Post-Acquisition Issues

Question 1

How should assets and liabilities arising from contingencies be measured and reported subsequent to a business combination?

Answer 1

1. )If the contingency is a liability, measure and report at the higher of:
   a. )Its acquisition-date fair value; or (b) the amount that would be recognized if the requirements of FASB #5 were followed.
2. )If the contingency is an asset, measure and report at the lower of:
   a. )Its acquisition-date fair value; or
   b. )The best estimate of its future settlement amount.

Question 2

How should contingent consideration be measured and reported subsequent to a business combination?

Answer 2

Contingent consideration should be measured and reported at fair value until settled.

1. )If changes are of fair value as it existed at acquisition date, the change is an adjustment to the cost of the investment;
2. )If changes result from events after the acquisition date: (1) Changes in contingent assets or liabilities are recognized in earnings in the period of change; (2) Changes in contingent equity is an adjustment to equity accounts; not an earnings item

Question 3

What assets or liabilities recognized in a business combination require “specialized” post-combination accounting treatments?

Answer 3

1. )Reacquired rights asset;
2. )Assets and liabilities arising from contingencies;
3. )Indemnification assets;
4. )Contingent consideration as asset or liability (or equity)