by The term “Transferee Company” refers to the company that acquires or merges with another company in a business combination. In such a transaction, the transferee company continues to exist as a separate legal entity, and it acquires the assets, liabilities, and equity of the transferor or target company. The transferee company is also referred to as the “acquiring company” or the “surviving company”. The accounting treatment of the transferee company in a business combination is governed by various accounting standards, including International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP).
Accounting in the Books of Transferee Company steps
The accounting treatment in the books of the transferee company for a business combination can be summarized in the following steps:
- Record the purchase consideration: The transferee company should record the purchase consideration paid to acquire the transferor company. The purchase consideration can include cash, shares, or a combination of both.
- Recognize and measure the assets and liabilities acquired: The transferee company should recognize and measure the assets and liabilities acquired from the transferor company at their fair values on the acquisition date. This includes both tangible and intangible assets such as property, plant, and equipment, goodwill, patents, trademarks, and customer relationships.
- Recognize and measure any non-controlling interest: If the transferee company acquires less than 100% of the transferor company, it should recognize and measure any non-controlling interest in the net assets acquired at its fair value.
- Record any goodwill or bargain purchase gain: If the purchase consideration paid by the transferee company exceeds the fair value of the net assets acquired, the difference is recorded as goodwill. If the fair value of the net assets acquired exceeds the purchase consideration paid, the difference is recorded as a bargain purchase gain.
- Eliminate any intercompany transactions and balances: The transferee company should eliminate any intercompany transactions and balances between the transferee and transferor companies.
- Prepare consolidated financial statements: The transferee company should prepare consolidated financial statements that reflect the combined financial position and results of operations of the transferee and transferor companies.
Accounting in the Books of Transferee Company example
Here is an example of the accounting treatment in the books of the transferee company for a business combination, presented in a table format:
Assuming the transferee company acquires 100% of the transferor company for a total purchase consideration of $10 million, and the fair value of the assets and liabilities acquired are as follows:
| Assets | Fair Value |
| Property, plant and equipment | $2,500,000 |
| Inventory | $1,500,000 |
| Accounts receivable | $2,000,000 |
| Patents | $1,000,000 |
| Goodwill | $3,000,000 |
| Total assets acquired | $10,000,000 |
| Liabilities | Fair Value |
| Accounts payable | $1,000,000 |
| Bank loan | $2,000,000 |
| Total liabilities assumed | $3,000,000 |
| Purchase consideration | |
| Cash paid | $5,000,000 |
| Shares issued | $5,000,000 |
| Total purchase consideration | $10,000,000 |
In the books of the transferee company:
- Record the purchase consideration:
| Debit | Credit | |
| Cash | $5,000,000 | |
| Share capital | $5,000,000 | |
| Total $5,000,000 | Total $5,000,000 |
- Recognize and measure the assets and liabilities acquired:
| Assets | Debit |
| Property, plant and equipment | $2,500,000 |
| Inventory | $1,500,000 |
| Accounts receivable | $2,000,000 |
| Patents | $1,000,000 |
| Goodwill | $3,000,000 |
| Total $10,000,000 |
| Liabilities | Credit |
| Accounts payable | $1,000,000 |
| Bank loan | $2,000,000 |
| Total $3,000,000 |
- Recognize and measure any non-controlling interest: Assuming the transferee company acquires 100% of the transferor company, there is no non-controlling interest to be recognized.
- Record any goodwill or bargain purchase gain: The purchase consideration of $10 million paid by the transferee company is equal to the fair value of the net assets acquired. Therefore, there is no goodwill or bargain purchase gain to be recognized.
- Eliminate any intercompany transactions and balances:
| Debit | Credit | |
| Elimination of transferor company’s | ||
| shares in transferee company | $5,000,000 | $5,000,000 |
- Prepare consolidated financial statements: The transferee company should prepare consolidated financial statements that reflect the combined financial position and results of operations of the transferee and transferor companies.
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