Introduction
Business combinations and consolidations form a crucial part in the normal functioning of firms and economic units. It is vital to understand that a business is any form of integrated or homogenized set of activities and assets that bring back a return to investors either through dividends, profits, reduced costs and other economic advantages ( Taylor, 2012) . Growth in the realm of businesses is inevitable due to the constantly changing factors that influence trade including government regulations, prices and competitive profits. The consolidation of businesses affect the reporting of financial statements that provide a picture or perspective of the firm’s performance. This report will expound on the various ways in which merging of companies and firms affect the off-balance sheet manipulations.
Vital factors to consider in the formation of business consolidations and combinations is the means by which the fusion is conducted. There are different strategies of forming business consolidations and combinations that include: statutory merger, statutory consolidation and stock acquisition. Various firms opt to adapt a particular plan after analyzing a combination of factors such as a legal, tax, marketing, and operational issues as well as regulatory matters ( Geisst, 2009) . The acquisition method entails the parent company reporting its consolidation at the right business value. The company being acquired, also called the acquire, has to lists its assets and liabilities including all intangible factors such as goodwill and be consolidated at fair value.
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Statutory Merger
A statutory merger entails the continuing of normal operations for one of the merging firms regarding legal matters. In a statutory merger, one of the firms abandons its existence as a legal entity to allow for the absorption of its normal day to day activities to be reported under the acquirer firm. Vital matters such as assets and liabilities as well as all other unrecorded intangibles of the aquiree company are recorded and noted at fair value on the acquirer financial books. Accounting rules as stipulated by the FASB (Financial Accounting Standards Board), clearly state that no equity of the aquiree company should appear in the newly consolidated financial statement ( Taylor, 2012) .
The statutory merger can also take place when the acquirer company buys the stock of the smaller firm and later dissolves all its operations. Net assets of the acquire firm should be recorded at fair value in the newly consolidated books. This method is less strenuous as it allows the newly acquired firm to be absorbed smoothly by the parent company and merge its operations with relative ease. Matters of ownership is sorted out through the purchasing of shares at the stock exchange market. Recording of goodwill becomes easier as all assets and liabilities are factored in the price of the shares in the merger ( Geisst, 2009) .
Statutory Consolidation
Statutory consolidations forms another commonly used strategy of business combination. The main factor in the merger is that both companies abandon their operations to form a new company that now handles all matters and operations. All assets and liabilities, both the tangible and intangible, of the acquiree and acquirer firm are noted and recorded at fair value. The new firm then cancels out the common stock and debts of the two firms to finally mark the end of their existence. The statutory consolidation forms an effective way of introducing structural and organizational changes in the running of a company ( Taylor, 2012) . Firms that choose the strategy form new ways of operations as well as various positions and job descriptions.
Acquisition Strategy
The acquisition strategy involves the purchasing of a smaller firm’s stock and ownership by the larger firm. The strategy differs from statutory merger as the assets, liabilities and stockholder’s equity of the two firms are recorded in the same format of accounting that was previously in use. The firms will only change in terms of ownership and the beneficiaries of profits and dividends but operations and recording of financial statement continues normally. The two firms use various reporting techniques to avoid double entry or wrong reporting of finances. A crucial part is the treatment of intangible assets in the acquisition process. Intangible assets have to be noted in the consolidated financial books at fair value regardless of whether they were previously reported in the acquirer financial statements. Other bought intangible assets such as patents and trademarks are included under the investment cost of the acquisition ( Geisst, 2009) .
Goodwill Under the acquisition strategy
The recording of goodwill serves as one of the areas of interest and concern when approaching the consolidation of a business through the acquisition method ( Ting, 2013) . It is crucial to report goodwill where the fair value of consideration transferred along with any additional fair value of non-controlling interests in the smaller firm is more than the fair value of net assets acquired. The purpose of considering goodwill is to ensure the bargain of purchase increases as well as appearing on the consolidated income statement in the specific accounting time frame that the acquisition happens ( Ting, 2013) .
Conclusion
It is apparent that the different methods of business combinations and consolidations have contrasting regulations and laws to observe. The statutory merger emphasizes of the merging of two or more companies without killing the operations of the acquirer. Reporting of intangible assets is key to the strategies, all of which happens at the fair value. Statutory mergers require the abandonment of operations by the acquiree while the acquisition strategy maintain the normal operations of both firms. In all scenarios, it is key to report the assets and liabilities at the fair value while considering the intangibles.
References
Geisst, C. R. (2009). Encyclopedia of American Business History . New York, NY: Infobase Publishing.
Taylor, P. (2012). Consolidated Financial Reporting . Thousand Oaks, CA: SAGE.
Ting, A. (2013). The Taxation of Corporate Groups Under Consolidation: An International Comparison . Cambridge, England: Cambridge University Press.
