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Business acquisitions - Coursework Example

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GAAP (Generally Accepted Accounting Principle) acknowledges several accounting methods for an investing corporation. This can be Fair- value method or Equity method. In addition to these two, is the Consolidation formula for the reporting stands (Sevin, S., Schroeder, R., 2005). All the three methods are great in their application which is majorly determined by the control which Big Co. will have on the three companies it has ownership. …

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Business acquisitions

This can be Fair- value method or Equity method. In addition to these two, is the Consolidation formula for the reporting stands (Sevin, S., Schroeder, R., 2005). All the three methods are great in their application which is majorly determined by the control which Big Co. will have on the three companies it has ownership. The best method which will suit Big Co. in handling its accounting systems will be the Equity method as far as its relationship with Small Co is concerned. This is primarily because the Big Co. only has a noticeable control of the Small Co. (3000share of the 10000 share is a considerable control). For the case of Little Co., Big Co. has a fairly small control which amounts to about one percent of the issued (i.e. owns 1000 shares of the 10000 shares) stock. For this reason, Fair value accounting formula will be employed in treating the accounts work that relates the two companies. Considering the case in Tiny Co., Big Co. has total control on this company and hence the method of consolidation of the accounts will be used. The relationship between Big Co. and Tiny Co. will be viewed as one business. The three methods will be applied as has been outlined mainly because of the voting control Big Co. has on each of them. Journal Entries The ownership which Big Co. has on Little Co. of about 1%, the accounting will be guided entirely by fair value method. This is reflected right away from the journal entries which are the original books of accounts where transactions are recorded as they occur. ...
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