Associates and Joint Ventures Essay Example | Topics and Well Written Essays - 2500 words

Associates and Joint Ventures - Essay Example Therefore it is pertinent to analyze this practice in detail and the information to be disclosed. It also is relevant to note the underlying legal and financial guidelines that ought to be followed in all such mergers. This paper analyses the impact of the acquisition in the light of accounting parameters and will try by logical similes and examples to arrive at the proper perspective in relation to the type of dealings. We can define a merger where two individual companies become a single company and unify their entity. Strong companies seek out the less fortunate ones and then unify them into the company. Some times very strong and prospective companies also merge to create a bigger market or capture a foreign market. A company can also purchase another company and this is a purchase or consolidation. The stocks of the acquired company are sold for an agreed amount. Some tax benefits accrue. For example the buying company can write off the assets they acquire to the actual value paid for the company, and the difference between the book value and that purchase value for the assets can be charged off as depreciation over several years. An Acquisition of one company by another is a little different from a merger but not much. All of the above reasons for combining two companies apply, but instead of swapping stock or consolidating under a new corporate entity, one company simply buys another. In an acquisition, a company can buy another company with cash, with stock, or a combination of the two. The difference between the merger purchase and an acquisition depends on whether the purchase is friendly and announced as a merger or announced as an acquisition or the purchase is unfriendly. When it's unfriendly, it's always an acquisition. We are more concerned with a Holding company. The Encyclopedia Britannica defines a holding company as: "Corporation that owns enough voting stock in one or more other companies to exercise control over them. A holding company provides a means of concentrating control of several companies with a minimum of investment; other means of gaining control, such as mergers or consolidations, are more complicated legally and more expensive. A holding company can reap the benefits of a subsidiary's goodwill and reputation while limiting its liability to the proportion of the subsidiary's stock that it owns. The parent company in a conglomerate corporation is usually a holding company."i Why Have A Holding There are many business needs like expansion, new markets, new niche, and effective marketing and price control to name a few reasons other than more profits. The accounting reasons to create such a holding may be on account of tax saving, complimenting capability and resources, and share capital, technology, and risk. Important Factors to be considered The screening of prospective partners: This is done at all levels of management, not only the analysis of the company's financial history or capital. Analyzing factors like human resources, technical competency and