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Lecture Advanced accounting (6th Edition): Chapter 2 - Jeter, Chaney

Chapter 2 - Accounting for business combinations. This chapter introduces you to the new technique for recording a business combination. It also gives you some background on how the new rules evolved, and what was done before the recent changes. There are some important illustrations in the book concerning the techniques. | Accounting for Business Combinations 1 Learning Objectives Describe the major changes in the accounting for business combinations passed by the FASB in December 2007, and the reasons for those changes. Describe the two major changes in the accounting for business combinations approved by the FASB in 2001, as well as the reasons for those changes. Discuss the goodwill impairment test, including its frequency, the steps laid out in the new standard, and some of the implementation problems. Explain how acquisition expenses are reported. 2 Learning Objectives Describe the use of pro forma statements in business combinations. Describe the valuation of assets, including goodwill, and liabilities acquired in a business combination accounted for by the acquisition method. Explain how contingent consideration affects the valuation of assets acquired in a business combination accounted for by the acquisition method. Describe a leveraged buyout. Describe the disclosure requirements according to current GAAP related to each business combination that takes place during a given year. Describe at least one of the differences between U.S. GAAP and IFRS related to the accounting for business combinations. 3 LO 1 FASB’s two major changes for business combinations. What Changed? SFAS No. 141R [ASC 805], “Business Combinations,” replaced FASB Statement No. 141. Supports the use of a single method. Uses the term “acquisition method” rather than “purchase method.” The fair values of all assets and liabilities on the acquisition date, defined as the date the acquirer obtains control of the acquiree, are reflected on the financial statements. 4 Issued December 2007 Historical Perspective on Business Combinations Historical Perspective on Business Combinations What Changed? “Noncontrolling Interests In Consolidated Financial Statements”, amended Accounting Research Bulletin (ARB) No. 51. (now included in FASB ASC 810 [Consolidations]), Established standards for the reporting of the . | Accounting for Business Combinations 1 Learning Objectives Describe the major changes in the accounting for business combinations passed by the FASB in December 2007, and the reasons for those changes. Describe the two major changes in the accounting for business combinations approved by the FASB in 2001, as well as the reasons for those changes. Discuss the goodwill impairment test, including its frequency, the steps laid out in the new standard, and some of the implementation problems. Explain how acquisition expenses are reported. 2 Learning Objectives Describe the use of pro forma statements in business combinations. Describe the valuation of assets, including goodwill, and liabilities acquired in a business combination accounted for by the acquisition method. Explain how contingent consideration affects the valuation of assets acquired in a business combination accounted for by the acquisition method. Describe a leveraged buyout. Describe the disclosure requirements according to