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FASB ASC RESEARCH AND ANALYSIS CASE – CONSIDERATION OR COMPENSATION In this case, NaviNow Company is acquiring the assets and liabilities of the TrafficEye Company by paying its owners $20 million in cash. In the contract NaviNow will have to pay additional $8 million compensation to the owners if the revenue exceeds $100 million over the next three years. NaviNow should account for the contingent payments promised to the former owners as consideration transferred in the acquisition. The FASB ASC states that “The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer.” (FASB ASC para. 805-30-30-7)
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Unformatted text preview: In other words, under the acquisition method, the fair value of the consideration transferred in measuring the acquirer’s interest in the acquired business. And items of consideration do not only include cash, but also securities, property, and obligations. Hoyle also states that “the acquisition method treats contingent consideration obligations as a negotiated component of the fair value of the consideration transferred, consistent with the fair value measurement attribute.” Therefore the additional $8 million that are part of the agreement will have to be recorded in the as a component to the acquisition of the company. However the wages that will be paid to the owners when they will be contracted as employees of the company will be considered wages expenses....
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This note was uploaded on 10/29/2011 for the course ADVANCED A 4110 taught by Professor Fridel during the Spring '11 term at University of Minnesota Duluth.

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