Business Combination Accounting Issues

The business combination originated from the end of 19th century to the beginning of 20th century in US. It is the product of market economy. Along with the economical development, the business combination came to climax. Until now, there has been five times of large-scale business combination climax in the world scope. The business combination has realized the transaction of enterprise property right. It is also an effective expansion method for the enterprise to change its management from the property management to the capital management. It has fully manifested the competition principle of the superior winning and the inferior washing out in the market economy, It dose good to the optimization disposition of social resources and the realization of scale-economy. Regard to China that is constructing socialist market economy, the business combination has vital significance to strengthen our enterprises' international competition ability, accelerate the reform of state-owned enterprises, establish the market mechanism of superior winning and the inferior washing out.The business combination is widespread and is going deeper day by day. It urges the field of accounting to conduct and discuss this economic activity. The accounting problem of business combination is one of the long-term discussed topics. In July, 2001 and March, 2004, FASB and IASB separately published their new accounting standards of the business combination, SFAS141 and IFRS3, which announced the cancellation of pooling of interests and the reservation of purchase method. It attracted more attention to research the accounting problem of business combination.In October 31, 2003, Japanese Accounting Moot published "accounting standards of business combination". Different from SFAS141 and IFRS3, it regulated to use purchase method or pooling of interests in different situations. In February, 2006, our Ministry of Finance also published "China accounting standards NO.20—Business combination". It put forward many standards different from SFAS141 "business combination" and IFRS3 "business combination". In this background, it is necessary to discuss the accounting problem of business combination.This article makes up of five parts to research the accounting problem of business combination.The introduction part introduced the background and the motivation of this text.The first part elaborated elementary theories about the accounting processes of business combination. It mainly included definition, kinds, significance of the business combination as well as two methods about the accounting processes of business combination—purchase method and pooling of interests. Under the purchase method, the asset and the liabilities obtained in the business enterprise mergering measured by fair value. The balance of the cost and the fair value of the net asset confirmed goodwill or negative goodwill. This applied to the merger of purchasing. Under the pooling of interests, the asset and the liabilities obtained in the business enterprise mergering measured by book value.. The balance of the cost and the book value of the net asset adgusted the capital reserves or the retained income. This applied to the merger of the pooling of interests.The second part separately introduced accounting standards about the business combination in America, IASC-IASB and Japan. The elaboration went from three angles of standard courses, present standard situation and model significance. It provided international support for the research of our accounting about the business combination.The third part first reviewed the development of our accounting about the business combination, then, discussed our reality choice of method in accounting about the business combination. According to the current situation of our country, the purchase method and the pooling of interests existed at the same time is our realistic choice.The fourth part elaborated the changes,the existing problems and suggestions for improving on our new accounting standards of business combination. This part emphatically compared with the old accounting standards of business combination on the foundation of the brief introduction of the new one and pointed out the differences of them. Then analyzed and pointed out the problems of the new accounting standards of business combination and proposed some suggestions to perfect it. The accounting standard of business combination should keep the mutually relationship of the purchase method and the pooling of interests, and even regulate the conditions of the pooling of interests. When using the purchase method, we should improve the technology of the assessment property and the goodwill decrease test.