Question

3. Can a firm own other firms and if so why would they do so? Does Federal Government get involved in this action and if so why would they add to the complexity of the action? 4. If by chance a firm does own other income producing assets how are they reflected in their financial statements?

Answer 1

3. Yes, one firm can acquire the other firm, because of the following reasons;

• Eliminating the competition
• Effective utilization of the resources
• Market expansion
• Reducing the cost of production
• increasing the profits

Yes, Federal government involved in this action.

• Federal government regulates the acquisitions to protect the competitors, to control the increase in prices etc.
• Generally acquisition happened among the same kind of river firms, this may lead to increase in prices of the products/services and it may burden to the consumers, for this reason federal government regulates the acquisitions.
• To protect from inflation

Mostly because of these reasons federal government add to the complexity of the action.

4. If the firm owns other income producing assets they reflected in the financial statements as follows,

In the Income statement: Income from that asset is mentioned under "other income"

In the cash flow statement : Under the head "Cash flows from investing activities"

In the balance sheet : Under the head "Investments".

Examples for other income producing assets are Investment in other company's shares, bonds etc., Investment in Buildings, equipment for rental purposes etc. and incomes from those like dividend income, rental income & interest income.