Healthcare Mergers & Acquisitions Accounting Flashcards

Under ASC 805, how should contingent consideration (earn-outs) be classified at the acquisition date in a healthcare M&A transaction?

Answer: Measured at fair value and recorded as part of the purchase price

ASC 805 requires contingent consideration to be measured at fair value on the acquisition date and included in the total purchase price consideration.

A hospital acquires a physician group and assigns $4 million to a non-compete agreement. Under ASC 805, how is this intangible amortized?

Answer: Over its estimated useful life using the straight-line method

Finite-lived intangible assets such as non-compete agreements are amortized on a straight-line basis over their estimated useful lives.

Which of the following best describes the 'measurement period' in a healthcare acquisition under ASC 805?

Answer: Up to one year after the acquisition date to finalize provisional purchase price allocations

The measurement period allows the acquirer up to 12 months post-acquisition to obtain information needed to finalize the purchase price allocation.

In a healthcare merger, the acquirer identifies a Certificate of Need (CON) as an acquired intangible asset. How should it be classified?

Answer: As a finite-lived intangible if the CON has an expiration date

A CON with an expiration or renewal date is classified as a finite-lived intangible and amortized over its remaining useful life.

When a healthcare organization acquires a rival clinic and the fair value of net assets exceeds the purchase price, the result is:

Answer: A bargain purchase gain recorded in earnings

When fair value of net identifiable assets exceeds purchase price, ASC 805 requires recognition of a bargain purchase gain in the income statement.

In healthcare M&A, which valuation approach is most commonly used to value a medical practice's patient relationships intangible?

Answer: Income approach using the multi-period excess earnings method

The multi-period excess earnings method (MPEEM) isolates cash flows attributable to customer/patient relationships after charging for contributory assets.

Post-acquisition, a hospital discovers that the acquired entity had an unrecorded malpractice liability that existed at the acquisition date. During the measurement period, this should be:

Answer: Recorded as an adjustment to goodwill retrospectively to the acquisition date

Pre-existing liabilities discovered during the measurement period are adjusted retrospectively by revising the purchase price allocation and adjusting goodwill.