Business Combination-- Revisions Made to FAS 141

12/08/08

FAS 141R- Introduction

•  FAS 141R - Issued in Dec.2007

•  FAS141 R and IFRS 3R

• Objectives – Increase relevance, representational faithfulness & comparability of financial info

FAS 141R- Key changes

Recognition and Measurement Acquisition expenses Earns-outs Acquired R&D Contingencies Step acquisitions Goodwill measurement and bargain

purchase Disclosure

Recognition & Measurement

•  Expand the scope of business combination

•  Recognition principle 

•  Change from allocation model to valuation model- acquisition-date fair value

• Advantages of measurement at fair value

Acquisition Expense• Direct or indirect expenses: ex: lawyer fee, accountant fee

• FAS141: included in acquisition price

• FAS 141R: not included in acquisition price but charged to expense

• Reason for expense  

• Ex: Colgate's acquisition of 84% of Tom's of Maine in May 2006

Acquired R&D

• FAS 141: expensed upon acquisition

• FAS 141R: be capitalized 

• Reasoning & Argument 

• Cisco's example

Goodwill Measurement & Bargain Purchase

• Goodwill measurement:

• FAS 141: consider the acquired proportion • FAS141R: consider the entire target company, including FV of non-controlling interest

• Bargain purhcase- negative goodwill

• FAS 141: Excess FV of net assets acquired reported as negative goodwill

• FAS 141R does not provide for negative goodwill, but immediate gain.