Food for Thought

819 Words Sep 21st, 2014 4 Pages
Food for Thought

1. Determining Consideration Transferred
On August 1, 2009, Allfoods acquired Baked Beans. The Allfoods share price was $30 on the announcement date and $35 on the acquisition date. The parties agreed that Allfoods would issue the selling shareholders an additional one million shares if Baked Beans revenues for the 12-month period after the acquisition were at least $150 million. The fair value of the contingent consideration was determined to be $20 million as of the acquisition date. The value of the replacement stock option awards attributable to precombination services is $5 million, and the portion that relates to postcombination services is $7 million. Allfoods incurred $4 million of acquisition related costs.
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The movable equipment (i.e., equipment that could be sold separately) could be sold at auction for $2 million. The Chino manufacturing facility (as acquired) is estimated to be worth $36 million. Management determined that the individual fair value of the land being used for industrial purposes is $21 million and that the fair value of the buildings and machinery as currently being used (for industrial purposes) is $7 million.
Required:

On what premise should management record the land and buildings, i.e., the “in-use” or “in-exchange” premise?

Management should record the land and buildings in the in-exchange premise. The land, movable equipment and manufacturing facility can be a stand-alone asset and it also provides the maximum value to market participants. Movable equipment can be sold.
ASC 820-10-35-10

3. Valuation of Intangible Assets
The in-process research and development (IPR&D),which is proprietary food freezing technology submitted for Food and Drug Administration (FDA) approval, has a fair value of $15 million. The company considers its R&D to be in-process because it has not yet obtained FDA approval and additional R&D may be required. Allfoods management has determined that the fair value of the Baked Beans trademark is $3 million, using a market participants’ viewpoint. Management has also…

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