Economic Consequences Of Accounting Methods In Business Combination

Business combination is the basic form of capital and market concentration. Different accounting methods in business combination will make the consolidated financial statements reflect different financial situation and operating results, and affect the assets value of combined company and direct economic interests of both sides in the business, and thus affect the interests of other parties and the optimal allocation of social resources, that the choice of accounting methods and policies has its economic consequences.In view of the evolving economic situation and development trend, whether in international or domestic scope, the provisions of accounting method in mergence are continuously changing. In 2006, Ministry of Finance of China issued the "Accounting Standard for Business Enterprises No.20——Business Combinations", provides the Pooling of Interest Method under the unified control and the Purchase Method under non-unified control.With the emerging of economic strategic opportunities, especially during the world economic crisis in the last two years, domestic and overseas mergers and acquisitions of Chinese enterprises are gradually rising. And as the period of the transfer to the new accounting standards, carrying a deep and comprehensive analysis and assessment of accounting standards on business combinations, holding objective understanding and expectations of the situation on the domestic and overseas mergers and acquisitions, are of great importance. It is not only necessary for the study of accounting theory in the consolidation, but also offers a guide and reference to the combination practice.This paper is divided into six chapters:The first chapter is introductory section. It mainly introduces the purpose, significances and background of the topic, then describes the innovation of the article and the overall research ideas and measures.The second chapter expounds the basic theory of business combination, involving the related contents of Economics, Management, Accounting and other disciplines, which lays theoretical foundation for the systematic analysis of the economic consequences in later chapters.Chapter III briefly introduces the types of mergers and the history of accounting treatment in business combinations, summarizes the respective characteristics of Purchase Method and Pooling of Interest Method and their differences in accounting treatment. Chapter IV conducts a comparative analysis on the affects towards the current and future annual financial statement and indexes, which is caused by the different accounting methods. This section is assisted with cases, in order to verify the theoretical analysis.Chapter V analyzes the specific economic consequences of the merger accounting methods, and undertakes the case given in Chapter IV to go on further verification.Chapter VI takes into account of our current research of mergers and practice situation, evaluates the existing Accounting Standards, and put forward relevant recommendations, to propose reference standard for policies and practices on the business combination.