Recognizing/Measuring Assets, Liabilities, and non controlling interest

Question 1

CPA Questions:

Answer 1

• What is included or excluded from the fair value of the business?
• What value do you measure the consideration included in the purchase price? (usually fair value)

Question 2

What type of items are going to be recognized?

Answer 2

• Meet the definition of an asset or liability

Question 3

Tough parts of the these types of questions regarding intangible assets…

Answer 3

• Acquirer may recognize intangible assets not previously recognized by the acquiree. This arises when an intangible is internally created and the company wasn’t able to book it on their records.

Question 4

Intangible assets CAN BE RECOGNIZED when…?

Answer 4

Can be recognized when ..

1) Separable- capable of being sold, leased, or otherwise disposed of

OR

2) Arise from a contractual or legal right

Question 5

T/F: As apart of recognizing intangible assets, a company can also recognize in process R&D (IPR&D) as an intangible asset?

Answer 5

True

Question 6

How do you treat contingencies assumed?

Answer 6

Contractual contingency- Recognized as a asset or liability and measure (warranty obligations, etc)

Contractual contingency (warranty): Measure at Fair Value

Non-Contractual Contingency (More likely than not): Measure at fair value. If it is not likely, do not recognize.

Question 7

What are Indemnification Rights and how are they recognized?

Answer 7

Contract provisions which limit acquirers liability for uncertainty related to identified assets or liabilities.

If the acquirer says they will “indemnify you” that means that they will repay you for the loss. As a result, you would book an asset and liability for the exact same amount.

Question 8

What is non controlling interest?

Answer 8

Portion of the company or income that you do not own.