Healthcare Mergers & Acquisitions Accounting Flashcards

Under ASC 810, when a hospital acquires 60% of a surgery center and consolidates it, how is the noncontrolling interest (NCI) initially measured?

Answer: At either fair value or the NCI's proportionate share of identifiable net assets (acquirer's choice)

ASC 805 allows an accounting policy election to measure NCI at either full fair value or the proportionate share of identifiable net assets on the acquisition date.

A hospital acquires a home health agency for $20M. The identifiable net assets are valued at $14M, and goodwill of $6M is recorded. Two years later, the agency underperforms and its reporting unit fair value drops to $12M. What is the impairment loss?

Answer: $2M (excess of carrying value $14M over fair value $12M, capped at goodwill of $6M)

Under ASC 350's one-step test, impairment equals the excess of the reporting unit's carrying amount over fair value ($14M - $12M = $2M), but cannot exceed total goodwill of $6M.

In healthcare M&A, a 'tuck-in' acquisition refers to:

Answer: An acquisition where the target is absorbed into an existing business unit with no separate reporting

A tuck-in acquisition integrates the target into an existing reporting unit, which can affect goodwill impairment testing by blending the acquired goodwill with existing goodwill.

Under IRC Section 338(h)(10), a stock acquisition of a healthcare entity can be treated as an asset acquisition for tax purposes. Who must make this election?

Answer: Both buyer and seller jointly

A Section 338(h)(10) election requires the joint consent of both the buyer and seller, making it a negotiated term in healthcare M&A transactions.

Which financial statement line item is most directly impacted by the amortization of acquired physician employment agreements in a healthcare acquisition?

Answer: Operating expenses (depreciation and amortization)

Amortization of intangible assets, including physician employment agreements, flows through operating expenses in the D&A line of the income statement.

A not-for-profit hospital merges with another NFP hospital in a transaction with no exchange of consideration. Under ASC 958-805, this is accounted for as:

Answer: A merger using the carryover basis method if there is no identified acquirer

ASC 958-805 allows NFP combinations without consideration to use the carryover basis method when neither entity is identified as the acquiring entity.

In a healthcare leveraged buyout (LBO), the acquired entity's financial statements post-closing will reflect:

Answer: New pushed-down accounting basis reflecting the acquisition's fair value adjustments

Under ASC 805-50 (pushdown accounting), when an entity is acquired, it may elect to reflect the new parent's stepped-up basis in its own standalone financial statements.