FAS 141R – Measurement Period and Business Combinations in Stages
By Linda Cavanaugh, CPA - 1) Business Combination in Stages and Combinations by Contract
If you obtain a company in stages you will need to re-measure your previously held equity interest in the company at its acquisition-date fair value and recognize the resulting gain or loss on the previously held interest, if any, in earnings. Any fair value changes recognized in other comprehensive income are to be reclassified and included in the calculation of the gain or loss.
A business combination may be achieved without the transfer of consideration in the following situations:
1. the acquiree repurchases a sufficient number of its own shares for an exiting investor (the acquirer) to obtain control
2. minority veto rights lapse that previously kept the acquirer from controlling an acquiree in which the acquirer held the majority voting interest
3. the acquirer and acquiree agree to combine their businesses by contract alone as in a stapling arrangement or forming a dual listed corporation.
If you have acquired a company by contract alone, the amount of the company’s net assets recognized in accordance with the requirements of this Statement are used to measure the company’s equity value. The equity interests in the company held by parties other than you are a non-controlling interest even if all of the equity interests in the company are attributed to the non-controlling interest.
2) Measurement Period
The measurement period is the period after the acquisition date during which you may adjust the provisional amounts recognized for a business combination. The measurement period ends as soon as you receive the information you need about facts and circumstances that existed as of the acquisition date or learn that more information is not obtainable. However, the measurement period is not to exceed one year from the acquisition date.
If the initial accounting for a business combination is incomplete by the end of the reporting period, you will need to report in your financial statements provisional amounts for the items for which the accounting is incomplete. These provisional amounts can be retrospectively adjusted to reflect new information obtained about facts and circumstances that existed as of the acquisition date. New assets and liabilities can also be recognized if new information is obtained about facts and circumstances that existed as of the acquisition date. You will need to consider all pertinent factors in determining whether to adjust the provisional amounts or whether that information results from events that occurred after the acquisition date.
Adjustments to provisional amounts are recognized by means of a decrease or increase in goodwill. The company is to revise comparative information for prior periods presented, as needed, including making any changes in depreciation, amortization or other income effects recognized in completing the initial accounting.
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Linda is a CPA living in Southwestern Ohio, working as a research accountant for an investor-owned publicly traded utility company. She specializes in implementing new FASB and SEC requirements and FAS 133 derivative issues. In her role at the utility she has encountered many issues and written many memos, so send in your implementation and derivative issues and Linda will help figure out an answer.