Major changes have occurred for financial reporting for business combinations. These changes are documented in SFAS No. 141R, "Business Combinations" and SFAS No. 160, "Non-controlling Interests and Consolidated Financial Statements" (to replace Accounting Research Bulletin 51). These new pronouncements need the acquisition method instead of the purchase method. The acquisition technique emphasizes fair values for recording all combinations as opposed to cost-based provisions of SFAS 141.
These latest FASB effort to promote acquisition technique will significantly affect several aspects of financial reporting in consolidated financial statements. Using information available on the FASB Web site, address the subsequent:
1.Prepare a preliminary search of SFAS No. 141R, "Business Combinations" and SFAS No. 160, "Noncontrolling Interests and Consolidated Financial Statements" and show the basic valuation principle for calculating and recognizing business combinations under the acquisition method and purchase method.
2.To what extent have you seen evidence that lead to determination the "fair value" of a business at acquisition date for 100 percent acquisitions?
3.In your opinion, what other alternative ways to evaluate fair value and when such alternatives might be appropriate.
4.Compare key aspects of purchase versus acquisition method reporting needs for an excess of fair value of the net assets acquired over consideration transferred (bargain purchase from the buyer's perspective) in a business acquisition. Which technique do you think is suitable and why?