The book value overtaking method corresponds to the transaction processing law, and it is one of the way of thinking of accounting in company split. In business combination transactions such as mergers, it is to accept the assets, capital, and liabilities of the consolidated company as they are at their carrying values. You will process assets and liabilities on the books at the time of company split. This method is also called the pooling method of pooling interests. The book value overtaking method is used when there is a business division within the company and the control over the business has not yet transferred, and the controlling right is continued. And in this case, the liabilities and the assets held by the company will all be handled with book value on the book. On the other hand, the trading treatment law refers to the processing method used when the division of division has occurred within the company when the control over the business is transferred. This is a way of thinking to treat liabilities and assets of the split business as if they were sold and it is not possible to take over the book value because the control over the business has been transferred. The record on the book will be ignored at all.

Commonly used between parent and child companies

The book value takeover method is often used for transactions under joint control with jointly controlled entities. Because in this case it is not necessary to transfer control. Suppose, for example, a company that was engaged in two business divides one business into another company. In this case, it becomes necessary for the divided company to take over assets to the partner company. Since we use means of division, in such a case the book value take over method will be applied. In doing so, the split company will need to issue new shares to the successor company. At this time we will try to reduce debt of the company as much as possible. Then, the successor company will purchase the shortfall due to the debt as a new stock. In that way the deduction in both deals is completely zero. However, profit at the time of business division is not allowed as a dividendable profit. Therefore it will be necessary to withdraw that amount.