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    cHoCoLo's Avatar
    cHoCoLo Posts: 1, Reputation: 1
    New Member

    Mar 25, 2010, 09:39 PM
    Explain how the business combination entries affect the pre-acquisition entries.
    This question relates to company accounting and the consolidation process. I don't quite understand the types of entries and what they do.
    rehmanvohra's Avatar
    rehmanvohra Posts: 739, Reputation: 27
    Senior Member

    Mar 25, 2010, 10:05 PM

    The question is not quite clear. Business combination arises when one entity acquires significant control over another entity.

    On acquisition the acquiring company records the transaction as an investment. Both these entities prepare separate financial statements. However, consolidated statements are prepared when certain criteria are met. (See IAS 27 and IFRS 3)

    Consolidated financial statements are prepared on the date of acquisition as well as for all periods after acquisition as long as the control is maintained.

    Pre-acquisition entries relate to those transactions affecting the parent company arising of transactions and events relating to the period before the entity control was acquired, such as dividends related to period before acquisition.

    In such cases, the dividends related to pre-acquisition is treated as a reduction in the cost of investment. I am sure you would recall from the study of accounting treatment of investments that when you purchase shares at a -div price, then the dividends received after the purchase is deducted from the cost of investment. The same principle applies here.

    However, if you have any specific problem, please post it along with your own understanding of the solution and you will indeed be guided.

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