Rules consolidating subsidiaries
If other factors exist that reduce the influence or if significant influence is gained at an ownership of less than 20%, the equity method may be appropriate (FASB interpretation 35 (FIN 35) underlines the circumstances where the investor is unable to exercise significant influence).
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.Upon consolidation, the original organizations cease to exist and are supplanted by a new entity.A parent company can acquire another company by purchasing its net assets or by purchasing a majority share of its common stock.
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The purchasing company uses the cost method to account for this type of investment.