When acquiring a hospital, you need to integrate its assets and liabilities into the acquirer’s balance sheet. Key steps include:
- Adding Total Assets & Liabilities: Bring in all assets and liabilities from the hospital’s financials. Adjust for fair value re-measurement (e.g., PP&E, receivables, debt).
- Goodwill Recognition (If Applicable):Goodwill = Purchase Price – (Fair Value of Net Assets Acquired).If the acquisition price exceeds the net asset value, the excess is recorded as goodwill.
- Minority Interest Recognition: If the acquisition is less than 100%, recognize the minority interest as a separate component under equity.
- Example: If you acquire 80%, the remaining 20% is recorded as “Non-controlling Interest (NCI)” in equity.
The Profit & Loss (P&L) statement must reflect the full operational impact of the acquisition.
- Revenue & Expenses: Add the full revenue and expenses of the acquired hospital. Adjust for synergies, cost savings, and integration costs.
- Minority Interest Deduction: If ownership is <100%, deduct the minority’s share of net income in the “Minority Interest” line. Formula: Minority Interest = Net Income * % of NCI.
Example: If Net Income = ?100 Cr and NCI = 20%, then Minority Interest = ?20 Cr.
Acquisitions are primarily reflected in investing activities of the Cash Flow Statement.
- Acquisition Cost in Investing Cash Flows: The purchase price (net of cash acquired) is recorded under “Acquisition of Subsidiary” in investing activities.
- Consolidation of Cash Flows: Post-acquisition, the hospital’s cash inflows and outflows are fully included in the acquirer’s cash flow statement.
- Paid ?500 Cr for the hospital, which had ?50 Cr cash on hand.
- Net cash outflow = ?450 Cr (reported under investing activities).
- Always fully consolidate the acquired entity if ownership is >50%.
- Adjust the balance sheet for fair value adjustments & goodwill.
- Deduct minority interest in P&L if applicable.
- Capture the acquisition cost in cash flows for accurate projections.
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