Recognize as a liability at the acquisition date. Expense separately from the transaction as incurred. Partial Acquisitions Where a Controlling Interest is Acquired 1 Only the controlling interest is recorded at fair value FV , while the remaining noncontrolling interest is recorded at its carrying value. Acquired Contingent Assets and Liabilities Defer recognition of preacquisition contingencies until payment is deemed probable and can be estimated.
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Recognize as a liability at the acquisition date. Expense separately from the transaction as incurred. Partial Acquisitions Where a Controlling Interest is Acquired 1 Only the controlling interest is recorded at fair value FV , while the remaining noncontrolling interest is recorded at its carrying value. Acquired Contingent Assets and Liabilities Defer recognition of preacquisition contingencies until payment is deemed probable and can be estimated. Recognize contractual contingencies as of the acquisition date, measured at their acquisition-date FVs.
Recognize noncontractual contingencies as of the acquisition date, measured at their acquisition-date FVs, only if it is more likely than not that they meet the definition of an asset or a liability. If not, account for a noncontractual contingency in accordance with other applicable GAAP. Contingent Consideration e. Earn-Outs Defer recognition until the contingency is resolved and the consideration is issued or becomes issuable.
Recognition of contingent consideration results in an adjustment to goodwill. Record contingent consideration on the acquisition date, measured at FV on such date, as a liability or equity in accordance with other applicable GAAP. Bargain Purchases Negative Goodwill Allocate negative goodwill to the acquired assets pro rata, reducing their allocated FVs to zero. Record immediately any goodwill remaining following the pro rata allocation as an extraordinary gain.
Immediately recognize negative goodwill in earnings as a gain to the acquirer that increases goodwill from a would-be negative value to zero.
FAS 141(R) - Impact On The Accounting For Income Taxes
The objective of FAS R , per Paragraph 1, "is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects" To accomplish this objective, FAS R establishes guidance for how an acquirer recognizes and measures identifiable assets, assumed liabilities, and any noncontrolling interest in an acquiree and also how an acquirer recognizes and measures goodwill related to a business combination. FAS R also requires additional financial statement disclosures to assist financial statement users with the evaluation of the economic impact of a business combination. FAS R applies to all business combinations in which an acquirer obtains control of one or more businesses. However, it does not apply to the formation of a joint venture, the acquisition of an asset or a group of assets that does not constitute a business, a combination between entities or businesses under common control, or a combination of not-for-profit organizations or the acquisition of a for-profit business by a not-for-profit organization. FAS R retains the "acquisition method" formerly known as the "purchase method" of accounting for all business combinations and requires an acquirer to be identified for each business combination.
Effective Date for SFAS 141R Approaching Fast
Post-transaction, the changes will likely increase income-statement volatility as restructuring expenses are recognized and acquisition-related contingencies change or are resolved. The Standard also applies to mutual entities, step acquisitions and variable interest entities. In applying the acquisition method, the acquirer must determine the fair value of the acquired business as of the acquisition date and recognize the fair value of the assets acquired and liabilities assumed. The acquisition date is the date on which the acquirer obtains control of the target, generally the closing date. Under SFAS , the purchase price was measured at the announcement date while assets and liabilities were measured at the acquisition date. SFAS vs.
Important Accounting Changes