Acquisition Flashcards

1
Q

Recording the acquisition - parent company’s internal journal entry

A

1) For cash:

dr investment in sub
cr cash

2) For stock
dr investment in sub
cr common stock (parent at par)- use FV at date transaction closes NOT announcement date
cr apic (parent at fv-par)

Total installment = shares of common stock given up * fair value

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2
Q

parent’s basis

A

acquisition price = investment in sub (at fv of the date of close)

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3
Q

Steps

A

CAR IN BIG
CAR: eliminates sub’s entiere equity
I: eliminate’s parent’s investment
n: create non controlling inte

BIG: adjust old sub’s net assets bv to fv and then rem is goodwill
i: identifiable intangibles like covenant not to compete; trademark, etc

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4
Q

CAR

A
assets-liab
net book value
net assets
equity
AT THE DATE OF ACQUISITION
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5
Q

Diff between bv and fv

A

at the date of acquisition;

common stock and apic value will be the same; need to back track to find out beg re

beg re+ni-div=end re where beg re = re at purchase date amount

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6
Q

investment in sub

A

original cost (measured at fv cash or common stock fv) + expenses (none)

expenses:
*out of pocket expenses like finder’s fees or legal fees are expensed (capitalized in cost or equity method)
*stock registration and issuance cost such as SEC filing fee are a direct reduction of the value of the stock issued (APIC of parent)
*

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7
Q

investment in subpass key

A

original cost (measured at fv cash or common stock fv) + expenses (none)

expenses:

  • out of pocket expenses like finder’s fees or legal fees are expensed (capitalized in cost or equity method)
  • stock registration and issuance cost such as SEC filing fee are a direct reduction of the value of the stock issued (reduce APIC of parent)
  • indirect costs are expensed as occurred
  • bond issue costs are capitalized and amortized (dr. bond issue costs)

all these fees legal and registration are paid in cash

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8
Q

pass key

A

make sure you look at acquisition related costs that can expensed

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9
Q

Noncontrolling interest

A

must be reported at fair value in the equity section of the consolidated balance sheet separate from the parent’s equity

this will include the NI’s share of any goodwill even when there is no cost basis

  • At acquisition date: NInt balance sheet: fair value of sub * NInt %
  • After acquisition date: Beg NInt + NonIn NI - Nint Div = End NInt
  • allocation of sub’s losses: allocated to nonint even if it exceed’s the nonint’s share of equity (so if you have a negative balance)

OCI or statement of comprehensive income consolidated will show comprehensive income related to the parent and related to nonint

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10
Q

NonInt Goodwill

A

GAAP: Full method: NCI: FV of investment 100% * nonInt%
IFRS: Preferred partial; can use full on a transaction by transaction basis:
NCI= FV of sub’s net identifiable assets * nonint %

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11
Q

ONLY THING ON THE SEE SAW THAT IS OF THE PARENT

A

Investment made by parent and non int; everything else is the sub’s (bv, fv, net identifiable intangibles, goodwill)

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12
Q

Identifiable intangibles related to acquisition of sub

A

recorded at fv; say the company paid premium for in process r&d

recognize as an intangible separate from goodwill at the acquisition date (need valuation)
do not immediately write off
it is an asset that is carried

expense the rest of the cost to complete the project

later:
if the project is a success then r&d
if failure then impair or write off r&d

when acquired adn recorded on acquirer’s book recorded at fv no matter what the cost is

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13
Q

gain

A

if fair value of invest < fair value of sub’s net assets then gain is recognized

gain is now on the creidt side

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14
Q

purchase price

A

of 100% of the investment + nci

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15
Q

deprecitation

A

recalculate based on the new basis of assets after you acquire stuff

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16
Q

identifiable intangibles

A

examples: agreements, contracts, rights, permits, copyrights, customer list, inprocess r&d, non competes etc

finite life: amortize over the remaining life (two step impairment test)
infinite life: one step impairment test; no amortization

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17
Q

goodwill (acquisition goodwill)

A

not impaired, tested for impairment

in the period that it is determined to be impaired, it is written down and charged as an income on i/s

intangibles not subsumed into goodwill: assembled workforce, distribution channels, technical expertise, training and recruiting, advertising programs, technical know how

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18
Q

Private company accounting alternative

A

under us gaap:

private company = not public company or non for profit

goodwill alternative:would not separately recognize the following intangibles for business combinations but just lump everything with goodwill : noncompete agreements, customer related intangibles

this alternative: (elect to amortize goodwill max for 10 years only under US GAAP) this alternative also applies where a private company is required to recognize fair value of intangibles as a result of applying the equity method to jv or adopting fresh start reporting in reorganization
*this alternative can only be elected also if it elects the private company goodwill alternative but a company can elect the goodwill accounting alternative without electing this alternative for a business combination

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19
Q

Full vs. partial goodwill

A

this option of full goodwill or partial goodwill only available when you dont acquire 100% of the business:

Full goodwill (US GAAP or IFRS):
if you acquired 80% of a company you calculated 80% goodwill and you imply the remaining 20%

goodwill = fair value of sub-fair value of sub’s net assets

Partial/blended goodwill (preferred method under IFRS, can use full method on a transaction by transaction basis)

if you acquired 80% of a company and you calculated some goodwill for that 80%, dont imply what that 20% would have been and give credit to non int

goodwill = acquisition cost of that 80%-fair value of sub’s net assets acquired so 80%. (Basically ignore non int)

If buys 100% of the company then full goodwill = partial goodwill

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20
Q

fair value of sub’s net assets

A

fv of sub’s net assets + fv of identifiable intangibles

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21
Q

partial goodwill

A

total does not add up 100% of the investment

60% + partial investment

since non cont int didnt pay for goodwill we font write up their assets

22
Q

if they eliminating journal entry

A

at the beg of the year- beg re

at the end of the year- end re

23
Q

Measurement period adjustment

A

values assigned to assets and liab not always known with certainty on the acquisition date adn may be adjusted during the measurement period: provisional fv best guess

these are offset against against gain or goodwill

dep and amortizations are reported in the period the adjustments are determined
*NO RESTATEMENT is required

24
Q

if affects apic

A

does affects ni in trms of registration fees

but if expenses as incurred affects ni in that period

25
consolidation
move from sth to acquisition (20% to 95% in july) till july 20% after july 95%
26
earnings
%
27
fv of inventories in the big b step
fair value of merchandise and finished goods = selling price- disposal costs - reasonable profit allowance
28
earnings
share of ni that you own so say 80% ownership- 80% ni
29
new equity after consolidation
common stock total + apic total +non controlling int + re non controlling int on b/s= investment in non controlling int + non int n/i - non int div = non controlling investment
30
equity immediately after acquisition
s/e of parent + fv of any non controlling int
31
once consolidated
parent's re = consolidated re at year end parent's ni = consolidated ni parent's div = consolidated div even if exclusive of the sub's income
32
control to non control total gain
gain on sale + re measurement gain so you remeasure the stocks that you didnt sell to the new price or the fv and that is the remeasurement gain which IS on the i/s fv adjustment is recognized as gain or loss by the investor in the period of acquisition
33
Non int beg yr vs end yr
non int beg yr= just investment | end yr = inv + ni - div % on b/s
34
consolidated current assets
current assets of both at bv + sub adjusted to fv because we're only getting rid of se or bv of parent + fv of sub
35
even if consolidated both companies are shown exclusive of each other
just parent's se and re
36
paying dividend | DBT only div paid to parent or noncontrolling int also?
no effect on consolidated re because just moves from one company to another
37
Consolidated statement of cf- period of acquisition
1)net cash spent or received in the acquisition process must be reported in the investing section of the statement of cf example: cash spent to acquire a sub - cash that the sub had 2)assets and liab of the sub on the acquisition date must be added to the parent's assets and liab at the beg of the year to determine the total change in cf due to op, inve, and fin activities (*se is eliminate of the sub)
38
final b/s i/s presentation
consolidated Assets+liab = add (fv parent's assets + fv sub's assets) consolidated se= parent's se + non controlling int consolidated re/div/ni = just parent's
39
consolidated statement of cf- sub period
same except: 1) when reconciling net income with net cash provided by operating activities: total consolidated ni (ni of parent + no non controlling int) should be used 2) financing section should report dividends paid by: sub to noncontrolling s/h (NOT div by sub to parent) 3) investing section may report acquisition of additional sub shares by the parent if the acquisition was an open market purchase
40
Step Acquisition:
1) control to non control (cross 50%) -> gain or loss on sale + remeasuring everything else to fv and that is on i/s 2) non control to control (cross 50%) -> remeasure previously held stuff to fv and that is on i/s at that point the value of the investment (pp+ni-div)- fv of equity not purchase price 3) control to more or less control (beyond the 50% line) -> NO GAIN or LOSS on the i/s; treated like a treasury stock transaction (APIC adjusted) Example: if bought 10% of 20,000. now after 5 years bought another 50% for 400,000 (100% for 800,000). So 10% of that things is now just 80,000. You bought it initially for 20,000. so the difference is your remeasurement gain. JE: dr. Investment in sub 60,000 cr. gain 60,000 total investment in sub = 20,000 (initial) + 60,000 (gain) + 400,000 (additional acquired) = total balance dont really care about the fv of net identifiable interest and stuff only care about the investment; you can use that to calc goodwill
41
at the date of acquisition
means all the values given are after the acquisition is complete
42
acquisition method disclosures
name, date, %, reasons, description of each transaction
43
disclosure if the business combination is achieved in stages
fv b4 acquisition, gain or loss as a result of re measurement, valuation techniques used
44
disclosure if the acquirer is a public entity
rev and earnings since acquisition, rev and earnings of combines entity as if acquired beg yr, comparables financials as if rev and earnings as if acquired beg yr
45
Consolidation disclosures
policy being followed
46
goodwill
acquired goodwill not amortized subject to impairment test
47
acquisition cost is fv of assets given up not what acquired
so if stock for stock, stock that you are giving up is your acquisition cost
48
contingent consideration
also included in investment
49
bargain purchase
gain situation | pp < fv net assets acquired
50
pp
only fv of consideration given | NOT relocation costs
51
fees
legal fees + due diligence- current year expenses expensed as occured (not amortized); debt securities issued liab; registration capitalized and amortized