business combination
DESCRIPTION
TRANSCRIPT
Business Combination-- Revisions Made to FAS 141
12/08/08
FAS 141R- Introduction
• FAS 141R - Issued in Dec.2007
• FAS141 R and IFRS 3R
• Objectives – Increase relevance, representational faithfulness & comparability of financial info
FAS 141R- Key changes
Recognition and Measurement Acquisition expenses Earns-outs Acquired R&D Contingencies Step acquisitions Goodwill measurement and bargain
purchase Disclosure
Recognition & Measurement
• Expand the scope of business combination
• Recognition principle
• Change from allocation model to valuation model- acquisition-date fair value
• Advantages of measurement at fair value
Acquisition Expense• Direct or indirect expenses: ex: lawyer fee, accountant fee
• FAS141: included in acquisition price
• FAS 141R: not included in acquisition price but charged to expense
• Reason for expense
• Ex: Colgate's acquisition of 84% of Tom's of Maine in May 2006
Acquired R&D
• FAS 141: expensed upon acquisition
• FAS 141R: be capitalized
• Reasoning & Argument
• Cisco's example
Goodwill Measurement & Bargain Purchase
• Goodwill measurement:
• FAS 141: consider the acquired proportion • FAS141R: consider the entire target company, including FV of non-controlling interest
• Bargain purhcase- negative goodwill
• FAS 141: Excess FV of net assets acquired reported as negative goodwill
• FAS 141R does not provide for negative goodwill, but immediate gain.