Recognizing/Measuring Assets, Liabilities and Noncontrolling Interest

Question 1

In an acquisition, at the acquisition date, an acquirer must recognize what?

Answer 1

The identifiable assets acquires, liabilities assumed and any noncontrolling interest in the acquiree

Question 2

Identify at least five items acquired in a business combination that would be measured at something other than fair value

Answer 2

1. )Income tax items, use ASC 740 and other guidelines;
2. )Acquiree’s employee benefit liability/asset, use various related GAAP;
3. )Indemnification assets, use the same measurement basis as indemnified item;
4. )Reacquisition rights, use unamortized balance;
5. )Share-based employee awards, use ASC 718;
6. )Long-term assets held for sale, use ASC 360

Question 3

Describe the requirements of the acquisition when a business combination is carried out in stages (or steps).

Answer 3

Equity interest in the acquiree which is acquired by the acquirer prior to the business combination is remeasured to fair value at the date of the combination (acquisition date). Any difference between the precombination carrying value and the acquisition date fair value is recognized as a gain or loss in income of the period of the combination. The fair value of the precombination investment is included as part of the cost of the investment value (i.e., cost of the investment in the acquiree) to the acquirer.

Question 4

Identify at least three items acquired in a business combination for which the acquirer has to make a decision as to the classification or designation of the item.

Answer 4

1. )Investments, as to whether held-to-maturity, held-for-trading, or available for sale;
2. )Derivative instruments, as to whether used for hedging or speculation;
3. )Embedded derivatives, as to whether they will be separated from the host instrument or not;
4. )Long-term assets, as to whether they will be used or held for sale.

Question 5

What is a noncontrolling interest?

Answer 5

The percent of equity not owned either directly or indirectly by the acquirer. This was formerly called minority interest