A Research Of Value Evaluation And Consolidated Goodwill In Listed Company M&A Transaction

Enterprise merger&reorganization transaction is the eternal theme of capitalmarket, which essentially can be demonstrated in the world economic history. Sincethe end of the19th century, five M&A waves have been swept the world from the USand other western countries. Every time has brought significant and profound influenceto the development of world economy. We can also catch the same sight in dynamicand promising China capital market. In China capital market, proportion of M&Atransactions between listed companies have been improved steadily near to globalaverage in recent years. M&A involves not only the company’s capital operation andstrategic management, but a series of accounting issues. Relevant provisions ofaccounting system and accounting standards has profound influence on the M&Adecisions. While relevant accounting decisions in M&A transactions is a concern onthe focus of attention of all parties.Enterprise value evaluation is a core part and the foundation of a M&A deal,which provides basic information for transaction price. This paper introduces threebasic valuation methods: cost method, market method and income method, whichfocuses on the cash flow discount method in the income approach. In2001, the USfinancial accounting standards board issued the accounting standards for financialstatement No.141–“merger of enterprises”. No.141cancelled the pooling of interestmethod and required all enterprises to adopt purchase method. In March2004, theinternational accounting standards board issued the international financial reportingstandards No.3–“merger of enterprises” to replace the previous “internationalaccounting standards No.22-merger of enterprises”, which hold that enterprisemerger must use purchase method and abolishes pooling of interest method. At thesame time, No.22prohibits amortization of goodwill by installments. Whereimpairment issues appear, impairment test is a must for amortization of goodwill. Theexisting accounting standards in China chooses to adopt international standards, whileas a result of China’s special conditions and system constraints, some rules are notidentical with international accounting standards. Business combinations are classifiedinto the business combinations under the same control and the business combinationsnot under the same control in current domestic enterprise merger standards. The formeruses the pooling of interest method, while the latter adopts the purchase method. This paper analyzes the different methods respectively from theoretical basis, accountantprocesses, impact on financial indicators and consolidated financial statements. Underthe purchase method, consolidated goodwill will be confirmed and processedimpairment test in the following two years, which has a significant impact on overallrevenue in future. Based on in-depth study of accounting treatment of assets valuationand goodwill in Anhui Jiangnan (Anhui Jiangnan Chemical Industry Co., LTD) M&Atransaction, the thesis adopts both theoretical analysis and case analysis to probepossible problems in valuation of the target enterprise and goodwill appraisement. Inthe end of the paper, we put forward a series of explorations and advices to improvecurrent accounting rules in M&A deals.The introduction of the paper reviews background and significance, and thenintroduces research methods and innovations. The second part is M&A accountingtheory overall analysis, which focus on the definition of M&A and motivation theory,research status in domestic and overseas of the selected topic and three basic valuationmethods. The third part of the paper introduces international provisions and analyzesdifferences between the purchase method and pooling of interest method. This chapteranalyzes the content of these theories in the introduction of evolution of M&Agoodwill confirmation and impairment test accounting methods at home and abroad,then introduces international provisions and analyzes differences between the purchasemethod and pooling of interest method. The fourth part of the paper analyzes the M&Acase of Anhui Jingnan. This chapter firstly introduced basic situation of both sidescivilian explosive industry and then, analyzes the M&A valuation and consolidatedaccounting standards practical performance in the deal, including Jiangnan Chemicalmotivation, cash flow forecast, the decision of discount rate, huge goodwillconfirmation and impairment test. The last chapter summarizes potential financialproblems about valuation and goodwill processing in Jingnan Chemical deal andproposes reasonable proposals for similar listed company M&A deals.