CFC Merger & Acquisition Accounting 3

Question 1

Under the acquisition method, how is noncontrolling interest (NCI) measured at the acquisition date under US GAAP?

Accepted Answer

Either at fair value or at the NCI's proportionate share of net identifiable assets

Answer

US GAAP (ASC 805) allows entities to elect to measure NCI either at full fair value or at the NCI's proportionate share of identifiable net assets; IFRS 3 provides a similar option.

Question 2

Company A acquires Company B for $10M. Company B's identifiable net assets have a fair value of $7M. The NCI is measured at fair value of $3M. What amount of goodwill is recognized?

Accepted Answer

$6M

Answer

Goodwill = Total consideration ($10M) + NCI fair value ($3M) − Fair value of net assets ($7M) = $6M under the full goodwill method.

Question 3

How is goodwill tested for impairment under US GAAP after the FASB's simplification update (ASU 2017-04)?

Accepted Answer

Single step: compare reporting unit fair value to carrying amount; impairment equals the excess of carrying amount over fair value

Answer

ASU 2017-04 eliminated Step 2 of the goodwill impairment test; impairment is now the amount by which a reporting unit's carrying value exceeds its fair value.

Question 4

In an M&A transaction, an in-process research and development (IPR&D) asset is acquired. Under ASC 805, how should it be recorded?

Accepted Answer

Capitalized as an indefinite-lived intangible until the project is completed or abandoned

Answer

IPR&D acquired in a business combination is recognized as an indefinite-lived intangible asset and subsequently tested for impairment until the project is completed or abandoned.

Question 5

A company completes a merger structured as a pooling-of-interests. Under current US GAAP, how is this transaction recorded?

Accepted Answer

The acquisition method must be used; pooling-of-interests is no longer permitted

Answer

SFAS 141(R), now codified in ASC 805, eliminated the pooling-of-interests method; all business combinations must use the acquisition method.

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC Merger & Acquisition Accounting 3