ACCOUNTING & AUDITING ARTICLE-
FASB 141R – Key Points

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Target Audience: FASB Interest, Fair Value Accounting Regulations Updates Interest, Valuation Techniques Interest, Accounting Consulting Firm News Seekers, FASB 141R Interest, Mergers & Acquisitions Interest, Cost Allocators, Contract Contingencies Interest

The purpose of this article is to identify the key points of FASB 141(R), which are as follows:

1. This statement if effective for all business combinations whose acquisition date occurs on or after December 15, 2008.  Early application is prohibited.
   


2. The statement requires the acquirer to recognize the assets, liabilities and any non-controlling interest in the acquiree at the acquisition date, measured at there fair values as of that date.  In contrast, FASB 141 used a cost-allocation approach whereby the cost of the acquisition was allocated to the assets and liabilities based on their relative fair values.


3. FASB 141 required acquisition related costs to be included in the acquisition price, whereas FASB 141(R) requires those costs to be recognized separately from the acquisition.


4. Assets acquired and liabilities assumed arising from contractual contingencies are recognized at the acquisition date at their acquisition date fair values.  Assets acquired and liabilities assumed arising from non contractual contingencies are recognized on the acquisition date at there acquisition date fair values if it is more likely than not that they meet the definition of an asset or liability.  If the “more likely than not” criteria is not met, then those assets and liabilities are accounted for in accordance with other generally accepted accounting principles, including FASB 5.  FASB 141allowed the deferral of contingent assets and liabilities based on FASB 5.


5. The statement requires the acquirer to recognize goodwill as of the acquisition date.  The goodwill is measured as a residual, which is defined as the excess of consideration transferred plus the fair value of any non controlling interest in the acquiree at the acquisition date over the fair values of the net assets acquired.


6. The acquirer recognized contingent consideration at the acquisition date, measured at its fair value.  Under FASB 141, contingent consideration was not usually recognized at the acquisition date, but recognized when the contingency was overcome.


7. This statement defines a bargain purchase as a business combination in which the total acquisition date fair value of the net assets acquired exceeds the fair value of the consideration transferred plus any non controlling interest in the acquiree.  This excess is recognized in earnings as a gain attributable to the acquirer.  FASB 141 referred to this bargain purchase as “negative goodwill”, which was an allocated reduction in the assets acquired.

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