Recognizing/Measuring Goodwill or Bargain Purchase Amount

Question 1

Under what conditions will Goodwill be recognized in a business combination?

Answer 1

Goodwill is recognized when the fair value of the total investment in an acquiree (both the investment of the acquirer and that of any noncontrolling interest) is greater than the fair value of the acquiree’s net assets.

Question 2

Under what conditions will a bargain purchase be recognized in a business combination?

Answer 2

A bargain purchase is recognized when the fair value of the total investment in an acquiree (both the investment of the acquirer and that of any noncontrolling interest) is less than the fair value of the acquiree’s net assets

Question 3

What values are compared to determine if there is Goodwill or a bargain purchase in a business combination?

Answer 3

The fair value of the total investment in the acquiree (including the acquirer’s consideration transferred and the noncontrolling interest in the acquiree), and the fair value of the net assets (assets - liabilities) of the acquiree

Question 4

What are the reasons a bargain purchase might occur in a business combination?

Answer 4

1. ) The owner’s of the acquired entity are under compulsion to carry out the sale (Forced Sale)
2. ) Valuation of assets and or liabilities assumed is constrained by exceptions to the use of fair value

Question 5

What is included in “Investment Value” of an entity in a business combination?

Answer 5

1. ) Assets transferred
2. ) Liabilities assumed
3. ) Equity interest issued
4. ) Contingent Consideration
5. ) Required Share Based payment awards to employees for precombination services
6. ) Precombination equity of the acquiree held by the acquirer
7. ) FV of noncontrolling interest, if any.