BUSINESS COMBINATIONS

Supporting Lecture :

By :

Rizzah Rahmaniah

IPAcc I

20160420023

ACCOUNTING DEPARTMENT

FACULTY OF ECONOMICS

MUHAMMADIYAH UNIVERSITY

YOGYAKARTA

2016/2017
A. BACKGROUND

The company constantly strives to create economic value to its

shareholders. In relation to this strategy, expansion has long been
regarded as a destination business entity that makes sense. The company
may choose to expand the effort both internally (build own facilities) as
well as in ekternal (to take over control of another company in a merger).
Often times companies figure out that entering a new product or
geographical area is more easily achieved with acquired or merged with
another company. For example, the company Symantec (Norton antivirus
software manufacturers) acquires Veritas Software (manufacturers of
storage systems and backup) totaling $13.5 billion.

B. DEFINATION

Business Combination is the union of two or more separate

companies into one economic entity because one company uniting with
other companies or acquiring control over the assets and operations of
another company.

According to IFRS 3, the merger occurs when a company was

formed as a single rapporteur entity on one or more of the companies
acquired. In other words, Business combination is covering a net purchases
of assets, including goodwill of an entity. But not as a purchase over other
companies or equity rather than generate a relationship of parent and child.
Based on the definition of bussiness combination according to IFRS 3, can
be explained that business combination should be recorded using the
purchase method. And The Pooling method is no longer used.

The combination of the companies was done due to the various

objectives to be achieved in order to obtain a broader marketing area, higher
sales volumes, a more powerful organization, production and better
management, cost savings through an economical and efficient operation,
to better control the market and position against competition, product
diversification, and the ability to accumulate larger capital.
C. The business combination forms

The bussines combination can be distinguished into various kinds of

the following form. In terms of the type of business the Company Merged
form of incorporation of business entity is seen in terms of the type of
business that companies that join are distinguished into three kinds of the
following form :

1. Horizontal Combinations. HorizontalCombinations occurs when

companies are joining in the line of business or the same market.
In general the underlying motives of the formation of a
horizontal merger is in order to reduce the level of competition
among peers. Another advantage of horizontal merger expected
in addition to reducing competition, as well as by the existence
of a larger scale operation so that it can be conserved for a wide
range of costs. For example, Delta Air Lines took over the
control of his rival, namely Western Air-Lines, at a cost of $787
million.

2. Vertical Combinations. When the original company was

subscribed against products (services) produced by another
company, or on the contrary another company that is a supplier
of raw materials for him and then held the merging company,
then the combination so called vertical combination. The motif
of vertical mergers in General is in order to get the certainty of
production or marketing results kon-tinuitas provision of raw
materials. For example, Disney acquired ABC Television during
1995 to provide easy access to the market of mass broadcasting
to film-Disney film, as well as outlet advertisement yg is suitable
for other Disney products.

3. Conglomerate Combinations.The incorporation of companies

with products or services, or both, that are not interconnected
and diverse. The goal of the combinations is conglomerate
diversification risk yg untukmengurangi relating to certain
business lines. For example, Texas Utilities Company
mengakuisis Lufkin-Conroe Communications Company, a local
phone company, to diversify into the telecommunications
business.
In terms of the incidence of Law in terms of the incidence of law, forms of
incorporation of business entity can be distinguished into :

a. The Merger. The merger is the merger of the company with its
direct ownership by a company against the property of one or
more other companies combined. In this way the company that
took over the property of another company becomes the only
company still maintains its identity as well as continuing his
efforts. While other companies who handed his possessions was
dissolved and thus lost its status as a separate business unit.
Usually this kind of merge is done by the way have all the wealth
and recognize all liabilities (debts) of the company was
dissolved. Payment against net worth which may take the form
of cash; Securities (stocks) or both. In the event that the payment
exceeds the amount of (above) the market value of the net worth,
the difference the more recognized and recorded (treated) as a
goodwill payment. This can be justified only if the companies
combined have more capabilities to gain an advantage. For
example, Bank Danamon + = Bank Duta, Bank Danamon and
PT Sarasa Nugraha tbk. + PT Indo Acidatama = PT Sarana
Nugraha tbk.

AA Company

AA Company

BB Company

(Only one company surviving the other dissolved)

a. Statutory Merger

b. Consolidation. The merging companies referred to as

consolidation, if in the process of the merger that formed a new
company with a special purpose to buy (take over) property and
admitted debts of two or more existing companies. Usually the
 new company formed will issue share capital (securities) as
means of payment for the richness of the ber anyway submitted
by other companies. Thus, the owners (shareholders) of the
company's previous also became a shareholder (owner) in the
newly formed company. For Example, Bank Exim + BDN Bank
= Bank Mandiri
Before the merger and consolidation is carried out, usually some
requirements proposed by the respective companies authorized
by where jemen is concerned. Corporate merger agreement
must first be approved by the owners or shareholders of the
companies will be merged and disbanded, as well as by the
owner of the company that will remain and continue her efforts.
Corporate merger agreement must comply with and endorsed by
agencies or employers. Before the merger agreement is
implemented, businesses usually first necessary examination of
the financial statements of each company and the assessment
back against wealth by the designated agencies (approved) by the
parties concerned. The results of the examination of the financial
statements and the assessment of returned treasures will be used
as the basis to determine the relative contribution of each party
to the newly formed company. The merger of the company either
by way of merger or consolidation manner will result in the
formation of a company that is a combination of two or more
companies. In practice, often do not differentiate between peng
combined company by way of mergers and merger of
companies by way of consolidation.

AA Company
CC Company

BB Company

(The two companies are joining forces was disbanded and all its assets and
debts both these companies were transferred in the new company)

b. Statutory Consolidation
 c. Another form of the merger according to PSAK is if one company
acquiring the shares of other companies. While the company
obtained its shares can be dissolved (merger) in the end, if the
gain 100% control. d. any other form is if one company gaining
control through stock ownership majority (> 50%). While the
company acquired sahamnnya in the end will still stand. Both
companies are mutual ownership would be called: parent-
subsidiary relationship. Example, the Temasek company +
Danamon = Temasek (parent) + Danamon (subsidiary).

AA Company AA Company

BB Company BB Company

(one company buying shares in other companies and both continue operations
separately)

c Stock Acquisition

D. Issues that arise in a business combination

Problems arising in the process of combaning companies can be

complex, but it also can be simple. For example, the determination of the
amount to be paid and the payment terms in the merger of companies in
terms of the payout of cash-shaped relatively more modest if compared
with peng combined company where the payout is shaped securities,
who rates pasarnyapun not easily be determined. To that end, assistance
from the relevant management and other professionals such as
accountants, legal experts, analysts and much needed.
 Some of the cases and problems arising in the process of merging
the companies, along with how to approach (approach) to resolve the issue
will be discussed in this chapter are consecutively. The talk is more
oriented on the incorporation of the company by way of consolidation.
However on the merger by way of a business combination did not stray far
from the problems faced in the consolidation.

E. Accounting Problem For Business Combination

Based on IFRS 3 and IAS 27: procedure of accounting for the business
combination, namely: Purchase (by purchase).

Net assets and liabilities acquired is assumed to be constituted is

measured from the point of view of the parties entities that purchase. In
terms of accounting for the merger of business entities on the basis of the
purchase occurs when in a combination of two or more business entities,
in which the most important part of the ownership of the company or
companies that gained were both eliminated.

The acquisition price is fair value is the amount of assets or

liabilities that accrue on the transaction date plus the share capital issued
by the Purchaser Parties plus expenses-expenses directly in respect of
merger transactions. Capital stock issued as a means of payment should be
judged based on the market price.

Net Assets Acquired

The criteria used for the net assets disclosure: (1) assets aside
from intangible assets should be stated if the future economic benefits
will come may be obtained by the buyer and the value used is a
reasonable value; (2) Liabilities other than liabilities constituted should be
stated if there is a flow of assets coming out in the future by the buyer
and the value used is a reasonable value; (3) an obligation constituted or
intangible assets must be disclosed at fair value.
 Minority rights are stated in the amount of the share of ownership
upon the reasonable value of the net assets faithful. On the merger by
purchase, in which the basic used the recording of assets (accountability),
then the recording against net worth submitted by each company earlier
are not the same as that reported by the previous company (generally
above book value). When in the incorporation of the new company's
capital stock is assessed and issued on the basis of the highest level of
profit that could be dikapitalisasikan, then the value of the capital stock is
greater than the entire market value of intangible assets. This will drive for
it must be admitted the existence of "assets not berw shape" (goodwill)
is in the process of merging the business entity. Because in a merger by
purchase "market value" is used as the basis for recording, then as a
consequence of such market value must also be used as a basis in
determining the magnitude of costs against income at a later date,
particularly for fixed assets (such as depreciation expenses).

In case of a merger by purchase there are intangible assets

(goodwill) recognized will not be amortized, but on an annual basis will be
tested to decrease as stated in IAS 36.

F. The Procedure Of Recording The Purchase Method

1. If the investment cost of the acquired company (cost) > value

reasonable (fair value) net assets (assets liabilities) that are submitted by
the party diakuisis = the difference allocated as goodwill or causing a rise
in the value of certain assets reasonably proportionately.

2. If the cost of the investment (cost) reasonable value < (fair value) net
assets (assets liabilities) that are submitted by the party that acquired =
difference in fair value of reducing allocated assets in certain
propporsional, or negative goodwill (allocated as should be stated
immediately in the income statement (IFRS 3).
G. CONCLUSION

The incorporation of a business entity is a merger or combination of

two or more companies into a single business unit, with the aim to
continue the effort. Thus, the merger of the business entity occurs if two
or more separate businesses together into one entity accounting. When
viewed from the compounded form, then the merger business entities can
be either a horizontal, a vertical merger a merger, and the conglomerate
merger. While when seen in terms of the law, then the merger business
entity could be a merger, consolidation, and affiliates. While according to
PSAK Number 10, the type of merger of two business entities, namely the
and the uniting of interest.
BIBLIOGRAPHY

Richard E. Baker, Valdean C. Lembke,Thomas E. King, Cynthia G. Jeffrey,

Amir Abadi Jusuf, Sylvia Veronica NPS, Etty Retno Wulandari, dan Dwi
Martani. 2009. Advance Financial Accounting. Jakarta: Selemba Empat.
Deni Syachrudin. 2013. AKL2 Materi 1 Penggabungan Badan Usaha.
http://deniumitralampung.blogspot.co.id/p/akl-2-materi-1.html,
5 April 2017