Business Combinations

SFAS No. 141R, Revised in December 2007
“Business Combinations”

FSP FAS 141R-1, April 2009
“Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”

Acquisition Method
Acquisition method is applied for business combinations

Steps of acquisition method:
1. Acquirer
2. Acquisition date
3. Assets, liabilities, noncontrolling interest
4. Goodwill

One entity should be identified as the acuquirer

Acquisition date
The acquirer obtains control at the acquisition date

Recognition principle
The following are recognized at the acquisition date:
1. Assets
2. Liabilities
3. Noncontrolling interest
4. Goodwill

Measurement principle
The following are measured at the acquisition-date fair values:
1. Assets
2. Liabilities
3. Noncontrolling interest

Exceptions to Recognition and Measurement Principles
1. Assets and liabilities arising from contingencies
2. Income taxes
3. Employee benefits
4. Indemnification assets

Exceptions to the Measurement Principle
1. Reacquired assets
2. Share-based payment awards
3. Assets held for sale

Goodwill or a gain from bargain purchase
1. Goodwill = Consideration transferred + FV of NCI – FV of Net Assets
2. Gain from bargain purchase = FV of Net Assets – Considerations transferred – FV of NCI
FV: Fair Value
NCI: Noncontrolling Interest

Consideration transferred
Consideration transferred is measured at fair value
Contingent consideration is measured at the acquisition-date fair value

Share-based payment awards exchanged for acquiree’s employees
Modification of share-based payment awards under SFAS 123R

Business combinations 
–> achieved in stages
Previously held equity interest is remeasured at the acquisition-date fair value
Changes in fair value are recognized in earnings as gains or losses

Business combinations
–> achieved without the transfer of consideration
–> achieved by contract alone
Rules of acquisition method are applied
–> even if all equity interests are allocated to NCI

Acquisition-related costs
–> recognized as expenses
One exception for the issuance costs of debt or equity securities
–> apply related GAAP


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