accounting treatment for all cash M/A

Hi If you have a M/A transaction, all cash deal, what changes will you make to the B/S and Income statement For example, Warren Buffet’s 9 bn purchase of Lubrizol all cash I did the following a) using consolidation, assets = assets of the two firms - 9 bn b) liabilities will just be the sum of the firms before c) What do I do with S/E? d) Income statment, any ideas how to get started

this isn’t the real world bro, post a real CFA problem please. It depends on the type of transaction anyway. Equity of the subsidiary gets wiped out because you bought it.

Yeah I passed CFA two years ago but I would like a refresher for job. Good luck everyone

haha sweet

Eliminate stockholders’ equity (c/s, apic, r/e) from sub’s books (Lubrizol), eliminate investment in subsidiary from parents’ books (Berkshire) and any minority interest (if it wasn’t 100% owned), make any necessary BV to FV adjustments to both assets and liabilities, and finally record the residual as goodwill.

tanteikun Wrote: ------------------------------------------------------- > c) What do I do with S/E? > > d) Income statment, any ideas how to get started When the deal is done, there is a process called Purchase Price Allocation. Where the accountants determine what is really being acquired. How much in inventory, how much in accounts receivable, etc. The difference between the accounts and the price paid is any goodwill. Thus if you paid $9 B for the deal, and the net assets are $5, the remaining goodwill is likely $4 B. The effect on shareholder’s equity would be nil unless there was an in-process R&D or some kind of write-off at the time of the deal (which would hit shareholders equity). So likely, no effect on S/E. If you are interested in these things, look up accounting Purchase Price Allocation. The process is pretty similar for IFRS and GAAP.