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What are the differences between final accounts for mergers and acquisitions and regular final accounts?

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Final accounts are the financial statements that show the performance and position of a business at the end of a period. They usually include the income statement, the balance sheet, and the cash flow statement. However, when a business is involved in a merger or an acquisition, the final accounts may differ from the regular ones in some aspects. In this article, you will learn what are the main differences between final accounts for mergers and acquisitions and regular final accounts, and why they matter for corporate accounting.

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Sambasiva Rao S, MBA, CFA, CMA

Head of Finance at NSL Sugars
Tomi Akinwale ACCA, ACA, ACTI, B.TECH, FMVA, AAT.

Tax | Deloitte | Financial Reporting | Unlocking Your Career Potential
ISMAILA AFOLABI OLATUNDE ( BSC, ACA, FMVA? )

First Class Accounting|Financial Planning & Analysis|Corporate Finance| Financial Reporting|Strategy

1 Types of mergers and acquisitions

Before diving into the differences between final accounts, it is important to understand the different types of mergers and acquisitions that can occur. A merger is when two or more businesses combine to form a new entity, while an acquisition is when one business buys another business and takes control of it. Depending on the nature and the method of the merger or acquisition, there are different accounting implications for the final accounts. For example, a merger can be classified as a purchase, a pooling of interests, or a reverse merger, while an acquisition can be done by paying cash, issuing shares, or exchanging assets.

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Sambasiva Rao S, MBA, CFA, CMA

Head of Finance at NSL Sugars
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Here are some differences between mergers and acquisitions and regular final accounts: Merger accounting Used when two companies of similar size combine into one new company. The assets and liabilities of both companies are combined at their carrying values. Acquisition accounting Used when one company purchases or takes control of another company. Acquisitions can be stock acquisitions or asset purchases. Regular final accounts Final accounts adjust items to calculate the correct profit or loss of the business

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2 Consolidated financial statements

One of the main differences between final accounts for mergers and acquisitions and regular final accounts is that the former require consolidated financial statements. Consolidated financial statements are the combined financial statements of the parent company and its subsidiaries, after eliminating any intercompany transactions and balances. Consolidated financial statements provide a comprehensive view of the financial position and performance of the merged or acquired entity, as well as its segments and components. Consolidated financial statements are prepared according to the principles of the relevant accounting standards, such as GAAP or IFRS.

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Tomi Akinwale ACCA, ACA, ACTI, B.TECH, FMVA, AAT.

Tax | Deloitte | Financial Reporting | Unlocking Your Career Potential
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The consolidated financial statements prepared as final accounts for mergers and acquisitions and regular final accounts differs considerably. Mergers usually have further elements such as goodwill and purchase consideration and more disclosure requirements.

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3 Goodwill and intangible assets

Another difference between final accounts for mergers and acquisitions and regular final accounts is that the former may include goodwill and intangible assets that are not present in the latter. Goodwill is the excess of the purchase price over the fair value of the net identifiable assets of the acquired business. It represents the future economic benefits that the acquirer expects to gain from the acquisition, such as customer loyalty, brand recognition, or synergies. Intangible assets are non-physical assets that have a finite or indefinite useful life, such as patents, trademarks, or licenses. Goodwill and intangible assets are recorded as assets on the balance sheet and are subject to impairment testing and amortization.

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ISMAILA AFOLABI OLATUNDE ( BSC, ACA, FMVA? )

First Class Accounting|Financial Planning & Analysis|Corporate Finance| Financial Reporting|Strategy
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In most cases, the final account of a company that just merged or acquired another company will have goodwill and sometimes intangible assets. For a final account of a normal company, there is no goodwill in the financial statements as both IFRS and GAP forbid recognition of goodwill generated internally.

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4 Purchase price allocation

A third difference between final accounts for mergers and acquisitions and regular final accounts is that the former involve purchase price allocation. Purchase price allocation is the process of allocating the purchase price of an acquired business to its identifiable assets and liabilities, based on their fair values. Purchase price allocation affects the valuation and measurement of the assets and liabilities on the balance sheet, as well as the recognition and allocation of goodwill and intangible assets. Purchase price allocation also impacts the income statement, as it affects the depreciation and amortization expenses, the deferred tax liabilities, and the earnings per share.

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5 Contingent consideration

A fourth difference between final accounts for mergers and acquisitions and regular final accounts is that the former may include contingent consideration. Contingent consideration is an amount that the acquirer agrees to pay to the acquiree in the future, based on the occurrence or non-occurrence of certain events or conditions. For example, the acquirer may pay a bonus to the acquiree if the acquired business achieves a certain level of revenue or profit. Contingent consideration is recorded as a liability or an equity on the balance sheet, depending on its nature and characteristics. Contingent consideration is measured at fair value and is subject to changes in estimates and assumptions.

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6 Disclosure requirements

Final accounts for mergers and acquisitions require more disclosure than regular final accounts. These disclosure requirements vary depending on the accounting standards and regulatory authorities, but typically include the name and description of the acquired business, the purchase price and method of payment, the purchase price allocation and fair values of assets and liabilities, goodwill and intangible assets recognized, contingent consideration measurement, pro forma financial information, and the reasons and objectives of the merger or acquisition. Furthermore, impairment testing, amortization policies, expected benefits and synergies, impact on income statement and cash flow statement must all be disclosed.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Corporate Accounting

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What are the differences between final accounts for mergers and acquisitions and regular final accounts?

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1 Types of mergers and acquisitions

2 Consolidated financial statements

3 Goodwill and intangible assets

4 Purchase price allocation

5 Contingent consideration

6 Disclosure requirements

7 Here’s what else to consider

Corporate Accounting

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