A company acquires a competitor for $100 million. It amortizes the transaction over ten years ($10 million/year). What transactions occur on the income statement, balance sheet, and cash flow statements in years 1 and 2? What would occur to the Cash Flow Statement? Would $10 million go under Cap Ex?
2007-10-11 14:37:52 · 2 answers · asked by Jay J 1 in Business & Finance ➔ Other - Business & Finance
Why is the cost of acquisition amortized? When you acquire a business, it's an investment and should be accounted for as a long-term investment. Even if there is goodwill arising from the acquisition, IFRS 3 Business Combinations doesn't allow amortisation anymore.
2007-10-11 15:40:15 · answer #1 · answered by Sandy 7 · 0⤊ 0⤋
When the competitor xxx, is acquired:
dr the xxx 100,000,000.
cr cash 100,000,000.
End of first year:
dr amortization expense xxx 10,000,000.
cr accumulated amortization xxx 10,000,000.
The contra account offsets xxx, but does not change the asset account. Accumulated amortization would now have a
credit balance of 10,000,000.
End of second year:
Same entry as year one.
Now, accumulated amortization has a credit balance of 20,000,000.The difference showing (100,000,000. - 20,000,000.) = 80,000,000.
2007-10-11 14:47:36 · answer #2 · answered by fivestring46 4 · 0⤊ 0⤋