Professional Documents
Culture Documents
Combinations:
New Rules for a
Long-Standing
Business
Practice
Chapter 1
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in
part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected
website or school-approved learning management system for classroom use.
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
Acquisition of Control
Acquisition of assets
Acquire directly from target company
Assume liabilities
Payment in cash, debt, or equity
Stock Acquisition
Typically more than 50% of targets voting common stock; a
controlling interest
Creates parent/subsidiary relationship
Separate legal entities remain
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
Acquisition of Control
Defenses against unfriendly offers
Greenmail
White knight
Poison pill
Selling the crown jewels
Leveraged buyouts
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
Acquisition of Control
Accounting ramifications asset acquisition
Acquiring company records assets and liabilities
Subsequent accounting procedures are same as for any single
accounting entity
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
Purchase method recorded fair values for the portion of the net
assets acquired in the purchase
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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Example:
Payment
n
Rate
Present value
$300
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2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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Changes in Value
During Measurement Period
Values recorded on the acquisition date are considered
provisional
During the measurement period values assigned to
accounts recorded during purchase may be adjusted to
better reflect the value as of the acquisition date
Changes in value caused by events that occur after the
acquisition date are not a part of this adjustment
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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Changes in Value
During Measurement Period
Adjust assets and liabilities to revised value as of
acquisition date
Net effect of adjustment will be recorded to
Goodwill
Gain
Retained Earnings if gain was recorded in prior period
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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Changes in Value
During Measurement Period
Depreciation and amortization are adjusted retroactively
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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Goodwill Accounting
After the Acquisition
Publically traded companies do not amortize goodwill; it
is tested for impairment each year, and impairment loss
is recorded when appropriate
Privately-held companies can elect to amortize goodwill
over no more than 10 years; testing for impairment
continues.
1.
2.
3.
4.
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Impairment Procedures
for Goodwill after Acquisition
Optional: Qualitative assessment to determine whether it is
likely that the fair value of the reporting unit is
less than its fair value.
1. Quantitative impairment test:
Is implied fair value of the reporting unit less than the carrying
value of the reporting units net assets (including goodwill)?
b.
Implied fair value of goodwill is the excess of the implied fair value of the
reporting unit over the fair value of the reporting units identifiable net assets
(excluding goodwill)
Impairment loss of goodwill is the difference between the implied fair value of
goodwill and the existing recorded goodwill.
2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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2016 Cengage Learning. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in
whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a
password-protected website or school-approved learning management system for classroom use.
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