Business Combinations
Companies invest in other companies for a variety of reasons. The main one is an increase in profits. Another is the company being acquired offers something that can improve the acquiring company’s operations (vertical integration). Sometimes they are in totally unrelated businesses (horizontal integration). The first question our CPA should ask the client is why they want to invest in Company K. When one company invests in another, they can account for the transaction in three ways. The cost method is used when the investment is less than 20% ownership and no influence on decision making. The equity ...