Accounting for Business Combinations, Goodwill, and …

1 Accounting for Business Combinations, goodwill , and other Intangible Assets A Roadmap to Applying Statements 141 and 142. Section One Scope of Statement 141. Deloitte Accounting for Business Combinations, goodwill , and other Intangible Assets A Roadmap to Applying Statements 141 and 142. Portions of various FASB documents, copyright by the Financial Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, CT. 06856-5116, are reproduced with permission. Complete copies of these documents are available from the FASB. Further distribution and reproduction of this FASB material is prohibited without the written consent of the FASB.

2 This publication is provided as an information service by the Accounting Standards and Communications Group of Deloitte & Touche LLP. It does not address all possible fact patterns and the guidance is subject to change. Deloitte & Touche LLP is not, by means of this publication, rendering Accounting , Business , financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your Business . Before making any decision or taking any action that may affect your Business , you should consult a qualified professional advisor.

3 Deloitte & Touche LLP shall not be responsible for any loss sustained by any person who relies on this publication. ii Table of Contents Acknowledgments xiv Preface xv Accounting for Business Combinations Section 1 Scope of Statement 141 3. Occurrence of a Business combination 3. Variable Interest Entities 4. Determining Whether an Asset Group Constitutes a Business 5. Identifying a Business When Assessing Reporting Requirements Under SEC Regulation S-X 9. Additional Scope Considerations 10. Acquisition of a Controlling Interest but Not 100 Percent of an Entity 11. Acquisition of a Noncontrolling Interest of a Subsidiary 11.

4 Basis in Leveraged Buyout Transactions 12. Roll-Up or Put-Together Transactions 13. Acquisitions of Certain Financial Institutions 14. Combinations Between Two or More Mutual Enterprises 14. Formation of a Joint Venture 14. Recapitalizations 15. Transactions Between Entities Under Common Control 16. Transactions Between Entities Under Common Control . Accounting for Minority Interests 18. Transactions Between Entities With Common Ownership 19. Combinations Involving Not-for-Profit Organizations 20. iii Section 2 Identifying the Acquiring Entity 23. Business combination Effected Solely Through the Distribution of Cash or other Assets or by Incurring Liabilities 23.

5 Business combination Effected Through an Exchange of Equity Interests 23. Consideration of the Relative Voting Rights in the Combined Entity After the combination 24. Consideration of the Existence of a Large Minority Voting Interest in the Combined Entity When No other Owner or Organized Group of Owners Has a Significant Voting Interest 25. Consideration of the Composition of the Governing Body of the Combined Entity 25. Consideration of the Composition of the Senior Management of the Combined Entity 26. Consideration of the Terms of the Exchange of Equity Securities 26.

6 Business Combinations Involving More Than Two Entities 27. Identifying the Acquiring Entity Based on Consideration of All Pertinent Facts and Circumstances 27. Use of a New Entity to Effect a Business combination 27. Reverse Acquisitions 28. Mergers of a Private Operating Company Into a Nonoperating Public Shell Corporation 29. Section 3 Determining the Cost of the Acquired Entity 31. Consideration Distributed by the Acquiring Entity to Selling Shareholders 32. Determination of the Measurement Date for the Market Price of Acquirer Securities Issued 32. Determining the Date the Terms of an Acquisition Are Agreed to and Announced 37.

7 Determination of the Measurement Date for Consideration Given by the Acquiring Entity When That Consideration Is Securities other Than Those Issued by the Acquiring Entity 37. iv Determining the Fair value of Securities Traded in the Market Given as Consideration by the Acquiring Entity 38. Determining the Fair value of Preferred Shares Given as Consideration by the Acquiring Entity 38. Exchange of Employee Stock Options or Awards 38. Consideration Distributed to Selling Shareholders in the Form of Future Products or Services 41. Gains or Losses on Assets Transferred as Consideration by the Acquiring Entity 41.

8 Contingent Consideration Overview 42. Compensation in Contingent Arrangements 44. Application of Issue 95-8 to Forfeitable Shares 47. Contingent Consideration Embedded in a Security or in the Form of a Separate Financial Instrument 49. Contingency Based on Security Prices General 50. Below-Market Guarantee 51. Contingency Based on Security Prices but Without a Guarantee of the Minimum value of the Total Consideration 52. Contingency Based on Earnings 54. Contingency Based on Future Events Not Related to Security Prices, Payments for Services, Use of Property, or Profit Sharing 54.

9 Impact of Contingency Based on Earnings or Another Similarly Accounted for Item on Allocation of the Cost of the Acquired Entity 54. Consideration Held in Escrow Pending Resolution of Representation and Warranty Provisions 55. Costs of the Business combination 56.. Costs of Registering and Issuing Equity Securities 56. Debt Issue Costs 56. Hedging Activities Related to a Planned Business combination 57. Acquisition Costs Incurred by the Acquired Entity 57. Accounting for Direct Acquisition Costs When the Acquiring Entity Is Not Determined 57. Accounting for Direct Acquisition Costs by the Acquiring Entity When Consummation of the Business combination Is Uncertain 58.

10 V Recognition of Liabilities in Connection With an Acquisition 58. Costs to Exit an Activity of an Acquired Entity 58. Involuntary Employee Termination Benefits and Relocation Costs 59. Costs Related to Activities or Employees of the Acquired Company That Do Not Meet the Conditions Described in Issue 95-3 60. Costs Related to Exit Plans and Involuntary Employee Termination and Relocation Plans Initiated or Revised Based on Events Occurring After the Consummation Date 60. Costs Related to Activities or Employees of the Acquiring Entity 61. Adjustments to Liabilities Recognized as a Result of a Plan to Exit an Activity, Involuntarily Terminate Employees, or Relocate Employees of an Acquired Company 61.