Possible Problem/Essay Topics
Chapter 1 1) Determining amount of goodwill during an acquisition (problem that includes Figure 1-3 on page 19) * Components used in determining goodwill: * The fair value of the consideration given by the acquirer * The fair value of any interest in the acquiree already held by the acquirer * The fair value of the noncontrolling interest in the acquiree, if any * The total of these three amounts, all measured at the acquisition date, and is compared with the acquisition-date fair value of the acquiree’s net identifiable assets, and the difference is goodwill. * Establishes A New Basis of Accounting * The new basis of accounting depends on the acquirer’s purchase price (FMV) + the NCI’s (FMV). * The depreciation cycle for fixed assets starts over based on current values and estimates. * If acquisition price > FMV, goodwill exists. * Recognize as an asset. * Do not amortize. * Evaluate periodically for possible impairment. * If acquisition price < FMV, a bargain purchase element (formerly called “negative goodwill”) exists. * Testing for goodwill impairment * When goodwill arises in a business combination, it must be assigned to individual reporting units. * To test for impairment, the fair value of the reporting unit is compared with its carrying amount. * If the fair value of the reporting unit exceeds its carrying amount, the goodwill of that reporting unit is considered unimpaired. * If the carrying amount of the reporting unit exceeds its fair value, an impairment of the reporting unit’s goodwill is implied. * The amount of the reporting unit’s goodwill impairment is measured as the excess of the carrying amount of the unit’s goodwill over the implied value of its goodwill. * The implied value of its