Akademik

merger accounting

A method of accounting for a business combination. It may only be used when a business combination falls within the definition of a merger in Schedule 4A to the Companies Act 1985 and Financial Reporting Standard 6. A business combination meets the definition of a merger under the Companies Act only if it involves the exchange of equity shares for equity shares such that a stake of more than 90% is acquired and generally accepted accounting principles permit the use of merger accounting. Under FRS 6 it must satisfy the following five criteria:

• No party to the merger is portrayed as either the buyer or the target.

• All parties to the combination participate in the selection of management and such decisions are based on consensus rather than by reference to voting rights.

• The parties to the combination are approximately the same size.

• Only an immaterial proportion of the consideration received by shareholders of any party is other than equity shares in the combined entity.

• No equity shareholders of the combining entities retain an interest in the performance of part only of the combined entity.

For further information, see the IASB website and the ASB website.