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M&A: Assets, Impairment and borrowing cost

In mergers and acquisitions, the analysis of tangible and intangible assets plays a pivotal role in assessing the value and potential risks associated with a transaction. Tangible assets, such as property, plant, and equipment (PPE), provide a tangible foundation for the business, while intangible assets, including intellectual property, brand reputation, and customer relationships, often represent the true drivers of value. Tangible Assets Tangible assets include physical assets that hold intrinsic value and contribute to a company's operations. These assets include property, plant, equipment (PPE), machinery, land, office buildings, etc.. Tangible assets are typically recorded on the balance sheet at their historical cost and may be subject to depreciation over their useful lives. They are initially recorded at cost, which includes all expenditures necessary to acquire and prepare the asset for its intended use. Subsequently, these assets are depreciated over their estimated usef
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Revenue and gross margin

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Companies have their distinct revenue recognition policies and, in the M&A space this can present quite a challenge especially if they are in different jurisdictions. Aligning their individual revenue recognition policies can prove to be a time-consuming task. This will require a thorough understanding of the companies’ practices, applicable accounting standards and local laws; and can be a tight rope to walk since any change in revenue recognition impacts financial metrics and can make it challenging for stakeholders to compare performance – historical and post-merger. IASB’s (International accounting standard board) international accounting standards and it adoption by an increasing number of accounting boards has been pivotal in enhancing comparability and reliability of financial statements across different jurisdictions. However, the impact of local best practices and laws may need to be determined. Revenue recognition is an accounting principle which defines when and how a bu
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Revenue recognition standard: The Five step model

Five step model for revenue recognition: (Reference taken from: INDAS115.pdf (mca.gov.in) )        I.          Identifying of Contract – Defines a contract and a customer and lays down five mandatory criteria to be met for identification of a contract. Depending on the parties’ local practices; a contract can be oral, written or implied. a.       The parties have approved the contract (whether in writing or orally) and have committed to discharging their respective obligation. b.       Each party’s right in relation to the transfer of good or services are identifiable. c.       The payment terms in relation to the transfer of good and service can be identified. d.       Economic benefit from the contract can be derived by both the parties respectively. e.       An entity may collect the full consideration or may collect a lower price than that stated in the contract if a discount has been offered to the customer (discussed in detail in ‘Determining the transfer price’). Probability of
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