Merger & Acquisition Accounting

1. Merger & AcquisitionAccounting A. Faisal Sultan

2. Accounting Type I. By Pooling of Interests (MetodePenyatuanKepentingan) A method of accounting that allows the balance sheets of two companies to be added together during an acquisition or merger. Pooling of interest allows for assets to be evaluated by book value rather than market value

3. II. By Purchase (MetodePembelian) The purchase method in which the purchasing company adds the absorbed company's assets to its fair market value. One of the important differences between the two methods is that pooling of interests allows for assets to be evaluated by book value rather than market value. This allows them the option to work without adding in goodwill, an intangible value that a business earns through reputational factors like customer relationships and brand recognition.

4. Matrix

5. Accounting Example Perusahaan PT D, PT E dan PT F, sepakatbergabungMendirikanperusahaanbaru PT DEF, untukkepentingantersebut, aktivaperusahaandinilaikembalidenganhasil PT D tetap 1.000.000,- PT. E dinaikkanmenjadi Rp7.000.000,- dan PT F menjadi Rp550.000,-. Atasaktivadankewajiban yang diambilalih PT DEF mengeluarkan 1 lembarsahambiasauntuksetiap RP25.00 aktivabersihsesudahpenialaiandiambilalih.

6. Question • Jumlahlembarsaham yang dikeluarkan PT.DEF? • Buatlahjurnalpadapembukuan PT DEF denganmetode Pooling of InterestatauPurchase ? a. Sahamtanpa nominal b. Nominal Saham Rp30.00 per lembar c. Nominal Saham Rp25.00 per lembar d. Nominal Saham Rp20.00 per lembar e. Nominal Saham Rp.15.00 per lembar

7. Answer Jumlahlembarsahambiasa yang diterbitkan

10. Effects on Net Income • When purchase price exceeds the book net worth of target, accounting net income of the combined firm will be lower under purchase accounting than under pooling • When the excess is assigned to depreciable assets, the depreciation expense item will be increased

11. When the excess is assigned to goodwill, the annual amortization of goodwill will be increased whether tax deductible or not

12. Effects on Cash Flows • If the excess is assigned to nontax deductible goodwill, cash flows are unaffected • When the excess is assigned to depreciable assets, cash flows under purchase accounting will be increased by the amount of depreciation tax shelter

13. When the excess is assigned to goodwill whose amortization is deductible under the tax law change of 1993, cash flows under purchase accounting will be increased

14. Effects on Leverage • Pooling — leverage is unchanged • Purchase • When payment is by stock, leverage is decreased • When payment is from excess cash or increased debt, leverage is increased • See the text and diskette for use with Weston, Johnson, Siu (2000) for Tables 3.1 through 3.6 for analysis of above relationships

15. Empirical Studies • Acquiring firms prefer pooling method to avoid negative impact of goodwill amortization on reported earnings • Stock prices of acquiring firms are not penalized when purchase method accounting is used • No statistical significant difference in stock price reactions to accounting method used in nontaxable transactions

16. FASB Proposal to Eliminate Pooling • Effective late 2000 or early 2001 • Reasons to eliminate pooling • Provides less information • Ignores the values exchanged • Financial statements do not provide enough information on the transaction • Difficult to compare companies • Artificially boosts earnings • Transaction should be recorded based on value that is given up in exchange