pwc business combinations 2013

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2013

A Global Guide to Accountingfor Business Combinationsand Noncontrolling Interests

Application of the U.S. GAAP

and IFRS Standards

www.pwc.com


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This publication has been prepared for general information on matters of interest

only, and does not constitute professional advice on facts and circumstances

specific to any person or entity. You should not act upon the information contained

in this publication without obtaining specific professional advice. No representation

or warranty (express or implied) is given as to the accuracy or completeness of

the information contained in this publication. The information contained in this

material was not intended or written to be used, and cannot be used, for purposesof avoiding penalties or sanctions imposed by any government or other regulatory

body. PricewaterhouseCoopers LLP, its members, employees, and agents shall

not be responsible for any loss sustained by any person or entity that relies on this

publication.

The content of this publication is based on information available as of December 31,

2012. Accordingly, certain aspects of this publication may be superseded as new

guidance or interpretations emerge. Financial statement preparers and other users

of this publication are therefore cautioned to stay abreast of and carefully evaluate

subsequent authoritative and interpretative guidance that is issued.

This publication has been updated to reflect new and updated authoritative and

interpretive guidance since the 2012 edition. See Appendix H for a summary of these

changes.

Portions of various FASB documents included in this work, are copyrighted by

the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, and are

reproduced with permission.

Portions of various IASB publications included in this work, Copyright 2013

International Financial Reporting Standards Foundation. All rights reserved. No

permission granted to reproduce or distribute.

FASB and IFRS Foundation materials that have been quoted directly or indirectly

in this Guide are identified in the text either (1) as an excerpt or (2) by the use of a

bracketed reference noting the source of the quoted materialfor example,

[ASC 805-20-30-20].


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Dear Clients and Friends:

We are pleased to offer you the 2013 edition of ourA Global Guide to Accounting for Business

Combinations and Noncontrolling Interests. This guide explains the fundamental principles

of accounting and reporting for business combinations and noncontrolling interests under

both U.S. generally accepted accounting principles and International Financial Reporting

Standards. This guide also includes our perspectives on the application of those principles, as

well as our insights on the challenges of accounting for intangible assets and goodwill in the

postcombination period.

We hope you find the information and insights in this guide useful. We will continue to share

with you additional perspectives and interpretations as they develop, including standard setting

activities and the views of regulators.

PricewaterhouseCoopers LLP


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Acknowledgements

Our first edition of the guide published in 2008 and subsequent updates represented

the efforts and ideas of many individuals within PricewaterhouseCoopers LLP,

including members of PwCs National Professional Services and Global Accounting

Services Groups and various subject matter experts. Primary contributors to the

2013 edition include project leaders Larry Dodyk, Mary Dolson, Ralph Weinberger,

Erin Bennett, Matthew Naro, and Phillip Rossi, and core team members Yosef

Barbut, Andrew Barclay, Elly Barrineau, Nicole Berman, Richard Billovits, Matthew

Brenner, Jill Butler, Tony Debell, Richard Ellis, Go Fukami, Eric Lussier, Matt Pinson,

Ruth Preedy, Frank Raciti, Ravi Rao, Mary Saslow, Steven Schaeffer, Lambert Shiu,

John Stieg, and Dieter Wulff. We are grateful to many others whose key contributions

enhanced the quality and depth of this guide.


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How to Use this Guide

Tips on using this guide:

Locating Guidance on Particular Topics

Guidance on particular topics can be located in two ways:

Table of Contents: The table of contents provides a detailed listing of the various

sections in each chapter. The titles of each section are intentionally descriptive to

enable users to easily find their particular topic.

Index: The index indicating the specific sections where key words are used is

another way users can find a particular topic.

Executive Takeaway

Executive Takeaway can be found at the beginning of each chapter in this guide. The

Executive Takeaway provides a high-level overview of the key points addressed in

detail within each chapter.

Wording Differences between U.S. GAAP and IFRS Standards

When information in the text of each chapter appears in [ ], the bracketed text

identifies wording in IFRS that is different from the wording in the U.S. GAAP

codification.

References to U.S. GAAP and IFRS

Excerpts from specific paragraphs within the codification in U.S. GAAP and

a standard in IFRS appear in the regular text of the guide. These excerpts are

highlighted within the text.

References to specific paragraphs within the codification in U.S. GAAP and a

standard in IFRS appear in brackets and indicate where the guide is quoting,

directly or indirectly, from a particular standard. References in brackets detail the

codification section or particular standard and paragraph within that standard that

is being referenced. For example, a reference to paragraph 2 of IFRS 3 is displayed

as [IFRS 3.2].

References to Other Chapters and Sections in this Guide

General and specific references to other chapters are provided within this guide.

General references in a chapter to another chapter are indicated by simply referring

to the chapter. Specific references to a particular section within a chapter are

indicated by the abbreviation BCG followed by the specific section number in the

chapter. For example, refer to BCG 5.4.1 for more information, means chapter 5,section 4.1 of the guide.

Identifying Key Terms Defined in the Glossary

This guide includes a glossary that provides easy-to-understand definitions of key

terms used throughout the guide. Key terms from the glossary are boldedthe first

time they are used in the main text of each chapter.


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General References to Specific Standards

Throughout this guide, the phrase the Standards is used to refer to ASC 805 and

IFRS 3. The phrase the NCI Standards is used to refer to ASC 810-10 and IFRS 10.

Summary of Changes from 2012 Edition

This publication has been updated as of December 31, 2012 to reflect new andupdated authoritative and interpretive guidance since the issuance of the 2012

edition. Appendix H contains a summary of changes from the 2012 edition.

FASB Accounting Standards Codification

This guide reflects the FASBsAccounting Standards Codification(ASC), which

is the single source of authoritative nongovernmental U.S. generally accepted

accounting principles.

The ASC is organised by accounting topic and utilises the standardised codification

referencing scheme consisting of numbered topics (XXX), subtopics (YY), sections

(ZZ), and paragraphs (PP). Throughout this guide, references to the ASC use that

scheme, where each citation includes the letters ASC followed by the codificationreference number (XXX-YY-ZZ-PP) associated with the particular topic, subtopic,

section and paragraph, as applicable.


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Abbreviations and Terms Used

For a complete listing of technical references and standards abbreviated in this

guide, refer to Appendix G, Literature References.

AICPA American Institute of Certified Public Accountants

AOCI accumulated other comprehensive income

APB Accounting Principles Board

APIC additional paid-in capital

ARB Accounting Research Bulletin

ASC Accounting Standards Codification

ASU Accounting Standards Update

BCG Business Combinations Guide

BEV business enterprise value

CDI core deposit intangibles

CEO chief executive officerCGM constant growth method

CGU cash generating unit

CODM chief operating decision maker

CON Statements of Financial Accounting Concepts

CTA cumulative translation account

CU currency unit

DCF discounted cash flow

DTA deferred tax asset

DTL deferred tax liability

EBITDA earnings before interest, taxes, depreciation, and amortization

EITF Emerging Issues Task Force

EPA Environmental Protection Agency

EPS earnings per share

FAQ frequently asked questions

FAS Financial Accounting Standards

FASB Financial Accounting Standards Board

FCC Federal Communications Commission

FIN FASB Interpretation

FSPFASB Staff Position

FTC foreign tax credit

FTB FASB Technical Bulletin

FVLCOD fair value less costs of disposal

FVLCTS fair value less costs to sell

FVTPL fair value through profit or loss

GAAP generally accepted accounting principles (and practices)

Abbreviations and Terms Used / 1


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HR human resources

IAS International Accounting Standard

IASB International Accounting Standards Board

IFRIC International Financial Reporting Interpretations Committee

IFRS International Financial Reporting Standards

IPR&D in-process research and development

IRR internal rate of return

IT information technology

LIFO last-in first-out

MEEM multiperiod excess earnings method

NCI noncontrolling interest

NOL net operating loss

OCI other comprehensive income

PCAOB Public Company Accounting Oversight Board

PCS post contract support

PFI projected financial information

PHEI previously held equity interest

PTD preliminary temporary difference

PV present value

RCN replacement cost new

RCNLD replacement cost new less depreciation

REIT real estate investment trust

RFR relief-from-royalty method

ROI return on investment

RU reporting unit

R&D research and development

SAB Staff Accounting Bulletin

SEC United States Securities & Exchange Commission

SIC Standing Interpretations Committee

SOP Statement of Position

SPE special purpose entity

TV terminal value

U.S. United States

VIE variable interest entityVIU value in use

WACC weighted average cost of capital

WARA weighted average return analysis

W/WO with and without method

2 / Abbreviations and Terms Used


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Table of Contents / i

Table of Contents

Executive Summary: Page

Executive Summary ....................................................................................................2

This Guide ....................................................................................................................3

Chapter 1: Scope

1.1 Overview ...................................................................................................................1-3

1.2 Definition of a Business ..........................................................................................1-4

1.2.1 Development Stage Enterprises .............................................................................1-6

1.2.2 The Presence of Goodwill .......................................................................................1-7

1.2.3 Distinguishing a Business from an Asset or Group of Assets .............................1-7

1.2.4 Identifying Market Participants when Determining Whether anAcquired Group is a Business.................................................................................1-8

1.2.5 Examples of Distinguishing a Business from an Asset or Group

of Assets ...................................................................................................................1-8

1.3 Identifying a Business Combination ....................................................................1-12

1.3.1 Stapling Transactions and Dual-Listed Companies ...........................................1-14

1.3.2 Merger of Equals, Mutual Enterprises, and Roll-Up or Put-Together

Transactions ...........................................................................................................1-14

1.3.3 Exchanges of Assets between Companies .........................................................1-14

1.3.4 Multiple Transactions that Result in the Acquisition of a Business ..................1-15

1.3.5 Transactions Excluded from the Scope of ASC 805 and IFRS 3 .......................1-15

1.4 Identifying a Joint Venture ....................................................................................1-161.4.1 New Joint Arrangements Standard .....................................................................1-17

1.5 Common Control Business Combinations ..........................................................1-17

1.6 U.S. GAAP and IFRS Differences: Definition of Control .....................................1-18

1.6.1 New Consolidation StandardIFRS ....................................................................1-19

1.6.2 New Investment Entity StandardIFRS ..............................................................1-21

Chapter 2: Acquisition Method

2.1 Overview ...................................................................................................................2-4

2.2 The Acquisition Method ..........................................................................................2-5

2.3 Identifying the Acquirer ...........................................................................................2-5

2.3.1 New Entity Formed to Effect a Business Combination ........................................2-8

2.3.2 Other Considerations in Identifying the Acquirer .................................................2-9


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2.4 Determining the Acquisition Date ........................................................................2-10

2.4.1 Determining the Acquisition Date for a Business Combination

Achieved without the Transfer of Consideration ................................................2-10

2.5 Recognising and Measuring the Identifiable Assets Acquired, Liabilities

Assumed, and any Noncontrolling Interest in the Acquiree ..............................2-11

2.5.1 Assets that the Acquirer Does Not Intend to Use ...............................................2-122.5.1.1 Defensive Intangible Assets .....................................................................................2-12

2.5.2 Asset Valuation Allowances ..................................................................................2-13

2.5.3 Inventory .................................................................................................................2-13

2.5.4 Contracts ................................................................................................................2-13

2.5.4.1 Loss Contracts .........................................................................................................2-13

2.5.5 Intangible Assets ...................................................................................................2-14

2.5.6 Reacquired Rights .................................................................................................2-14

2.5.6.1 Determining the Value and Useful Life of Reacquired Rights ..................................2-15

2.5.7 Property, Plant, and Equipment ............................................................................2-17

2.5.7.1 Government Grants .................................................................................................2-17

2.5.7.2 Consideration of Decommissioning and Site Restoration Costs.............................2-17

2.5.8 Income Taxes .........................................................................................................2-17

2.5.9 Recognition of Assets Held for Sale ....................................................................2-182.5.10 Employee Benefit Plans ........................................................................................2-18

2.5.11 Payables and Debt .................................................................................................2-20

2.5.12 Guarantees .............................................................................................................2-20

2.5.13 Contingencies ........................................................................................................2-20

2.5.13.1 Initial Recognition and MeasurementU.S. GAAP ................................................2-22

2.5.13.2 Subsequent MeasurementU.S. GAAP ................................................................2-22

2.5.13.3 Contingent LiabilitiesIFRS ....................................................................................2-24

2.5.14 Indemnification Assets ..........................................................................................2-24

2.5.15 Recognition of Liabilities Related to Restructurings or Exit Activities .............2-25

2.5.16 Deferred or Unearned Revenue ............................................................................2-26

2.5.17 Deferred Charges Arising from Leases ...............................................................2-27

2.5.18 Classifying or Designating Identifiable Assets and Liabilities ...........................2-28

2.5.18.1 Financial InstrumentsClassification or Designation of FinancialInstruments and Hedging Relationships ..................................................................2-29

2.5.19 Long Term Construction Contracts......................................................................2-29

2.5.19.1 Percentage of Completion Method ..........................................................................2-30

2.5.19.2 Completed Contract MethodU.S. GAAP Only .....................................................2-30

2.6 Recognising and Measuring Goodwill or a Gain from a Bargain

Purchase .................................................................................................................2-30

2.6.1 Goodwill ..................................................................................................................2-30

2.6.2 Bargain Purchase ...................................................................................................2-31

2.6.3 Measuring and Recognising Consideration Transferred ...................................2-32

2.6.3.1 Share-Based Payment Awards ................................................................................2-32

2.6.3.2 Consideration Transferred Includes Other Assets and Liabilities

of the Acquirer .........................................................................................................2-32

2.6.4 Contingent Consideration .....................................................................................2-33

2.6.4.1 Contingent ConsiderationU.S. GAAP ...................................................................2-33

2.6.4.1.1 Determining Classification of Contingent Consideration Arrangements

Between Liabilities and EquityU.S. GAAP ............................................................2-34

2.6.4.1.2 Determining Whether an Instrument is Indexed to an Entitys Own Shares ...........2-35

2.6.4.1.3 Determining Whether an Instrument Indexed to an Entitys Own Shares

Should be Classified in Shareholders Equity ..........................................................2-37

2.6.4.2 Contingent ConsiderationIFRS ............................................................................2-38


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2.6.4.2.1 Determining Classification of Contingent Consideration Arrangements

Between Liabilities and EquityIFRS ....................................................................2-39

2.6.4.3 Classification of Contingent Consideration ArrangementsU.S. GAAP and

IFRS Examples ........................................................................................................2-40

2.6.4.4 Contingent Consideration Arrangements Requiring Continued Employment .........2-47

2.6.4.5 Existing Contingent Consideration Arrangements of an AcquireeU.S. GAAP .....2-48

2.6.4.6 Existing Contingent Consideration Arrangements of an AcquireeIFRS ...............2-482.6.4.7 Effect of Contingent Equity Issued in a Business Combination on Earnings

per Share .................................................................................................................2-48

2.6.4.8 Contingent ConsiderationSeller Accounting ........................................................2-49

2.6.5 Noncontrolling Interest..........................................................................................2-52

2.6.5.1 Redeemable Noncontrolling InterestU.S. GAAP ..................................................2-54

2.6.6 Calls and Puts Related to the Noncontrolling Interest .......................................2-55

2.6.6.1 Calls and Puts Related to the Noncontrolling InterestU.S. GAAP .......................2-55

2.6.6.2 Calls and Puts Related to the Noncontrolling InterestIFRS .................................2-56

2.6.7 Treatment of a Previously Held Equity Interest in an Acquiree .........................2-57

2.6.8 Business Combinations Achieved without Consideration Transferred ............2-58

2.7 Assessing What is Part of a Business Combination Transaction......................2-58

2.7.1 Employee Compensation Arrangements .............................................................2-602.7.2 Reimbursement Arrangements Between the Acquiree and the Acquirer

for Transaction Costs Incurred .............................................................................2-61

2.7.3 Settlement of Preexisting Relationships between the Acquirer and

Acquiree ..................................................................................................................2-61

2.7.3.1 Calculating the Settlement of Preexisting Relationships .........................................2-61

2.7.4 Settlement of Debt .................................................................................................2-64

2.7.5 Acquisition-Related Costs ....................................................................................2-64

2.7.6 Financial Instruments Entered into by the Acquirer in Contemplation

of a Business Combination ...................................................................................2-64

2.8 Example: Applying the Acquisition Method.........................................................2-65

2.9 Measurement Period Adjustments .......................................................................2-67

2.10 Reverse Acquisitions .............................................................................................2-69

2.10.1 Reverse Merger Involving a Nonoperating Public Shell and a Private

Operating Entity .....................................................................................................2-70

2.10.2 Consideration Transferred in a Reverse Acquisition ..........................................2-71

2.10.3 Presentation of Consolidated Financial Statements ..........................................2-72

2.10.4 Noncontrolling Interest in a Reverse Acquisition ...............................................2-74

2.10.5 Computation of Earnings per Share in a Reverse Acquisition ..........................2-74

2.11 Applying the Acquisition Method for Variable Interest Entities and

Special Purpose Entities .......................................................................................2-76

2.12 Conforming Accounting Policies of the Acquiree to those of the

Acquirer ..................................................................................................................2-78

2.13 Questions and AnswersAdditional Implementation Guidance ......................2-78

2.13.1 Modifications to Defined Benefit Pension Plans ................................................2-78

2.13.2 IndemnificationsIndemnified Item Not Recognised on the

Acquisition Date .....................................................................................................2-78

2.13.3 IndemnificationsIndemnification Arrangements in

Separate Agreements ............................................................................................2-79


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2.13.4 Consideration Held in Escrow for General Representations and

WarrantiesIndemnification Asset ......................................................................2-79

2.13.5 Consideration Held in Escrow for General Representations and

WarrantiesContingent Consideration ...............................................................2-79

2.13.6 Working Capital Adjustments ...............................................................................2-79

2.13.7 Deferred Financing Costs in a Business Combination .......................................2-80

2.13.8 Fees Paid to an Investment Banker .....................................................................2-802.13.9 A Company That is Temporarily Controlled .........................................................2-80

2.13.10 Transaction Costs in Separate Financial Statements ........................................2-81

Chapter 3: Employee Compensation Arrangements

3.1 Overview ...................................................................................................................3-3

3.2 Assessing What is Part of the Exchange for the Acquiree ..................................3-4

3.3 Contingent PaymentsDetermining Whether the Arrangement Is

Compensation ..........................................................................................................3-5

3.3.1 Golden Parachute and Stay Bonus Arrangements ...............................................3-7

3.4 Exchange of Employee Share-Based Payment Awards .......................................3-9

3.4.1 Determining the Fair Value Attributable to Precombination and

Postcombination Services ....................................................................................3-12

3.4.2 Service Required after the Acquisition Date is Equal to or Greater

than the Original Service Requirement ................................................................3-13

3.4.3 Service Required after the Acquisition Date is Less than

the Original Service Requirement ........................................................................3-13

3.4.3.1 Acquiree Awards with an Automatic Change in Control Provision ..........................3-14

3.4.3.2 Acquiree Awards with a Discretionary Change in Control Provision .......................3-15

3.4.4 Excess Fair Value of the Acquirers Replacement Award ..................................3-15

3.4.5 Acquiree Awards that Continue after the Business Combination .....................3-16

3.5 Cash Settlement of Employee Share-Based Payment Awards .........................3-18

3.5.1 Initiated by the Acquirer ........................................................................................3-19

3.5.2 Initiated by the Acquiree .......................................................................................3-19

3.6 Postcombination Accounting for Share-Based Payment Awards ....................3-20

3.7 U.S. GAAP and IFRS DifferencesIncome Tax Effects of Share-Based

Payment Awards ....................................................................................................3-21

3.7.1 Accounting for the Income Tax Effects of Replacement Awards

U.S. GAAP ...............................................................................................................3-21

3.7.1.1 Awards that Ordinarily Result in a Tax Deduction ....................................................3-21

3.7.1.1.1 Equity-Classified Awards that Ordinarily Result in a Tax Deduction........................3-21

3.7.1.1.2 Liability-Classified Awards that Ordinarily Result in a Tax Deduction .....................3-25

3.7.1.2 Awards that Do Not Ordinarily Result in a Tax Deduction .......................................3-25

3.7.2 Accounting for the Income Tax Effects of Replacement AwardsIFRS ..........3-26

3.8 U.S. GAAP and IFRS DifferenceRecognition of Social Charges ....................3-27


3.9.1 Estimated ForfeituresPrecombination Awards ...............................................3-28

3.9.2 Estimated ForfeituresPostcombination Awards .............................................3-28


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3.9.3 Awards with Graded-Vesting FeaturesAttribution Method ............................3-28

3.9.4 Awards with Graded-Vesting FeaturesAmount Attributable

to Past Services .....................................................................................................3-29

3.9.5 Awards with Graded-Vesting FeaturesAttribution When

Original Acquiree Awards are Partially Exercised ..............................................3-30

3.9.6 Deep Out-of-the-Money Awards ..........................................................................3-32

3.9.7 Awards with Performance or Market ConditionsPerformanceCondition that is Probable of Achievement .........................................................3-33

3.9.8 Awards with Performance or Market ConditionsPerformance

Condition that is Not Probable of Achievement..................................................3-34

3.9.9 Awards with Performance or Market ConditionsMarket Conditions ............3-35

3.9.10 Accounting for Incentives Paid by the Acquirer to Employees

of the Acquiree .......................................................................................................3-35

3.9.11 Accounting for Last-Man-Standing Arrangements .........................................3-35

3.9.12 Accounting for Dual Trigger Arrangements .....................................................3-37

3.9.13 Acceleration of Awards not Exchanged in a Business Combination ................3-38

3.9.14 Modifications to Compensation Arrangements ..................................................3-38

Chapter 4: Intangible Assets Acquired in a Business Combination

4.1 Overview ..................................................................................................................4-3

4.2 Intangible Assets and the Identifiable Criteria ......................................................4-3

4.2.1 Contractual-Legal Criterion ....................................................................................4-5

4.2.2 Separability Criterion ...............................................................................................4-5

4.2.3 Examples of Applying the Identifiable Criteria ......................................................4-6

4.3 Types of Identifiable Intangible Assets ..................................................................4-7

4.3.1 Marketing-Related Intangible Assets ....................................................................4-8

4.3.1.1 Trademarks, Trade Names, and Other Types of Marks..............................................4-9

4.3.1.2 Trade Dress, Newspaper Mastheads, and Internet Domain Names ..........................4-9

4.3.1.3 Noncompetition Agreements .....................................................................................4-94.3.2 Customer-Related Intangible Assets ...................................................................4-10

4.3.2.1 Customer Contracts and Related Customer Relationships .....................................4-10

4.3.2.1.1 Overlapping Customers ...........................................................................................4-11

4.3.2.2 Noncontractual Customer Relationships .................................................................4-12

4.3.2.3 Customer Lists .........................................................................................................4-12

4.3.2.4 Customer Base ........................................................................................................4-13

4.3.2.5 Order or Production Backlog ...................................................................................4-13

4.3.3 Artistic-Related Intangible Assets........................................................................4-14

4.3.4 Contract-Based Intangible Assets .......................................................................4-14

4.3.4.1 Contracts to Service Financial Assets .....................................................................4-14

4.3.4.2 Employment Contracts ............................................................................................4-15

4.3.4.2.1 Assembled Workforce ..............................................................................................4-15

4.3.4.2.2 Collective Bargaining Agreements ...........................................................................4-16

4.3.4.3 Use Rights ...............................................................................................................4-16

4.3.4.4 Insurance and Reinsurance Contract Intangible Assets ..........................................4-16

4.3.4.5 Favourable and Unfavourable Contracts .................................................................4-16

4.3.4.6 At-the-Money Contracts ..........................................................................................4-18

4.3.4.7 Lease Agreements ...................................................................................................4-18

4.3.4.7.1 Acquiree is a Lessee ................................................................................................4-18

4.3.4.7.2 Acquiree is a Lessor ................................................................................................4-19

4.3.4.7.3 Intangible Assets Related to In-Place LeasesU.S. GAAP .................................4-21


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4.3.4.7.4 Measurement Attribute of Leased Assets and Liabilities .........................................4-21

4.3.4.7.5 Summary Example of Lease Assets and Liabilities Recognised .............................4-22

4.3.4.7.6 Treatment of Leases between an Acquirer and an Acquiree at the

Acquisition Date .......................................................................................................4-23

4.3.5 Technology-Based Intangible Assets ...................................................................4-23

4.3.5.1 Intangible Assets Used in Research and Development Activities ...........................4-23

4.3.5.2 Patented Technology, Unpatented Technology, and Trade Secrets ........................ 4-244.3.5.3 Computer Software, Mask Works, Databases, and Title Plants .......................4-24

4.4 Complementary Intangible Assets and Grouping of Other Intangible

Assets .....................................................................................................................4-25

4.4.1 Assessment of Other Factors in Determining Grouping of

Complementary AssetsU.S. GAAP ...................................................................4-25

4.5 Intangible Assets that the Acquirer Does Not Intend to Use or Intends

to Use Differently than Other Market Participants .............................................4-26

4.6 Summary of Intangible Assets and Typical Useful Life Characteristics

Found in Major Industries .....................................................................................4-27


4.7.1 Acquired Preexisting Capital [Finance] Lease Arrangement

with the Acquiree ...................................................................................................4-31

4.7.2 Preexisting Customer Relationship with the Acquiree .......................................4-31

Chapter 5: Income Tax Implications in Business Combinations

5.1 Overview ...................................................................................................................5-3

5.1.1 U.S. GAAP and IFRS Differences ............................................................................5-4

5.2 Determine the Tax Structure of the Transaction and Tax Status of the

Entities Involved in the Business Combination .....................................................5-45.2.1 Determining Whether the Business Combination Is Taxable or

Nontaxable ...............................................................................................................5-4

5.2.2 Identifying the Tax Status of the Entities Involved ................................................5-5

5.3 Determine Financial Statement and Tax Bases of the Net Assets

Acquired ....................................................................................................................5-5

5.3.1 Determining Tax Bases in a Taxable Transaction .................................................5-5

5.3.2 Determining Tax Bases in a Nontaxable Transaction ...........................................5-6

5.4 Identify and Measure Temporary Differences .......................................................5-6

5.4.1 Basic Methodology for Recognition of Deferred Taxes on Acquired

Temporary Differences and Tax Benefits ...............................................................5-6

5.4.2 Expected Manner of Recovery or Settlement .......................................................5-7

5.4.3 Deferred Taxes Related to Outside Basis Differences .........................................5-7

5.4.4 Recording the Tax Effect of Contingencies and Contingent

Consideration in Business Combinations ...........................................................5-10

5.4.4.1 Contingencies and Contingent ConsiderationTaxable Transactions....................5-13

5.4.4.2 Contingencies and Contingent ConsiderationNontaxable Transactions .............5-17

5.4.5 Deferred Taxes Related to Research and Development Activities ...................5-19

5.4.6 Deferred Taxes Related to Acquisition-Related Costs .......................................5-20


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5.4.7 Identifying the Applicable Tax Rate to Calculate Deferred Tax Assets

and Liabilities .........................................................................................................5-21

5.5 Identify Acquired Tax Benefits ..............................................................................5-22

5.5.1 Realisation Test for Acquired Tax Benefits ..........................................................5-22

5.5.2 Evaluating Future Combined Results Subsequent to the

Business Combination ..........................................................................................5-245.5.3 Considering the Acquirers Taxable Differences as a Source

of Realisation..........................................................................................................5-24

5.5.4 Limitation of Tax Benefits by Law ........................................................................5-25

5.5.5 Changes to the Acquired Deferred Tax Assets after the Business

Combination ...........................................................................................................5-25

5.5.6 Changes in the Acquirers Deferred Tax Balances Related to

Acquisition Accounting .........................................................................................5-26

5.5.7 Business Combinations Achieved in Stages .......................................................5-28

5.6 Consider the Treatment of Tax Uncertainties ......................................................5-31

5.6.1 Recording Tax Uncertainties .................................................................................5-32

5.6.1.1 Income Tax Indemnifications ...................................................................................5-32

5.6.2 Subsequent Resolution of Tax Uncertainties in a Business Combination .......5-34

5.7 Deferred Taxes Related to Goodwill .....................................................................5-34

5.7.1 Excess of Tax-Deductible Goodwill over Book Goodwill ...................................5-35

5.7.2 Recognition of a Deferred Tax Asset for Excess Tax-Deductible

Goodwill ..................................................................................................................5-35

5.7.3 Situations in which the Iterative Formula May Not Apply ..................................5-37

5.7.4 Excess of Book Goodwill over Tax-Deductible Goodwill ...................................5-38

5.7.5 Recognition of Deferred Tax Liabilities Related to Tax-Deductible

Goodwill Subsequent to the Acquisition Date ....................................................5-38

5.7.6 Deferred Tax Liabilities Related to Tax-Deductible Goodwill and

Indefinite-Lived Intangible AssetsSource of Taxable Income ........................5-39

5.7.7 Disposal of Goodwill ..............................................................................................5-39

5.7.8 Bargain Purchase...................................................................................................5-41

5.8 Recording the Tax Effects of Transactions with Noncontrolling

Shareholders ..........................................................................................................5-43

5.8.1 Direct Tax Impact of a Transaction with Noncontrolling Shareholders ............5-43

5.8.2 Indirect Tax Impacts of a Transaction with Noncontrolling Shareholders .......5-44

5.9 Other Considerations ............................................................................................5-46

5.9.1 Asset Acquisitions and Nonmonetary Exchanges ..............................................5-46


5.10.1 Measuring Acquirees and Acquirers Deferred TaxesUnborn

Foreign Tax Credits of an Acquiree ......................................................................5-48

5.10.2 Measuring Acquirees and Acquirers Deferred TaxesUnborn

Foreign Tax Credits of an Acquirer .......................................................................5-48

5.10.3 Measuring Acquirees and Acquirers Deferred TaxesEffects

of Tax Elections and Post-Acquisition Transactions ..........................................5-49

5.10.4 Deferred Taxes Related to Goodwill .....................................................................5-49

5.10.5 Tax Indemnifications ..............................................................................................5-50

5.10.6 Measurement Period AdjustmentsImpact to a Previous Valuation

Allowance Release.................................................................................................5-51


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5.10.7 Measurement Period AdjustmentsChange in an Income Tax

Uncertainty under U.S. GAAP ...............................................................................5-51

5.10.8 Exchanges of Assets Between CompaniesU.S. GAAP ...................................5-52

5.10.9 Impact of Deferred Taxes on the Measurement and Presentation

of Bargain Purchase Gains ...................................................................................5-53

5.10.10 Transition ConsiderationsU.S. GAAP ...............................................................5-53

Chapter 6: Partial Acquisitions, Step Acquisitions, and Accounting for Changes

in the Noncontrolling Interest

6.1 Overview ..................................................................................................................6-3

6.2 Definition and Classification of the Noncontrolling Interest................................6-3

6.2.1 Measurement of the Noncontrolling InterestFair Value Method ......................6-4

6.2.2 Measurement of the Noncontrolling InterestProportionate Share

MethodIFRS ..........................................................................................................6-4

6.3 Accounting for Changes in Ownership Interest ....................................................6-5

6.4 Accounting for Partial and Step Acquisitions .......................................................6-7

6.4.1 Fair Value Method ....................................................................................................6-8

6.4.2 Remeasurement of Previously Held Equity Interest and Recognition

of Gains and Losses ................................................................................................6-8

6.4.3 Examples of the Fair Value Method........................................................................6-9

6.4.4 Fair Value Considerations .....................................................................................6-12

6.4.5 Consideration of Goodwill when Noncontrolling Interest

ExistsU.S. GAAP .................................................................................................6-13

6.4.6 Consideration of Goodwill when Noncontrolling Interest

ExistsIFRS ..........................................................................................................6-13

6.4.7 Bargain Purchase in a Partial or Step AcquisitionU.S. GAAP

Companies and IFRS Companies Choosing the Fair Value Method .................6-13

6.4.8 Partial Acquisition and Step AcquisitionProportionate ShareMethodIFRS ........................................................................................................6-15

6.4.9 Bargain Purchase in a Partial or Step AcquisitionProportionate

Share MethodIFRS ............................................................................................6-17

6.5 Accounting for Changes in Ownership Interest that Do Not Result

in Loss of Control ...................................................................................................6-19

6.5.1 Accumulated Other Comprehensive Income Considerations ...........................6-25

6.5.1.1 Accumulated Other Comprehensive Income Considerations when the Parent

Disposes of a Group of Assets ................................................................................6-27

6.5.2 Acquisition of a Noncontrolling Interest through a Business

Combination ...........................................................................................................6-28

6.5.3 Acquisition of Additional Ownership Interests in a Variable Interest

EntityU.S. GAAP .................................................................................................6-29

6.6 Changes in Interest Resulting in a Loss of Control ............................................6-30

6.6.1 Loss of ControlU.S. GAAP .................................................................................6-30

6.6.2 Loss of ControlIFRS ...........................................................................................6-31

6.6.3 Accounting for Changes in Interest if Control is Lost ........................................6-31

6.6.4 Retained Noncontrolling Investment ...................................................................6-35

6.6.5 Nonreciprocal Transfer to Owners .......................................................................6-35

6.6.6 Multiple Transactions or Agreements that Result in Loss of Control ..............6-36


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6.6.6.1 Multiple Transactions or Agreements that Result in Gaining Control ......................6-36

6.7 Attribution of Net Income and Comprehensive Income to Controlling

and Noncontrolling Interests ................................................................................6-37

6.7.1 Attribution of Losses to Noncontrolling Interests in Excess of Carrying

Amount of Noncontrolling Interests .....................................................................6-37

6.7.2 Attribution of Other Items to Noncontrolling Interests in Excess ofCarrying Amount of Noncontrolling Interests .....................................................6-38

6.8 Earnings Per Share Considerations .....................................................................6-38

6.9 Required Disclosures and Supplemental Schedule ...........................................6-38


6.10.1 Interaction with Other Standards and GuidanceSale of a Business .............6-39

6.10.2 Interaction with Other Standards and GuidanceJoint Ventures

under IFRS ..............................................................................................................6-39

6.10.3 Interaction with Other Standards and GuidanceEquity Method

Investments ............................................................................................................6-40

6.10.4 Interaction with Other Standards and GuidanceExchange of aNoncontrolling Interest for a Controlling Interest in Another Entity .................6-40

6.10.5 Transaction Costs ..................................................................................................6-42

6.10.6 Definition of a Noncontrolling InterestFreestanding Written

Call Option on a Subsidiarys Shares Issued by a Parent ..................................6-42

6.10.7 Definition of a Noncontrolling InterestFreestanding Written Call

Option on a Subsidiarys Shares Issued by the Subsidiary ................................6-43

6.10.8 Definition of a Noncontrolling InterestEmployee Stock Option

on a Subsidiarys Shares Issued by the Subsidiary ............................................6-44

6.10.9 Loss of ControlBankruptcyParent Deconsolidation of a

Subsidiary that Filed for Bankruptcy....................................................................6-45

6.10.10 Loss of ControlBankruptcyNegative Investment in a Subsidiary

that Filed for Bankruptcy.......................................................................................6-45

6.11 Classification of Financial Instruments as Noncontrolling Interest ..................6-45

6.11.1 U.S. GAAP ...............................................................................................................6-46

6.11.2 IFRS .........................................................................................................................6-47

Chapter 7: Valuation

7.1 Overview ...................................................................................................................7-3

7.1.1 Recent Changes to Fair Value Measurement Guidance ......................................7-3

7.1.2 Fair ValueU.S. GAAP and IFRS ............................................................................7-3

7.1.3 U.S. GAAP and IFRS DifferencesFair Value Guidance ......................................7-5

7.1.4 Applicable Accounting Standards Requiring Fair Value Measures

Related to Business Combinations ........................................................................7-6

7.1.5 Market Participant Assumptions ............................................................................7-7

7.1.5.1 Market Participant Versus Entity-Specific Assumptions ...........................................7-8

7.1.5.2 Market Participant Synergies .....................................................................................7-9

7.1.6 Unit of Account and Unit of Valuation Concepts ................................................7-10

7.2 Valuation Techniques .............................................................................................7-11

7.2.1 Income Approach...................................................................................................7-11

7.2.2 Market Approach ...................................................................................................7-12


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7.2.3 Cost Approach .......................................................................................................7-12

7.2.4 Valuation Considerations under the Fair Value Standards ................................7-12

7.3 Valuation of the Business Enterprise ...................................................................7-13

7.3.1 Use of the Income Approach in the Business Enterprise Value (BEV)

Analysis ...................................................................................................................7-14

7.3.1.1 Evaluating Prospective Financial Information through the BusinessEnterprise Value and Related Internal Rate of Return Analyses ..............................7-14

7.3.1.2 Conditional versus Expected Cash Flows ..............................................................7-16

7.3.1.3 Discount Rates .......................................................................................................7-16

7.3.1.4 Terminal Value .........................................................................................................7-16

7.3.2 Use of the Market Approach in the Business Enterprise Value Analysis .........7-20

7.3.2.1 Public Company Market Multiple Method ...............................................................7-20

7.3.2.2 Market Transaction Multiple Method .......................................................................7-21

7.3.2.3 Obtaining and Reviewing Peer Information .............................................................7-21

7.3.2.4 Best Practices when Calculating the Business Enterprise Value ............................7-22

7.4 Valuation of Intangible Assets ..............................................................................7-23

7.4.1 Income Approach for Intangible Assets ..............................................................7-23

7.4.1.1 Multiperiod Excess Earnings Method ......................................................................7-237.4.1.1.1 Discount Rates for Intangible Assets .......................................................................7-24

7.4.1.1.2 Reconciliation of Rates of Return ............................................................................7-26

7.4.1.1.3 Best Practices in Determining Contributory Asset Charges ....................................7-28

7.4.1.1.4 Tax Amortisation Benefits ........................................................................................7-29

7.4.1.2 Relief-from-Royalty Method.....................................................................................7-30

7.4.1.3 Greenfield Method ...................................................................................................7-32

7.4.1.4 With and Without Method ........................................................................................7-32

7.4.2 Market Approach for Intangible Assets ...............................................................7-33

7.4.3 Cost Approach for Intangible Assets ...................................................................7-34

7.4.4 Assets Not Intended to be Used or Used in a Way Other Than Their

Highest and Best Use ............................................................................................7-35


7.4.6 Best Practices when Measuring the Fair Value of Intangible Assets ...............7-37

7.5 Valuation Approaches for Other Assets...............................................................7-38

7.5.1 Measuring the Fair Value of Working Capital ......................................................7-38

7.5.2 Measuring the Fair Value of Tangible Assets ......................................................7-39

7.5.3 Measuring the Fair Value of Financial Assets and Financial Liabilities ............7-40

7.5.3.1 Investments in Marketable Equity and Debt Securities ...........................................7-41

7.5.3.1.1 MeasurementU.S. GAAP ......................................................................................7-41

7.5.3.1.2 MeasurementIFRS ................................................................................................7-41

7.5.3.1.3 Restricted Securities ................................................................................................7-42

7.5.3.1.4 Blockage Factors .....................................................................................................7-43

7.6 Measuring the Fair Value of Nonfinancial Liabilities ..........................................7-43

7.6.1 General Principles for Measuring Liabilities .......................................................7-43

7.6.1.1 A Liability Is Not Necessarily a Negative Asset .......................................................7-43

7.6.1.2 Not All Liabilities Are the Same ................................................................................7-44

7.6.1.3 Not All Cash Flows and Rates of Return Are the Same...........................................7-44

7.6.1.3.1 Consideration of Taxes ............................................................................................7-45

7.6.1.3.2 Impact of Changes in Uncertainty ...........................................................................7-45

7.6.2 Contingent Assets and Liabilities .........................................................................7-46

7.6.3 Contingent Consideration .....................................................................................7-48

7.6.4 Deferred Revenue ..................................................................................................7-52


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7.6.4.1 Fair Value of Deferred Revenue Liability ..................................................................7-52

7.6.4.2 Unit of Account Considerations for Deferred Revenue ...........................................7-53

7.7 Measuring the Fair Value of the Noncontrolling Interest and

Previously Held Equity Interest .............................................................................7-53

7.7.1 Determining the Impact of Control on the Noncontrolling Interest ..................7-54

7.7.2 Measuring the Fair Value of the Noncontrolling Interest ...................................7-547.7.2.1 Measuring the Fair Value of the Noncontrolling InterestMarket Approach ..........7-55

7.7.2.2 Measuring the Fair Value of the Noncontrolling InterestIncome Approach ..........7-56

7.7.2.3 Measuring the Fair Value of the Previously Held Equity Interest .............................7-56

7.8 Valuation Implications for Impairment Testing....................................................7-57

7.8.1 Overview of Impairment Testing under ASC 350, ASC 360-10,

and IAS 36 ...............................................................................................................7-57

7.8.2 Fair Value Considerations for a Reporting Unit or Cash Generating

Unit ..........................................................................................................................7-58

7.8.2.1 Adjustments to Observed Market Capitalisation .....................................................7-59

7.8.2.2 Multiple Reporting Units or Cash Generating Units.................................................7-59

7.8.2.3 Thinly Traded Securities ...........................................................................................7-59

7.8.2.4 Nonoperating Assets and Liabilities ........................................................................7-60

Chapter 8: Business Combinations Presentation, Disclosure and Continuing Transition

Requirements

8.1 Overview ...................................................................................................................8-3

8.2 Disclosures for Business Combinations ................................................................8-3

8.2.1 When to Report Business Combination Disclosures ...........................................8-3

8.2.2 The Nature and Financial Effect of Business Combinations ...............................8-4

8.2.2.1 General Acquisition Disclosures ................................................................................8-4

8.2.2.2 Disclosures on Consideration Transferred .................................................................8-4

8.2.2.3 Disclosures on Contingent Consideration and Indemnification Assets .....................8-58.2.2.4 Disclosures on Acquired Receivables........................................................................8-5

8.2.2.4.1 Disclosure Requirements for Finance Receivables and Allowance for

Credit LossesU.S. GAAP ........................................................................................8-5

8.2.2.5 Condensed Balance Sheet ........................................................................................8-6

8.2.2.6 Disclosures about Assets and Liabilities Arising from Contingencies .......................8-6

8.2.2.6.1 U.S. GAAP and IFRS DifferencesContingency Disclosures ...................................8-7

8.2.2.7 Goodwill Disclosures .................................................................................................8-7

8.2.2.8 Disclosures of Separate Transactions and Pre-existing Relationships......................8-8

8.2.2.9 Disclosures of Bargain Purchases ............................................................................8-8

8.2.2.10 Partial Acquisitions ....................................................................................................8-9

8.2.3 Acquirees Financial Information and Pro Forma Financial

Statements .............................................................................................................8-10

8.2.3.1 Preparation of Pro Forma Information .....................................................................8-11

8.2.4 Financial Statement Effect of Adjustments Related to Prior

Acquisitions ............................................................................................................8-12

8.2.4.1 Measurement Period Adjustments ..........................................................................8-12

8.2.4.2 Contingent Consideration Adjustments ...................................................................8-13

8.2.4.3 Contingencies Adjustments .....................................................................................8-13

8.2.4.4 Goodwill Reconciliation ...........................................................................................8-13

8.2.4.5 Subsequent Gains and Losses Recorded on Assets Acquired and Liabilities

AssumedIFRS ......................................................................................................8-14


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8.2.4.6 Fair Value Disclosures Under ASC 820 and IFRS 13 ...............................................8-14

8.2.4.7 Disclosure Provisions of IAS 37IFRS....................................................................8-15

8.3 Illustrative Disclosures ..........................................................................................8-16

8.4 Variable Interest Entity DisclosuresU.S. GAAP ................................................8-20

8.5 Income Statement .................................................................................................8-20

8.5.1 Income Statement PresentationU.S. GAAP .....................................................8-20

8.5.2 Statement of Comprehensive Income PresentationIFRS ...............................8-20

8.6 Statement of Cash Flows .....................................................................................8-21

8.6.1 Statement of Cash Flows PresentationU.S. GAAP..........................................8-21

8.6.1.1 Transaction Costs ....................................................................................................8-21

8.6.1.2 Contingent Consideration Arrangements ................................................................8-22

8.6.1.3 Push Down Accounting ...........................................................................................8-22

8.6.2 Statement of Cash Flows PresentationIFRS ..................................................8-22

8.6.2.1 Transaction Costs ....................................................................................................8-22

8.6.2.2 Contingent Consideration Arrangements ................................................................8-22

8.7 Continuing Transition Requirements ..................................................................8-23

8.7.1 Income Tax Transition Provisions .........................................................................8-23

8.7.1.1 Acquired Tax Benefits Disclosure ............................................................................8-24

8.7.2 Exit ActivitiesU.S. GAAP ....................................................................................8-24

8.7.3 Tax Benefits of Equity-Classified Awards that Ordinarily Result

in a Tax DeductionU.S. GAAP ............................................................................8-24

8.7.4 Resolution of Contingent Consideration .............................................................8-25

8.7.5 Contingent Consideration of an Acquiree ...........................................................8-25

Chapter 9: Noncontrolling Interest Presentation and Disclosure Requirements

9.1 Overview ..................................................................................................................9-3

9.2 Noncontrolling Interest in Subsidiaries Presentation Requirements .................9-4

9.2.1 Presentation of the Noncontrolling Interest ..........................................................9-4

9.2.1.1 Presentation of Consolidated Amounts .....................................................................9-4

9.2.1.2 Presentation of Controlling and Noncontrolling Interest in Consolidated

Financial Statements .................................................................................................9-4

9.2.1.3 Presentation of Controlling and Noncontrolling Interest in Equity .............................9-4

9.2.2 Supplemental Schedule...........................................................................................9-5

9.2.3 Disclosure of Gain or Loss if a Subsidiary is Deconsolidated or a

Group of Assets is DerecognizedU.S. GAAP .....................................................9-5

9.2.3.1 Disclosure of Gain or Loss if a Subsidiary is DeconsolidatedIFRS .......................9-6

9.2.4 Presentation in the Statement of Cash FlowsU.S. GAAP .................................9-6

9.2.5 Presentation in the Statement of Cash FlowsIFRS ...........................................9-7

9.3 Disclosures in Consolidated Financial Statements ..............................................9-7

9.4 Financial Statement Presentation ExamplesU.S. GAAP ..................................9-9

9.4.1 Statement of IncomeU.S. GAAP ......................................................................9-10

9.4.2 Statement of Comprehensive IncomeU.S. GAAP ...........................................9-11

9.4.3 Statement of Financial PositionU.S. GAAP .....................................................9-12

9.4.4 Statement of Cash FlowsU.S. GAAP ...............................................................9-13


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9.4.5 Statement of Changes in EquityU.S. GAAP ....................................................9-14

9.4.6 Supplemental ScheduleU.S. GAAP ..................................................................9-14

9.5 Financial Statement Presentation ExamplesIFRS ..........................................9-14

9.5.1 Statement of Comprehensive IncomeIFRS .....................................................9-15

9.5.2 Statement of Financial PositionIFRS ................................................................9-16

9.5.3 Statement of Cash FlowsIFRS .........................................................................9-179.5.4 Statement of Changes in EquityIFRS ..............................................................9-18

9.5.5 Supplemental ScheduleIFRS ............................................................................9-18


9.6.1 Financial Statement PresentationU.S. GAAPEquity Reconciliation

Including Partially-Owned Subsidiaries in Quarterly Filings ..............................9-19

9.6.2 Financial Statement PresentationU.S. GAAPInclusion of

Redeemable Noncontrolling Interests in the Equity Reconciliation .................9-19

Chapter 10: Accounting for Tangible and Intangible Assets PostacquisitionU.S. GAAP

10.1 Overview ................................................................................................................10-3

10.2 Determining the Useful Life of an Asset ..............................................................10-4

10.2.1 Indefinite-Lived Intangible Assets ........................................................................10-5

10.2.2 Reclassification of Intangible Assets between Indefinite-Life

and Finite-Life Categories .....................................................................................10-6

10.2.3 Changes in Useful Lives or Salvage Values .........................................................10-6

10.2.4 Renewable Intangible Assets ...............................................................................10-7


10.2.6 Intangible Assets Used in Research and Development Activities ....................10-7

10.3 Attribution ...............................................................................................................10-8

10.3.1 Commencement and Cessation of Depreciation or Amortisation ....................10-8

10.3.2 Depreciation of Tangible Assets ...........................................................................10-810.3.3 Amortisation of Intangible Assets ........................................................................10-9

10.3.4 Customer-Based Intangible Assets ...................................................................10-10

10.4 Impairment of Long-Lived and Indefinite-Lived Intangible Assets .................10-11

10.4.1 Impairment of Long-Lived Assets To Be Held and Used .................................10-13

10.4.1.1 When to Test Long-Lived Assets for Impairment...................................................10-14

10.4.1.2 Estimates of Future Cash Flows Used in the Recoverability Test .........................10-15

10.4.1.3 Measuring an Impairment Loss for Assets Held and Used ...................................10-17

10.4.1.4 Order of Impairment Testing for Long-Lived Assets Held and Used .....................10-19

10.4.1.5 Allocating a Held and Used Impairment Loss .......................................................10-19

10.4.2 Impairment of Long-Lived Assets to Be Disposed of by Sale .........................10-21

10.4.2.1 Order of Impairment Testing for Long-Lived Assets Held for Sale ........................10-23

10.4.2.2 Commitment to a Plan of Sale after the Balance Sheet Date ................................10-23

10.4.2.3 Changes to a Plan of Sale .....................................................................................10-23

10.4.2.4 Changes in Held for Sale Classification After One Year ........................................10-24

10.4.3 Impairment of Long-Lived Assets to Be Disposed of Other than

by Sale...................................................................................................................10-24

10.4.4 Impairment of Intangible Assets with Indefinite Useful Lives .........................10-26

10.4.4.1 The Indefinite-Lived Intangible Asset Impairment Test ..........................................10-26

10.4.4.2 The Qualitative Indefinite-Lived Intangible Asset Impairment Assessment ...........10-26

10.4.4.3 Selecting an Indefinite-Lived Intangible Asset for the Qualitative Assessment .....10-28


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10.4.4.4 Considering the Results of Prior Fair Value Measurements in the

Qualitative Assessment .........................................................................................10-28

10.4.4.5 Periodically Refreshing an Assets Fair Value ........................................................10-28

10.4.4.6 Entitys Assertion in Annual Assessment ...............................................................10-29

10.4.4.7 The Quantitative Impairment Test ..........................................................................10-29

10.4.5 Unit of Accounting for Indefinite-Lived Intangible Assets ...............................10-29

10.4.5.1 Unit of Accounting for Intangible Assets Used in Research and DevelopmentActivities.................................................................................................................10-31

10.5 Assets that an Acquirer Does Not Intend to Actively Use, Including

Defensive Assets .................................................................................................10-32

10.6 Financial Statement Presentation and Disclosure Guidance ..........................10-33

10.7 Questions and AnswersAdditional Implementation Guidance ....................10-33

10.7.1 Finite-Lived Tangible and Intangible AssetsImpairment Charge

When Fair Value is Less than Carrying Amount ................................................10-33

10.7.2 Finite-Lived Tangible and Intangible AssetsShared Assets .........................10-34

10.7.3 Finite-Lived Tangible and Intangible AssetsSalvage or Residual

Values Included in Undiscounted Cash Flows .................................................... 10-3410.7.4 Finite-Lived Tangible and Intangible AssetsDetermination

of Residual Value..................................................................................................10-34

10.7.5 Finite-Lived Tangible and Intangible AssetsIncrease in Expected

Utilisation of an Asset Group ..............................................................................10-34

10.7.6 Finite-Lived Tangible and Intangible AssetsNew Customer

Relationships ........................................................................................................10-35

10.7.7 Finite-Lived Tangible and Intangible AssetsPrimary Asset

is a Group of Customer Relationships ...............................................................10-35

10.7.8 Finite-Lived Tangible and Intangible AssetsEstimate

of the Impairment Loss .......................................................................................10-35

10.7.9 Finite-Lived Tangible and Intangible AssetsFair Value

Considerations for Step Two ..............................................................................10-35

10.7.10 Finite-Lived Tangible and Intangible AssetsPotentialBankruptcy Filing .................................................................................................10-36

10.7.11 Finite-Lived Tangible and Intangible AssetsComputation of Cash

Flows for Customer Relationship Primary Asset ..............................................10-36

10.7.12 Finite-Lived Tangible and Intangible AssetsTerminal Value

Compared to Residual Value ..............................................................................10-36

10.7.13 Finite-Lived Tangible and Intangible AssetsUnrecognised

Long-Lived Assets ...............................................................................................10-37

10.7.14 Finite-Lived Tangible and Intangible AssetsPrimary Assets

are Leasehold Improvements .............................................................................10-37

10.7.15 Finite-Lived Tangible and Intangible AssetsGoing Concern Opinion ..........10-37

10.7.16 Finite-Lived Tangible and Intangible AssetsImpact of Parent

Impairment Loss on Subsidiary ..........................................................................10-38

10.7.17 Finite-Lived Tangible and Intangible AssetsInteraction of

Recoverability Test and Assessment of Useful Life .........................................10-38

10.7.18 Finite-Lived Tangible and Intangible AssetsImpact of Split-off

and Spin-off Transactions on Impairment Testing ............................................10-38

10.7.19 Finite-Lived Tangible and Intangible AssetsPresentation

of Ownership Interest in Wholly-Owned Subsidiary .........................................10-39

10.7.20 Finite-Lived Tangible and Intangible AssetsInclusion of Deferred

Taxes in Disposal Group Classified as Held for Sale ........................................10-39


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10.7.21 Revised Indefinite-Lived Intangible Asset Impairment Standard:

The Optional Qualitative AssessmentEffective Date ....................................10-40


The Optional Qualitative AssessmentDocumentation

Considerations .....................................................................................................10-40


The Optional Qualitative AssessmentReasons to BypassQualitative Assessment .......................................................................................10-41


The Optional Qualitative AssessmentEvaluation of the Amount

of Cushion ............................................................................................................10-41


The Optional Qualitative AssessmentLength of Time to Rely

on a Previously-Measured Fair Value .................................................................10-41


The Optional Qualitative AssessmentImpact to Triggering

Events Considerations ........................................................................................10-42

Chapter 11: Accounting for Goodwill PostacquisitionU.S. GAAP

11.1 Overview ................................................................................................................11-3

11.2 Identify Reporting Units ........................................................................................11-4

11.2.1 Operating Segments as the Starting Point for Determining Reporting

Units ........................................................................................................................11-5

11.2.2 Reporting Unit May Be an Operating Segment or One Level Below .......................11-5

11.2.2.1 Discrete Financial Information and Business Requirement for Components ..........11-6

11.2.3 Components are Combined if Economically Similar ..........................................11-6

11.2.4 Aggregation of Components Across Operating Segments is Not

Permitted ................................................................................................................11-7

11.2.5 Periodic Reassessment of Reporting Units ........................................................11-7

11.2.6 Summary of Impact of Reporting Levels on Determining ReportingUnits ........................................................................................................................11-7

11.3 Assigning Assets and Liabilities to Reporting Units.........................................11-10

11.3.1 Assigning Assets and Liabilities Relating to Multiple Reporting Units ...........11-10

11.3.2 Assigning Corporate Assets and Liabilities ......................................................11-12

11.3.3 Interaction between Assigning Assets and Liabilities to Reporting Units

and Segment Reporting ......................................................................................11-12

11.3.4 Full Allocation for Entities with a Single Reporting Unit ...............................11-12

11.3.5 Guidance for Specific Balance Sheet Components .........................................11-12

11.4 Assigning All Recorded Goodwill to One or More Reporting Units ................11-15

11.4.1 Determination and Recognition of Goodwill in Partial Acquisitions ...............11-17

11.4.2 Goodwill Attributable to Controlling and Noncontrolling Interests .................11-18

11.4.3 Determination of Fair Value for the Noncontrolling Interest ............................11-19

11.4.4 Reassignment of Goodwill as an Acquirers Reporting Structure

Changes ................................................................................................................11-19

11.4.5 Translation of Goodwill Denominated in a Foreign Currency ..........................11-20

11.4.6 Subsequent Resolution of Certain Matters Arising from Acquisitions

Recorded Prior to the Adoption of ASC 805 that May Continue to

Impact Goodwill ...................................................................................................11-21

11.4.6.1 Resolution of Contingent Consideration ................................................................11-21


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11.4.6.2 Liabilities for Exit Activities ....................................................................................11-21

11.4.6.3 Tax Benefits of Nonqualified Share-Based Payment Awards ................................11-22

11.4.6.4 Litigation Stemming from a Business Combination ..............................................11-22

11.4.7 Documentation to Support Goodwill Assignment ............................................11-23

11.5 Impairment Model ................................................................................................11-23

11.5.1 The Goodwill Impairment Test ...........................................................................11-2311.5.1.1 The Qualitative Goodwill Impairment Assessment ................................................11-24

11.5.1.2 Selecting Reporting Units for the Qualitative Assessment ....................................11-27

11.5.1.3 Considering the Results of Prior Fair Value Measurements in the Qualitative

Assessment ...........................................................................................................11-27

11.5.1.4 Periodically Refreshing a Reporting Units Fair Value ...........................................11-27

11.5.1.5 Entities Assertion of Annual Qualitative Assessment ............................................11-28

11.5.2 The Two-Step Goodwill Impairment Test ...........................................................11-28

11.5.3 Qualitative Assessment for Reporting Units with Zero or Negative

Carrying Amounts ................................................................................................11-29

11.5.4 Application of Step Two of the Impairment Test for Goodwill .........................11-30

11.5.4.1 Step Two May Not Always Result in an Impairment Loss .....................................11-31

11.5.4.2 Consistency between the Fair Values Used to Test Indefinite-Lived

Intangible Assets for Impairment and Step Two of the GoodwillImpairment Test .....................................................................................................11-31

11.5.4.3 Consistency of Valuation Methodologies between ASC 805 and Step Two

of the Goodwill Impairment Test ............................................................................11-31

11.5.4.4 Deferred Income Tax Considerations when Determining the Implied

Fair Value of Goodwill of a

pwc business combinations 2013

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