Accounting Standards for Business Combinations

Accounting Standards for Business Combinations

Competition in markets frequently involves one business to merge with another one. Survival in a rivalry marketplace requires companies to expand business at the most profitable capacity. Regardless of the reasons for a company seeks expansion under the ownership, the main goal remains tracking potential profit. Within the modern business environment the Financial Accounting Standards Board (FASB), regulates concepts related to business combinations. To goal of this paper is to briefly explain and provide understanding of accounting standards for business combinations.

Companies often learn that entry into new product areas or geographic regions are more easily accomplished by acquiring or combining with other companies than through internal expansion. For example, SBC Communications, a major telecommunications company and one of the “Baby Bells,” significantly increased its service area by combining with pacific Telesis and Ameritech, later acquiring AT&T, and subsequently combining with BellSouth. Moreover, Cingular Wireless, the largest provider of mobile wireless communications in the United States and now part of AT&T, was operated as a joint venture of AT&T (Baker et al, 2011). AT&T was entering new business markets and providing further varieties of service by merging. Due to the poor economic status during this time period companies seeking to survive pursued combining during 2007 – 2008.

The most common of internal expansion is called split – off, which occurs when the ownership of newly created or existing subsidiary is distributed to the parent’s stockholders without the stockholders surrendering any of their stock in the parent company. The split – off occurs when the subsidiary’s share are exchanged for share of the parent, thereby leading to a reduction in the outstanding share of the parent company. Another example of business combinations is reflected when a company such as Delta...