2 The net of the acquisition date amounts of the identifiable assets acquired

# 2 the net of the acquisition date amounts of the

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(2)The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. b.Equity Interests Only ExchangedIn a business combination in which the acquirer and acquiree exchange only equity interests, the acquisition-date fair value of the acquiree’s equity interests may be more reliable than the acquisition-date fair value of the acquirer’s equity interests. If so, the acquirer shall determine the amount of good-will by using the acquisition-date fair value of the acquiree’s equity interests instead of the acquisition-date fair value of the equity interests transferred. c.No Consideration TransferredIn a business combination in which no considera-tion is transferred, the acquirer shall determine the amount of goodwill using the acquisition-date fair value of the acquirer’s interest in the acquiree determined using a valuation technique in place of the acquisition-date fair value of the consideration in (a.(1)) above. Example 2 `Goodwill, 100% Acquisition On January 1, year 1, Parent Inc., (P) acquired all of Subsidiary Corp.’s (S) 100,000 shares of outstanding stock for \$800,000 cash. This was the first acquisition of any of S’s shares by P. The net book value of S is \$700,000.Required:Determine the total amount of goodwill recognized on the acquisition date for each of the following situations. a. The fair value of S’s assets and liabilities is equal to the book value. b. The fair value of S’s assets and liabilities is equal to the book value, except for land. Land is undervalued on the books by \$50,000. Solution:a. The net book value of S is \$700,000 and the fair value of the assets and liabilities is equal to the book value so the fair value of S is also worth \$700,000. P acquired S for \$800,000 cash; \$800,000 cash – \$700,000 fair value of S = \$100,000 of total goodwill would be rec-ognized on the acquisition date. b. The net book value of S is \$700,000 and the fair value of the assets and liabilities is equal to the book value except for land, which is undervalued on the books by \$50,000. Because the land is undervalued, it must first be written up to fair value before determining the amount of goodwill. The fair value of S is worth the \$700,000 book value + \$50,000 land = \$750,000. P acquired S for \$800,000 cash; \$800,000 cash – \$750,000 fair value of S = \$50,000 of total goodwill would be recognized on the acquisition date.
Financial Accounting & Reporting Updating Supplement Version 38.3 17-6 Copyright © 2009 by Bisk Education, Inc. All rights reserved. Page 80 of 160 Example 3 `Goodwill with Noncontrolling Interest On January 1, year 1, Parent Inc., (P) acquired 80% of Subsidiary Corp.’s (S) 100,000 shares of outstanding stock for \$750,000 cash. This was the first acquisition of any of S’s shares by P. The net book value of S is \$700,000 and the fair value of S’s assets and liabilities is equal to the book value. The fair value of the noncontrolling interest is determined to be \$150,000.

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