FAS 141R – Subsequent Measurement and Accounting
By Linda Cavanaugh, CPA - FAS 141R – Subsequent Measurement and Accounting
FAS 141R provides guidance for the subsequent measurement and accounting for the following transactions:
1) Reacquired rights
2) Assets and liabilities arising from contingencies recognized as of the acquisition date
3) Indemnification assets
4) Contingent consideration
1) Reacquired Rights
A reacquired right recognized as an intangible asset is to be amortized over the remaining contractual period of the contract in which the right was granted. If the asset is sold to a third party, the carrying amount of the intangible asset is included in determining the gain or loss on the sale.
2) Assets and Liabilities Arising from Contingencies
An asset or liability that would be in the scope of FAS 5 if it had not been acquired or assumed in a business combination is continued to be accounted for at its acquisition-date fair value unless new information is obtained. The acquirer is to de-recognize an asset or a liability arising from a contingency only when the contingency has been resolved.
A liability is to be measured at the higher of its acquisition-date fair value or the amount that would be recognized if applying FAS 5.
An asset is to be measured at the lower of its acquisition-date fair value or the best estimate of its future settlement amount.
3) Indemnification Assets
At each subsequent reporting date, an indemnification asset is to be accounted for on the same basis as the indemnified liability or asset. If the indemnification asset is not subsequently measured at its fair value, management’s assessment of the collectibility of the indemnification asset is to be taken into account.
4) Contingent Consideration
Any adjustments to a contingent consideration that is not a measurement period adjustment is to be accounted for as follows:
Equity – is not to be re-measured and its subsequent settlement is to be accounted for within equity.
Asset or Liability – is re-measured to fair value at each reporting date until the contingency is resolved. The changes in fair value are recognized in earnings unless the arrangement is a hedging instrument and is to be recognized in other comprehensive income.
Remember that FAS 141R has a ton of appendices to help you sort through things. I will post the disclosures requirements for FAS 141R next week and then we can move on to other topics unless someone has an issue.
Thanks for your patience with this topic.
If this statement is going to affect your company I would highly recommend taking a look at it now and not waiting until the last quarter of the year!!
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.