merger accounting


merger accounting
A method of accounting for a business combination. It may only be used when a business combination falls within the definition of a merger in Schedule 4A to the Companies Act 1985 and Financial Reporting Standard 6. A business combination meets the definition of a merger under the Companies Act only if it involves the exchange of equity shares for equity shares such that a stake of more than 90% is acquired and generally accepted accounting principles permit the use of merger accounting. Under FRS 6 it must satisfy the following five criteria:
• No party to the merger is portrayed as either the buyer or the target.
• All parties to the combination participate in the selection of management and such decisions are based on consensus rather than by reference to voting rights.
• The parties to the combination are approximately the same size.
• Only an immaterial proportion of the consideration received by shareholders of any party is other than equity shares in the combined entity.
• No equity shareholders of the combining entities retain an interest in the performance of part only of the combined entity.
For further information, see the IASB website and the ASB website.
Related links

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.