Regardless of the method of acquisition; direct costs, costs of issuing securities and indirect costs are treated as follows: Treatment to the acquiring company: When purchasing the net assets the acquiring company records in its books the receipt of the net assets and the disbursement of cash, the creation of a liability or the issuance of stock as a form of payment for the transfer.
Treatment to the acquired company: The acquired company records in its books the elimination of its net assets and the receipt of cash, receivables or investment in the acquiring company (if what was received from the transfer included common stock from the purchasing company).
In this type of relationship the controlling company is the parent and the controlled company is the subsidiary.
The taxation term of consolidation refers to the treatment of a group of companies and other entities as one entity for tax purposes.
Under the Halsbury's Laws of England, 'amalgamation' is defined as "a blending together of two or more undertakings into one undertaking, the shareholders of each blending company, becoming, substantially, the shareholders of the blended undertakings.
If other factors exist that reduce the influence or if significant influence is gained at an ownership of less than 20%, the equity method may be appropriate (FASB interpretation 35 (FIN 35) underlines the circumstances where the investor is unable to exercise significant influence).
To account for this type of investment, the purchasing company uses the equity method.
When the amount of stock purchased is more than 50% of the outstanding common stock, the purchasing company has control over the acquired company.
Control in this context is defined as ability to direct policies and management.
The company does not need any entries to adjust this account balance unless the investment is considered impaired or there are liquidating dividends, both of which reduce the investment account.
Liquidating dividends : Liquidating dividends occur when there is an excess of dividends declared over earnings of the acquired company since the date of acquisition.
There may be amalgamations, either by transfer of two or more undertakings to a new company, or to the transfer of one or more companies to an existing company".
Consolidation is the practice, in business, of legally combining two or more organizations into a single new one.
In business, consolidation or amalgamation is the merger and acquisition of many smaller companies into much larger ones.