As of September 2006, 48 interpretations have been published. For a not-for-profit health care acquirer, Chapter 11 of the health care Guide. However, the market price of an individual security may not be a reliable indication of fair value for a reporting unit. These individual asset categories typically include 1 net working capital, 2 tangible personal property, 3 real estate and 4 identified intangible assets and intellectual properties e. The regulations are complex, but the fundamentals are relatively easy to understand.
Not recognize the fair value of contributed collection items--either as an asset or as contribution revenue. However, the amounts used in the transitional goodwill impairment test shall be measured as of the beginning of the year of initial application. The acquirer recognizes an increase decrease in the provisional amount recognized for an identifiable asset liability by means of a decrease increase in goodwill or by a direct credit charge to the statement of activities if goodwill is not recognized as an asset in accordance with paragraph 51. It should be noted that this second step allocation valuation is only performed for purposes of testing goodwill for possible impairment. The remainder of the discussion of the carryover method refers to financial statements of the merging entities, rather than a more precise, but longer, phrase such as assets and liabilities that would be recognized in the financial statements of the merging entities if statements are prepared. This Statement also provides implementation guidance on distinguishing between a merger and an acquisition, including illustrations of how that guidance might be applied to hypothetical combinations.
This Statement's guidance on applying the carryover method improves on Opinion 16's guidance on applying the pooling method in several ways. The effective date of this new standard was January 1, 2002 for corporations with a calendar year end. The primary reasons for the acquisition and a description of how the acquirer obtained control of the acquiree. As used in this Statement, the term intangible asset excludes goodwill paragraph 3 1 of Statement 141 R. Summary and Conclusion Valuation analysts often rely on financial statements as the starting point in the appraisal of a company operating under bankruptcy protection.
In accounting, there is a broad definition for intangible value in the nature of goodwill. This new rule addresses financial accounting and reporting for acquired goodwill and other intangible assets. Paragraph A125 illustrates one way an acquirer might present that amount in its statement of activities. Recognition and Measurement of an Impairment Loss 17 An intangible that is not subject to amortization shall be tested for impairment annually, or more frequently if events. Eventually, many companies could face loan defaults.
That fundamental difference contributed significantly to this Statement's requirement that different accounting methods apply to a merger of not-for-profit entities and an acquisition by a not-for-profit entity For an acquisition, those combinations result in a contribution of the acquiree's net assets to the acquirer, which this Statement refers to as an inherent contribution received to distinguish it from other contributions received by a not-for-profit entity Determining Whether a Combination Is a Merger or an Acquisition This Statement requires use of the carryover method to account for a merger of not-for-profit entities, which is a combination in which the governing bodies of two or more not-for-profit entities cede control of those entities to create a new not-for-profit entity In contrast, the acquisition method must be used to account for an acquisition by a not-for-profit entity, which is a combination in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses. An intangible asset is an asset not including a financial asset that lacks physical substance. As already noted, many acquisitions by not-for-profit entities constitute an inherent contribution received because the acquirer receives net assets without transferring consideration. For individually immaterial acquisitions occurring during the reporting period that are material collectively, the acquirer shall disclose the information required by paragraph 86 e - t in the aggregate. For tax purposes, goodwill is created only in taxable asset acquisitions. Classification of particular investments in securities as trading or other than trading in accordance with the health care Guide b. As a result, financial statement users will be better able to understand the investments made in those assets and the subsequent performance of those investments.
This Statement provides two exceptions to the principle in paragraph 32: a. An entity subject to the health care Guide shall recognize the changes within the performance indicator unless the arrangement is a hedging instrument for which Statement 133, in effect, requires such entities to recognize the changes outside the performance indicator. The acquirer also might receive assistance from an unrelated third party, which shall be taken into account in measuring consideration transferred. A transaction that in effect settles preexisting relationships between the acquirer and acquiree paragraphs A109-A116 b. Paragraphs A86-A92 provide guidance on determining whether an acquired collection item is purchased or contributed and, if purchased, the appropriate amount of cost to attribute to them. Those contributions made should be accounted for in accordance with Statement 116.
The allocation is reported on Form 8594, Asset Acquisition Statement. Contingent consideration arrangements of an acquiree assumed by the acquirer shall be measured subsequently in accordance with the guidance for contingent consideration arrangements in paragraph 80. For Federal income tax purposes, these transactions are described as types of tax-free reorganizations in Sec. Applying the Carryover Method Under the carryover method, the combined entity's initial set of financial statements carry forward the assets and liabilities of the combining entities, measured at their carrying amounts in the books of the combining entities at the merger date. This test must be completed on all goodwill within six months of the effective date and should be measured as of the first of the year. Applying the carryover method requires combining the assets and liabilities recognized in the separate financial statements of the merging entities as of the merger date or that would be recognized if the entities issued financial statements as of that date , 2 adjusted as necessary in accordance with paragraphs 9, 13, and 14. A contribution is an unconditional transfer of cash or other assets to an entity or a settlement or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as an owner paragraph 5 of Statement 116.
Any generally accepted business valuation approach can be used to measure the fair value of the reporting unit equity. Applies the carryover method in accounting for a merger c. Because the following items were not effective for not-for-profit entities upon their initial effective dates, this Statement also provides an effective date for them: a. An asset is identifiable if it either: 1 Is separable, that is, capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability, regardless of whether the entity intends to do so; or 2 Arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations paragraph 3 k of Statement 141 R. What Is a Reporting Unit? Therefore, the acquirer does not recognize those costs as part of applying the acquisition method. Then the goodwill must be tested at least annually to determine if the recorded value of the goodwill is greater than the fair value.