There may be amalgamations, either by transfer of two or more undertakings to a new company, or to the transfer of one or more companies to an existing company".
Control in this context is defined as ability to direct policies and management.In this type of relationship the controlling company is the parent and the controlled company is the subsidiary.The parent company needs to issue consolidated financial statements at the end of the year to reflect this relationship.The taxation term of consolidation refers to the treatment of a group of companies and other entities as one entity for tax purposes.Under the Halsbury's Laws of England, 'amalgamation' is defined as "a blending together of two or more undertakings into one undertaking, the shareholders of each blending company, becoming, substantially, the shareholders of the blended undertakings.Treatment to the acquired company: The acquired company records in its books the receipt of the payment from the acquiring company and the issuance of stock.
FASB 141 Disclosure Requirements: FASB 141 requires disclosures in the notes of the financial statements when business combinations occur.
The company does not need any entries to adjust this account balance unless the investment is considered impaired or there are liquidating dividends, both of which reduce the investment account.
Liquidating dividends : Liquidating dividends occur when there is an excess of dividends declared over earnings of the acquired company since the date of acquisition.
When the amount of stock purchased is between 20% and 50% of the common stock outstanding, the purchasing company’s influence over the acquired company is often significant.
The deciding factor, however, is significant influence.
Regular dividends are recorded as dividend income whenever they are declared.