Part A
Question 1
Valuation of the Acquiree
In a typical cooperative merger, it may be more reliable to measure the equity or member interests of the Acquiree, rather than attempting to measure the value of the interests transferred by the Acquirer. As a result, in most cases, the determination of the consideration transferred will be determined by valuing the business of the Acquiree.
In order to determine the value of the Acquiree’s equity, it will be necessary to have the cooperative that is being acquired valued. This valuation must be done according to the mandates of acquisition and is a complicated process that needs to be prepared by a qualified business valuation professional. It is important to note that the valuation cannot be done by the same accounting firm that audits the acquirer. To do so would create an independence issue and result in the accounting firm being unable to provide assurance services for the acquirer post acquisition.
The professional business valuator will approach the valuation of the Acquiree’s business by applying three valuation approaches: 1. The Market Approach 2. The Income Approach and 3. The Cost approach
Each of these approaches will be considered in all valuations.
Question 2
Identify the Acquirer
It is necessary to identify the acquirer in order to apply the rules and procedures of acquisition. The Acquirer is the entity that obtains control of the Acquiree. The entity that issues equity is usually the Acquirer. Factors determining control can include relative voting rights of the combined entity post-acquisition, composition of the governing body and senior management of the combined entity, relative size of the entities and terms of the exchange of equity interests.
Paragraphs B14-B18 of Appendix B to AASB3 provide some indicators to assist in assessing which entity is the acquirer:
What are the relative voting rights in the combined entity after the business combination ?
Is there a large minority voting interest in the combined entity?
What is the composition of the governing body of the combined entity?
What is the composition of the senior management that governs the combined entity subsequent to the combination?
What are the terms of exchange of equity interests
Which entity is larger?
Which entity initiated the exchange?
Determining the controlling entity is the key to identification of the acquirer . However, doing so may not be straightforward in many business combinations, and the accountant might be required to make a reasoned judgment based on the circumstances.
PART B Report
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Bachelor of Business
MIT665801 Today’s Accounting Practitioner
Trimester 02, 2011
Individual report
Lecture: Susan Currie
MIT100064 Xuedi hu
Table of Content Introduction 2 Why impairment testing is carried out? 2
How existence of goodwill affects the impairment test? 3
How often the test needs to carried out? 3
Example of Goodwill Impairment Testing 3
Three steps are required for goodwill impairment testing: 4
dropped a 22 per cent of underlying profits excluding impairments of $US16.9 billion. The company announced $US9.3 billion of impairments, primarily as a result of its disastrous acquisition of Alcan in 2007. There was a pre-tax charges announced of $US2.84 billion as an attributed to BHP’s ill-timed $US4.75 billion acquisition of Fayetteville dry shale gas assets in the US just before a plunge in the gas price. BHP did not take an impairment on its $US15.1 billion acquisition of shale gas producer…
Q1 When should companies undertake an impairment test? An impairment test is to judge whether there exists impairment of assets within the business based on external and internal information and it required under the accounting standards and framework. In addition, an impairment test is undertaken when arising some indications that an asset may be impaired. The regulations for impairment tests have been explained by IAS36 and AASB136. Indication testing An entity must estimate at the end of the…
for asset impairment? Briefly discuss the scope of the standard (i.e., explain the types of transactions to which the standard applies) The authoritative guidance for asset impairment is to ensure that impairment is recorded and dealt with as depreciation. The scope of the standard is writing off of assets and depreciation. According to the guidance of 360-10-35, it address how long-lived assets that are intended to be held and used in an entity’s business shall be reviewed for impairment. The impairment…
Case 1 Goodwill Impairment Testing Should management have performed an interim goodwill impairment test as of September 30, 2010? Galaxy Sports Inc. (Galaxy) is a U.S. based manufacturer of sports equipment. It is an SEC registrant with one operating segment with three separate reporting units: fitness, golf and hockey. The fitness is the largest division of Galaxy with allocated goodwill of $200 million. The golf division reports $130 million of goodwill and the hockey has $30 million of goodwill…
Advisors Subject: Impairment for Hog Inventory Date: November 12, 2014 Farmer Joe, Thank you for giving our team the chance to perform research on your question regarding inventory impairment related to your inventory of live hogs, developing animals, and processed pork products. The situation that has been presented to us is interesting and combines a number of industry specific issues as well as a question involving inventory valuation and how to test for the impairment of inventory. After…
recoverable under these secondary probabilities. As mentioned above in the background, the effect of the impairment loss on the financial statements may impact the decisions made by its users, so Smooth Sailing must become more certain about the probabilities that each indicated cash flow will occur. For both above-mentioned probability alternatives, it is important to also consider when to check for impairment. According to FASB 360-10-35-21, an asset should be “tested for recoverability whenever events…
is initially recognized, entities need to subsequently consider about the impairment of goodwill. An impairment loss should be recognized if the carrying amount is larger than its recoverable amount. (AASB 136, para.59). A notable change between IFRS 3 and US GAAP is the replacement of amortization of goodwill by impairment tests. In accordance with IFRS 3, goodwill does not need to be amortized but be tested for “impairment annually, or more frequently if there is an indication that it may be impaired…
found him on the kitchen floor unresponsive. When he awoke he thought he was 14 years old and had lost all memory in the previous 40 years with no structural brain damage. Like JB, he displayed no significant anterograde amnesia, is aware of his impairment, and experienced stressful situations prior to the onset of the amnesia. In contrast, Patient K displays very vivid details for autobiographical and semantic memories such as remembering seeing Broadway plays Hellzapoppin and Sons O’ Fun on trips…
past year because the assets have also increased. During the fiscal first quarter of 2013, Johnson&Johnson adopted the Financial Accounting Standards Board (FASB) guidance and amendments related to testing indefinite-lived intangible assets for impairment. Under the amendments in this update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the indefinite-lived intangible asset…
GAAP Reporting for Goodwill Impairment Under GAAP reporting rules “the first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill” (ASC 350-20-35-4). ASC 350-20-35-6 states that if the fair value of a reporting unit exceeds its…