JOINT 1

BUSINESS COMBINATION

Definition

It is common, in recent times, to find in our country that several companies have
integrated with others in order to achieve ambitious but feasible goals.

NEC 21 defines a business combination as:

“The operation of bringing together several companies into a single economic entity as
a result of the union of interests or of one company obtaining control over the net assets
and operations of another or other companies.”

A combination can give rise to a merger if the shareholders of the integrated companies
decide to maintain, in proportion to the current size, the shares in the new company that
appears as a product of the merger. To do so, it will be necessary to legalize the
aforementioned merger.

ADVANTAGES OF COMBINING BUSINESSES

Some of the benefits that business combinations provide are listed below:

 Take advantage of the tax benefits that the regime law establishes and that we
will mention in due course.
 Unite strengths and potential in order to expand the coverage of businesses that
have been operating separately.
 Increase the image of the parts, in order to present a better structured whole with
broad growth prospects, in addition to expanding attention to other business
areas, which could not be presented separately.
 Unite resources, experiences and lines of business that could complement each
other in order to provide greater coverage to customer needs.
FORMS OF BUSINESS COMBINATION

1. Through acquisition, a company can obtain control over another, by paying the
agreed amount of money or transferring assets, or in exchange for incurring a
liability, or issuing capital in favor of whoever is the current owner of the
company. the company it acquires.

2. Through the union of interests, in which the shareholders of the different

companies participate in the control over all or almost all of their net assets and
operations, they participate in the profits or losses of the combined company.

ACCOUNTING ASPECTS RELATING TO THE BUSINESS

COMBINATION

When should the combination be registered?

There is a process of negotiations, prior evaluations and administrative-legal

procedures that must conclude with the transfer of the net assets and control of the
operations of the company that is acquired or merged, as the case may be, this is the
precise moment to record the accounting. combination. From the date of acquisition,
the acquirer must record the results of the acquired in its profit and loss statement ;
and in its Balance Sheet, the assets, liabilities and any favorable or negative
goodwill recognized in the negotiation.

What should be registered?

If you acquire the net assets, the fair value of the assets such as merchandise,
furniture, equipment or rights such as customer portfolio, advance payments, tax
credit securities, or securities such as trust papers, securities and even bank balances
must be recorded.
 If what you acquire is equity, you must record at fair value the corresponding assets
and the liabilities or debts that you assume for yourself and that previously belonged
to the company that you acquired. You may not have wanted or been able to
purchase all of the assets; in this case, you must recognize within the records the
participation of the minority interests, as indicated in the examples that would be
presented on the following pages.

What is fair value?

It is assumed that in every negotiation there are particular interests, which are
sometimes conflicting.

If there is good spirit and a mutual willingness to settle, a rapprochement is

encouraged to a point where mutual interests are satisfied, at least partially.

ACCOUNTING PROCEDURES TO BE FOLLOWED IN THE BUSINESS

COMBINATION

a) In the books of the acquired

Obviously, the company that sold its assets, liabilities or equity generally must
be liquidated; As such, the books are closed.

b) In the acquirer's books

The integration of the accounting items to the financial statements, that is, to the
Profit and Loss Statement and Balance Sheet, is done from the acquisition entry
that includes the results of the acquired until the date of the combination. It is
necessary to prepare a combined balance sheet in order to begin the new
business structure.

JOINT 2
CONSOLIDATION OF FINANCIAL STATEMENTS

SUBSIDIARY COMPANIES

Definition

A subsidiary is an entity that is under the control of a separate company. The dominant
company is known as the parent company. A parent company can have dozens of
subsidiaries, or just one. A subsidiary can be an incorporated company or any type of
unincorporated business, such as a partnership. In any case, the parent company is in
control when it has more than half of the voting rights of the subsidiary, giving it
authority over financial and operational decisions.

WHY DOES A COMPANY WANT TO HAVE SHARES IN ANOTHER

COMPANY?

It is common that companies have surplus money that they must invest temporarily in
order to achieve financial income that increases their profits, so they look for interesting
and safe options, such as placing said surplus in policies, guarantees, bonds and on
certain occasions buying shares. , for speculative purposes, that is, hoping to receive
dividends or a sale proposal that exceeds the cost I paid for those shares.

PRICES OF SHARES ACQUIRED WITH THE ENCOURAGEMENT OF

PERMANENCE

The shares that are acquired must be accounted for at the participation value, that is, for
the value paid plus or minus the Goodwill (premium) recognized in favor or against,
until the proportional value of the equity is reached, this form is called the equity
method. stake.

CONDITIONS THE PARENT-SUBSIDIARY RELATIONSHIP IS OFFICIALLY

RECOGNIZED

The accounting relationship is recognized as:

1. The Parent company, that is, the one that has shares in another, has in its
possession more than 50% of the shares of the subsidiary company, and
therefore the decisions on acts and contracts of an administrative and financial
nature are under its control and competence. either

2. The Parent company, that is, the one that has shares in another, controls,
through structured and permanent agreements with other shareholders,
more than 50% of the subsidiary company , and therefore decisions on acts
and contracts of an administrative and financial nature are under its control.
control and competition, or

3. Exercise power to govern administrative and financial policies, or to appoint

board members, even when it does not have or control more than 50% of the
shares of the subsidiary, as long as it has signed a contract that indicates these
powers.

PROCESSES FOR CONSOLIDATION

 Compare whether the start and end dates of the accounting period are similar, if
not, then it should be revealed in an explanatory note from when this
relationship actually enters.
 Make sure that the balances are properly adjusted for inflation or devaluation,
that is, that the balances are perfectly comparable in terms of purchasing power.
  Homologize accounting terminology, that is, establish semantic relationships to
link similar accounts.
 Prepare a worksheet showing the balance sheet, income statement, and surplus
statement accounts.
 Add the balances of similar accounts line by line, based on the information in
the matrix.

JOINT 3

FINANCIAL STATEMENTS

Special purpose financial statements are characterized by having limited circulation and
providing more detailed information for some items or operations. From the above, it is
concluded that special purpose financial statements are prepared to meet the specific
needs of certain users of accounting information. Among these financial statements are
the following:

Initial balance

Every economic entity must prepare a general balance sheet at the beginning of its
activities to present the financial situation clearly and completely at that time.

Financial statements for interim periods

They are the same basic financial statements that are prepared during the course of the
period to satisfy requests from authorities that exercise inspection and control, or needs
of the administrators of the economic entity.

Cost statements
They are statements that allow you to know in detail expenditures and charges made in
the production of goods and services, from which the economic entity derives its
income.

Inventory Status

State that allows you to verify in detail the existence of each item on the balance sheet.

Extraordinary financial statements

These are the statements that are prepared during the period, as a result of special
decisions related to transformation, merger, public offering of securities, request for
agreement with creditors, or sale of the establishment.

Liquidation statements

Statements that are presented on the occasion of the cessation of operations to report on
the progress in the realization of assets and the cancellation of liabilities.

Comparative financial statements

These are the states that present figures corresponding to two different dates. General
purpose financial statements must be presented comparatively with those of the
immediately preceding period. The periods must have the same duration, or otherwise
refer to the same period of the trading cycle.

Certified and audited financial statements

A financial statement is understood to be certified when it is accompanied by the

signature of the legal representative, the public accountant and the tax auditor, if any,
who testify that they have been faithfully taken from the books. For a financial
statement to be audited, it must be accompanied by the opinion of the public accountant
who examined it, observing accepted general auditing standards.

Source : Gonzalo Sinisterra V. and Luis E. Polanco I. Administrative Accounting.

ECOE EDICIONES, 2007, pp.15 and 16.
ARTICULATION 4

RELATIONSHIP OF MAIN OFFICE – BRANCHES – AGENCIES

Evolution of economic entities

Economic entities are born, grow, mature, and sometimes die or perhaps even transcend.
For a company's presence to be relatively long, it depends on many variables, including:

That objective, measured, but at the same time fearless people attended its birth .

That its growth is based on the honesty that leads to the complete and fair payment of
salaries, taxes, outstanding accounts and in general to giving customers the good or
service for which they pay a price; But in addition, a pragmatic vision that is always
objective and viable is required to envision the future and the problems that are coming,
in order to anticipate the solution of possible problems.

Maturity is an ideal state of a business in progress that can last a long time, depending
on how well the changes towards continuous improvement are being applied.

WHAT IS A BRANCH

It is an economic unit generally smaller than the main one, of which it is a part.

Legally, its presence with limited duties and powers is recorded in the articles of
incorporation or its subsequent amendments, since the legal presentation is given to the
manager, who resides in the principal and acts in function of the entire company.

Administratively, you are assigned specific functions and responsibilities related

especially to marketing and collections, billing and management of revolving fund or
petty cash; On the other hand, decisions on personnel recruitment, purchases, and policy
definition are generally assigned to the principal.
In tax matters, the SRI assigns the same RUC as the main one with a related additional
digit. The tax declaration must be done through the main one, that is, for the treasury
there is only one taxpayer.

In terms of accounting, the branch may or may not keep records of its operations,
everything depends on the accounting system. In the event that it keeps records of its
movements, these records must be subject to the plan of accounts, methods, procedures
and techniques used by the branch. major.

WHAT IS AN ASSOCIATED AGENCY?

It is an independent economic entity but at the same time fully identified with the main
one, which is responsible for promoting the latter's businesses.

It must have its own capital, in order to attend to the functioning of the economic unit.

BRANCH ACCOUNTING

The registration of branch operations can be done in a decentralized manner, but always
based on the same system, this makes it binding and coherent.

The objectives to be achieved with interrelated Main-Branch accounting are:

1. Measure the profitability or deficit of the branch, in order to sustain or amend it.
2. Integrate the information from the branch to the books of the main one, so that
shareholders have financial statements for the entire company.
3. Facilitate the combination of the financial statements of the two entities, using
reciprocal accounts.

AGENCY ACCOUNTING
The accounting of the independent agency will be the responsibility and competence of
the agent, who will respond to the control authorities regarding its validity and
suitability; but if the Agency is an administrative unit that is part of the Principal, then
the accounting matter is the responsibility of the latter , for this purpose it uses linked or
reciprocal accounts:

Boarding to the agency. Which is a transitory account that credits the value of the
merchandise for samples that the principal sends you. It will be debited at the time you
justify or return these.

TAX ASPECTS RELATING TO THE BUSINESS COMBINATION, PARENT-

SUBSIDIARY AND PRINCIPAL RELATIONSHIP WITH BRANCHES AND
AGENCIES

The tax regime law, in the pertinent part, mentions the operations that are not subject to
VAT.

1. The purchase of businesses, that is, assets and liabilities (or just assets).
2. The transfer of shares and participations in public limited companies and limited
companies.
3. The contribution in kind (assets) for the formation of the capital of companies.

For this reason, all asset purchase and sale operations, the transfer of shares, the
contribution of goods made by company partners to cover the subscribed shares or
participations do not generate VAT.

On the other hand, the difference in favor should not be recorded as profits, rather it
should be recorded as CAPITAL SURPLUS, that is, that difference paid in less, with
respect to the equity value of the company that is acquired before the profit results in a
benefit that will affect the equity of the company you buy.
If, on the other hand, a higher value is paid for the purchase made, it must be recorded
as GOODWILL, which must be treated as a deferred asset subject to gradual
amortization in the coming years.

Therefore, in the years in which said amortization is applied, it will affect the results,
which must be classified as a deductible expense.

The transfer of entire businesses, the section of shares, capital participations and capital
contributions in kind should not require documentation through invoices, but rather
through legal instruments such as contracts, transfer deeds and others that have this
connotation which must be be elevated to public deed, registered in the registrars of the
respective canton.

On the other hand, income taxes and VAT, levied and withheld on sales of merchandise
and services by the branches and own agencies, must be declared and reported by the
principal.

In the subsequent and subsequent commercial acts of the entities that have participated
in these special operations, the object of this chapter, they must continue to observe the
tax obligations that have been mentioned throughout the text.