is frequently done when a company evaluates
themselves and determines that it is either not feasible or not
possibleto expand internally. When acquiring another company the
two different companies must combine their financial statements.
The financial statement is then prepared and recorded by the
acquiring company and only the current reporting period is
documented.
All business combinations are accounted for using the acquisition
method of accounting. The acquirer must be identified as well as
the acquisition date. All assets, liabilities, non-controlling
interests and goodwill must be measured and recognized by the
acquirer. Any acquisition fees will be recognized in the period for
which they were incurred with the exception of the cost to issue
debt