AccountingforBusinessCombinations汇总.docx
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AccountingforBusinessCombinations汇总.docx
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AccountingforBusinessCombinations汇总
AccountingforBusinessCombinations
GAAP:
SFAS94(1987)
SFAS141(2001)
What’snewinSFASNo.141ascomparedtoAPBOpinion16?
1.Allbusinesscombinationsareaccountedforbythepurchasemethod(nopoolingofinterest)
2.Newcriteriaforrecognizingidentifiableintangibles(otherthangoodwill)
3.Additionaldisclosurerequirements,including:
a.Primaryreasonsforthebusinesscombination
b.Theallocationofpurchasepricepaidtotheassetsacquiredandliabilitiesassumedbymajorbalancesheetcaption
c.Whensignificant,disclosureofotherinformationsuchasamountofgoodwillbyreportablesegmentandtheamountofpurchasepriceassignedtoeachmajorintangibleassetclass.
WhatdidNOTchange:
1.Guidancefordeterminingthecostofanacquiredentity
2.Guidanceforallocatingthecosttotheassetsacquiredandliabilitiesassumed
3.Accountingforcontingentconsideration
4.Accountingforpre-acquisitioncontingencies
5.Write-offofR&Dassetsacquired
What’sintheworks?
FASBhascurrentagendaitemcalled“BusinessCombinations:
PurchaseMethodProcedures”
9/30/02NewsletterreportsthattheFASBandIASBtentativelyagreedonthefollowingworkingprincipleforrecordingabusinesscombination:
Theaccountingforabusinesscombinationisbasedontheassumptionthatthetransactionisanexchangeofequalvalues;thetotalamounttoberecognizedshouldbemeasuredateitherthefairvalueoftheconsiderationpaidorthefairvalueofthenetassetsacquired,whicheverismoreclearlyevidentofthefairvalueofthetransaction.
Iftheconsiderationpaidiscashorotherassets(orliabilitiesincurred)oftheacquiringentity,thefairvalueoftheconsiderationpaidgenerallydeterminesthetotalamounttoberecognizedinthefinancialstatementsoftheacquiringentity.
Iftheconsiderationpaidisintheformofequityinstruments,thefairvalueoftheequityinstrumentsordinarilyismoreclearlyevidentthanthefairvalueofthenetassetsacquiredand,thus,generallywilldeterminethetotalamounttoberecognizedbytheacquiringentity.
Inabusinesscombination,theacquiringentityobtainscontrolovertheacquiredentityandthereforeisresponsiblefortheassetsandliabilitiesoftheacquiredentity.Theidentifiableacquiredassetsandassumedliabilitiesshouldberecognizedonthedatecontrolisobtained,andmeasuredattheirfairvaluesatthatdate:
[formoreinfo,gotoFASBwebpage]
Tousethepurchasemethod,onecompanymustbedesignatedasthe“acquiringcompany”
HerearetheguidelinesfromFAS141:
Ifcashorotherassetsaredistributedorliabilitiesareincurred:
Inabusinesscombinationeffectedsolelythroughthedistributionofcashorotherassetsorbyincurringliabilities,theentitythatdistributescashorotherassetsorincursliabilitiesisgenerallytheacquiringentity.[FAS141,Par.17]
Ifstockisexchanged:
Inabusinesscombinationeffectedthroughanexchangeofequityinterests,theentitythatissuestheequityinterestsisgenerallytheacquiringentity.[FAS141,Par.18]
Insomebusinesscombinations(commonlyreferredtoasreverseacquisitions),however,theacquiredentityissuestheequityinterests.Commonly,theacquiringentityisthelargerentity.However,thefactsandcircumstancessurroundingabusinesscombinationsometimesindicatethatasmallerentityacquiresalargerone.
Insomebusinesscombinations,thecombinedentityassumesthenameoftheacquiredentity.Thus,inidentifyingtheacquiringentityinacombinationeffectedthroughanexchangeofequityinterests,allpertinentfactsandcircumstancesshallbeconsidered,inparticular:
a.Therelativevotingrightsinthecombinedentityafterthecombination—allelsebeingequal,theacquiringentityisthecombiningentitywhoseownersasagroupretainedorreceivedthelargerportionofthevotingrightsinthecombinedentity.Indeterminingwhichgroupofownersretainedorreceivedthelargerportionofthevotingrights,considerationshallbegiventotheexistenceofanyunusualorspecialvotingarrangementsandoptions,warrants,orconvertiblesecurities.
b.Theexistenceofalargeminorityvotinginterestinthecombinedentitywhennootherownerororganizedgroupofownershasasignificantvotinginterest—allelsebeingequal,theacquiringentityisthecombiningentitywhosesingleownerororganizedgroupofownersholdsthelargeminorityvotinginterestinthecombinedentity.
c.Thecompositionofthegoverningbodyofthecombinedentity—allelsebeingequal,theacquiringentityisthecombiningentitywhoseownersorgoverningbodyhastheabilitytoelectorappointavotingmajorityofthegoverningbodyofthecombinedentity.
d.Thecompositionoftheseniormanagementofthecombinedentity—allelsebeingequal,theacquiringentityisthecombiningentitywhoseseniormanagementdominatesthatofthecombinedentity.Seniormanagementgenerallyconsistsofthechairmanoftheboard,chiefexecutiveofficer,chiefoperatingofficer,chieffinancialofficer,andthosedivisionalheadsreportingdirectlytothem,ortheexecutivecommitteeifoneexists.
e.Thetermsoftheexchangeofequitysecurities—allelsebeingequal,theacquiringentityisthecombiningentitythatpaysapremiumoverthemarketvalueoftheequitysecuritiesoftheothercombiningentityorentities.
DeterminingtheTotalCostoftheAcquiredBusiness
Include:
1.Fairvalueoftheconsiderationgiven
2.Fairvalueofanycontingentconsiderationgivenafteracquisitiondate
3.Directcostsincurredinconnectionwithacquisition(exceptcostsofregisteringwithSECanysecuritiesgivenasconsiderationbytheacquiringcompany*)
*Seechartbelow
Directcosts
INCLUDE
EXCLUDE
Findersfees
Salaryandoverheadofinternalacquisitionsdepartment
Travelcosts
Allocationofgeneralexpenses
Accountingfees
FeesassociatedwithregisteringsecuritieswithSEC
Legalfees
Investmentbankerfeesforunderwritingregisteredequitysecuritiesa
Investmentbankeradvisingfees
Investmentbankerfeesforunderwritingregistereddebtsecuritiesb
aDecreasesadditionalpaid-incapital
bDecreasesproceeds(higherinterestexpenseoverlifeofdebt)
AccountingforaBusinessAcquisition
1.Recordassetsandliabilitiesattheirfairvaluesasoftheacquisitiondate
2.Ifthecostoftheacquiredcompanyexceedsthesumoftheamountsassignedtotheassetsandliabilitiesacquired,recordtheexcessasgoodwill.
3.Ifthevaluesassignedtotheassetsacquiredandtheliabilitiesassumedexceedsthecostoftheacquiredcompany:
a.Reducebyaproportionateamountthevaluesassignedtothenoncurrentassetsacquired(otherthanlong-terminvestmentsinmarketablesecurities)
b.Afterthenoncurrentassetshavebeenreducedtozero,anyexcessofassignedvaluesovercostoftheacquiredcompanyisrecordedasanextraordinarygainatacquisition.
c.AnygoodwillisNOTamortizedsinceithasanindefinitelife.Itissubjecttoimpairmenttestatleastannually.
Note:
Onlypost-acquisitionincomestatementscanbeconsolidated.
Push-downaccounting:
Insomesituationswhencommonstockisacquired,thesubsidiarywilladjustitsbookstoreflectthecurrentvaluesatdateofacquisition.
Inotherwords,adjustingentriesaremadeonthesubsidiariesbooksratherthanjustworkpaperentries.Therefore,subsequentworkpaperswillnothavetodealwiththeexcessvalueelementsastheywillbetakencareofbythesubsidiary’saccountingdepartment(depreciation,amortization,etc.)
SECStaffBulletinNo.54requirespush-downaccountingintheseparatefinancialstatementsofasubsidiaryacquiredinapurchasetransaction
Parent’sownershippercentage
Guidelines
90%ormore
Substantiallyowned–push-downaccountingisrequired
80to89%
Push-downaccountingisencouragedbutnotrequired
Below80%
Push-downaccountingmaynotbeappropriate(e.g.,subsidiaryhassubstantialpreferredstockorpublicdebtoutstanding
LeveragedBuyout
Equivalenttocombinationofacquisitionandarefinancing–acquirerusesanextremelyhighpercentageofdebtandthusaverylowpercentageofequity.Thedebtissecuredbytheassetsofthetargetcompany.Thustheresultingcompanyisgenerallynotapubliclytradedcompanyandthedebtisoftenprivatelyissued.
InmostLBOs,thenewownershipgroupformsanewcorporationtoacquirethecommonstockofthetargetcompany.Technically,thisisNOTabusinesscombinationbecausethereisonlyoneoperatingcompanyinvolved.
Ifachangeincontrolhasoccurred,thenanewbasisofaccountingshouldbeestablishedfortheassetsandliabilitiesofthenewcompany.Insomecasesthewrite-upisonlypartial(seePahlerChapter7)
BusinessCombinationsatAcquisition
Example
SunInc.PACorp.
Cash$1M$190M
CurrentAssets5M300M
PlantAssets90M400M**
OtherAssets4M*10M
TotalAssets$100M$900M
Liabilities60M400M
CommonStock20M200M
RetainedEarnings20M300M
Sharesoutstanding2M20M
Parvalueofcommonstock$10.00$10.00
Marketvalueofcommonstock$25.00$50.00
Bookvaluepershare$20.00$25.00
Marketvalueofcompany$50M$1,000M
*SunInc.assetsincludeapatentwithabookvalueof$1Mbutafairvalueof$10M.
**ThefairvalueofPACorp.plantassetsis$1,000M.
AcquisitionofAssets
BeforetheAcquisitionofAssets
PACorp.
(theacquiringcompany)
SunInc.
(thesellingcompany)
AfterAcquisition
PACorp.
(theacquiringcompany)
SunInc.
(thesellingcompany)
1.PACorp.purchasesthenoncashassetsofSunInc.$120M.
AcquisitionofCommonStock
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