Question

Discuss why two different types of firms such as a national marketing firm and a national accounting firm would want to combine. In your discussion, include how influence or control of one firm may be an issue along with what those terms imply. Also, provide some insight on the type of accounting methodology that might be used for such a business combination.

Answer 1

Reasons why 2 different firms such as national marketing firm and national accounting firm combine:

1) To gain larger market share.

2) Increase revenue and Efficiency.

3) To optimize costs.

4) Survive and Growth of weak Firm.

5) Tax Purpose and make a implicit move.

6) Diversifying their products and services.

7) Healthy Competition

8) New Clients and Client Referrals can be obtained.

9) For the brand portfolio also such combination takes place.

To combine a firm means control of one entity over another entity. But such control or influence of one firm can be a Issue in certain ways like:

* Monopoly of bigger firm can affect the other and eventually prices would be increased.

* Internal friction and competition between 2 combined firms can also be a issue.

* Due to culture and management clash of 2 firms employee productivity can be reduced.

Accounting methodology that can be used in business business combinations are:

## Determination of acquirer- In general the entity which obtains control of another entity is the acquirer.

## Determination of acquisition date- The date when one entity obtained control on other entity date would be considered acquisition date.

## Consideration and the acquisition of Asset and Liability- In business combination there is 100% transfer of Asset and Liabilities so consideration to be checked whether it is in Arms Length Price or Fair Value

## Follow GAAP: Firms must follow the GAAP principles and any changes to it must be adhered accordingly.

## Income Tax- Must recognize the tax deductions and penalties and measure deferred tax asset and liabilities.

## Disclosures- Proper disclosures must be made in financial statements and Audit reports about the nature and effects of business combination

## Internal Control and Audit- For few consecutive years post merger one must continue with Internal audit operations for easy management and audit compliances.

## Valuation of Goodwill and bargained purchase must be considered.