The directors of Atlas Inc. and Beta Corp. have reached an agreement in principle to merge the two companies and create a new company called AB Ltd. The basics of the agreement confirmed so far are outlined below:
The new company will purchase all of the assets and assume all of the liabilities of Atlas and Beta by issuing shares. After the sale the two companies will be wound up. Some but not all members of the top management of each company will be retained.
The number of AB shares that will be issued has not yet been determined. The founding shareholders of Atlas Corp., who owned 60% of the voting shares of Atlas prior to the merger, have rights to veto any sale of patents, which they developed and registered. Some of the other shareholders of Atlas also owned non-voting preferred shares of Atlas. These preferred shares were convertible into common shares of Atlas on a one-for-one basis.
The chair of the merger committee has asked you to provide him with advice as to the accounting implications that will result from this merger, even though many of the details have not yet been ironed out. He has requested that you submit to him a preliminary report.
Prepare an outline of your report.