1) According to ASC 805, how is goodwill to be recorded (calculated)?
Under ASC 805 the parties in the transaction are required to first value all identifiable assets acquired at their fair value. Goodwill is considered the residual amount. Goodwill is considered an asset that represents the future economic benefits arising from the other assets acquired in the business combination that did not meet the criteria for being individually identified and separately recognized. Goodwill is recorded as the excess of the sum of the consideration paid, any non-controlling interest, and previously held interest over the net of the amount of identifiable assets acquired and liabilities assumed.
2) How are costs allocated (assigned to goodwill) if …show more content…
The goodwill is then tested annually for impairment. When the fair values of the net assets acquired exceeds the costs it is considered a bargain purchase. This can also be considered as negative goodwill. Instead of reducing the net assets pro-rata in order to equate the aggregate fair values of all acquired assets to the consideration paid, ASC 805 states that there will be no adjustment to the fair values of the assets. The difference between the acquired assets and the consideration paid is instead recorded as an extraordinary gain on the income statement.
3) What is meant by the recognition principle?
The revenue recognition principle requires an accrual basis entity record revenue only when an entity has substantially earned and completed the revenue generation process. When an entity receives a payment in advance, the entity must record the payment as a liability until it completes the work under the arrangement. Regarding ASC 805, in order to recognize an asset or liability the item acquired or assumed must meet the definition of an asset or liability at the acquisition date and be part of the business combination rather than the result of a separate transaction.
4) What is meant by the measurement …show more content…
Market participants must be independent of each other, knowledgeable about the assets of the transaction, capable of entering into a transaction, and willing to enter into a transaction. The major types of market participants are the institutional investor, retail investor, and speculator. It is important to determine the type of market participant because it affects the motivation and intent of the possible business combination transaction.
6) Describe the three approaches to valuation: a) Market Approach, b) Income Approach, and c) Cost Approach.
The market approach bases the value on what similar assets and liabilities have been sold for recently. Essentially it is the going rate in the market that a buyer is willing to buy at and a seller is willing to sell at. The income approach generates an appraisal off of how much the assets are likely to generate in income, ghd future expectation of economic benefit. The cost approach determines the value of an asset by seeking how much an asset would cost to replace it.
7) What is meant by "push-down
Under ASC 805 the parties in the transaction are required to first value all identifiable assets acquired at their fair value. Goodwill is considered the residual amount. Goodwill is considered an asset that represents the future economic benefits arising from the other assets acquired in the business combination that did not meet the criteria for being individually identified and separately recognized. Goodwill is recorded as the excess of the sum of the consideration paid, any non-controlling interest, and previously held interest over the net of the amount of identifiable assets acquired and liabilities assumed.
2) How are costs allocated (assigned to goodwill) if …show more content…
The goodwill is then tested annually for impairment. When the fair values of the net assets acquired exceeds the costs it is considered a bargain purchase. This can also be considered as negative goodwill. Instead of reducing the net assets pro-rata in order to equate the aggregate fair values of all acquired assets to the consideration paid, ASC 805 states that there will be no adjustment to the fair values of the assets. The difference between the acquired assets and the consideration paid is instead recorded as an extraordinary gain on the income statement.
3) What is meant by the recognition principle?
The revenue recognition principle requires an accrual basis entity record revenue only when an entity has substantially earned and completed the revenue generation process. When an entity receives a payment in advance, the entity must record the payment as a liability until it completes the work under the arrangement. Regarding ASC 805, in order to recognize an asset or liability the item acquired or assumed must meet the definition of an asset or liability at the acquisition date and be part of the business combination rather than the result of a separate transaction.
4) What is meant by the measurement …show more content…
Market participants must be independent of each other, knowledgeable about the assets of the transaction, capable of entering into a transaction, and willing to enter into a transaction. The major types of market participants are the institutional investor, retail investor, and speculator. It is important to determine the type of market participant because it affects the motivation and intent of the possible business combination transaction.
6) Describe the three approaches to valuation: a) Market Approach, b) Income Approach, and c) Cost Approach.
The market approach bases the value on what similar assets and liabilities have been sold for recently. Essentially it is the going rate in the market that a buyer is willing to buy at and a seller is willing to sell at. The income approach generates an appraisal off of how much the assets are likely to generate in income, ghd future expectation of economic benefit. The cost approach determines the value of an asset by seeking how much an asset would cost to replace it.
7) What is meant by "push-down