Procter & Gamble-Gillette Merger

First, let’s think about the basics. Answer the following: Describe the accounting concept of a business combination. Is dissolution of all but one of the separate legal entities necessary in order to have a business combination? Explain. What are the legal distinctions between a business combination, a merger, and a consolidation? When does goodwill result from a business combination? How does goodwill affect reported net income after a business combination? What is a bargain purchase? Describe the accounting procedures necessary to record and account for a bargain purchase.

Now, on to business combinations.Answer the following:What year did your merger take place.In your combination, which company acquired the other? Which company was considered the survivor?

Visit the website of the company. Access the investor relations link and find the annual report from the previous year and from the year of the merger. If it is not there, go to the SEC’s website at

Answer the following questions using an internet search:What information is available about recent merger activity (last 5 years)? What was the company’s most significant acquisition other than yours? What was the business strategy underlying the merger activity? How was the acquisition financed (common stock, preferred stock, cash, debt, or some combination)? Was it a vertical, horizontal, or conglomerate merger?

Complete the same questions above for your merger andalso answer the following using the financial statements in the year after your merger closed:

a. What was the impact of the merger on cash?

b. What was the impact of the merger on net accounts receivable?

c. What was the impact of the merger on inventories?

d. What was the impact of the merger on long term assets like PPE?

e. What was the impact of the merger on net accounts payable?

f. What was the impact of the merger on long term debt?

g. What form of business combination brought the two companies together, and what was the resulting corporate structure? How did the firms account for the acquisition? How did the firms account for its acquisition-related expenses? Was there any contingent consideration? If so, how much?

h. What was the cost of the merger? How was that cost allocated (What allocations were made to the assets acquired and liabilities assumed in the acquisition)? Was goodwill recorded? If so, how much? If not, was it considered a bargain purchase? Provide a calculation showing how the acquirer determined the amount allocated to goodwill or bargain purchase.

i. Was there in-process research and development acquired in the combination? If so, how didthe firms account for it? Were other intangible assets acquired in the combination? What were they and how did the firms account for them?

j. Did the firms recognize any acquired contingencies for its acquisition? If it did, how were they measured? If not, why not? Under what circumstances should a firm recognize an asset acquired or a liability assumed in a business combination that arises from a contingency? How should the firms account for its acquired contingencies in periods after the acquisition date? What is the disclosure requirement for any acquired contingencies?

k. Based on your knowledge, what journal entry do you think the acquirer prepared for the combination?