FASB ASC 805, “Business Combinations,” provides principles for allocating the fair value of an acquired business. When the collective fair values of the separately identified assets acquired and liabilities assumed exceed the fair value of the consideration transferred, the difference should be:a. Recognized as an ordinary gain from a bargain purchase.b. Treated as negative goodwill to be amortized over the period benefited, not to exceed 40 years.c. Treated as goodwill and tested for impairment on an annual basis.d. Applied pro rata to reduce, but not below zero, the amounts initially assigned to specific noncurrent assets of the acquired firm.

FASB ASC 805, “Business Combinations,” provides principles for allocating the fair value of an acquired business. When the collective fair values of the separately identified assets acquired and liabilities assumed exceed the fair value of the consideration transferred, the difference should be:a. Recognized as an ordinary gain from a bargain purchase.b. Treated as negative goodwill to be amortized over the period benefited, not to exceed 40 years.c. Treated as goodwill and tested for impairment on an annual basis.d. Applied pro rata to reduce, but not below zero, the amounts initially assigned to specific noncurrent assets of the acquired firm.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter8: Investing Activities

Section: Chapter Questions

Problem 6QE

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Choose the correct. FASB ASC 805, “Business Combinations,” provides principles for allocating the fair value of an acquired business. When the collective fair values of the separately identified assets acquired and liabilities assumed exceed the fair value of the consideration transferred, the difference should be:a. Recognized as an ordinary gain from a bargain purchase.b. Treated as negative goodwill to be amortized over the period benefited, not to exceed 40 years.c. Treated as goodwill and tested for impairment on an annual basis.d. Applied pro rata to reduce, but not below zero, the amounts initially assigned to specific non-current assets of the acquired firm.
Choose the correct.Goodwill recognized in a business combination must be allocated among a firm’s identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, which of the following is true?a. No goodwill impairment loss is recognized unless the implied value for goodwill exceeds its carrying amount.b. A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value.c. A goodwill impairment loss is recognized for the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill.d. The reporting unit reduces the values assigned to its long-term assets (including any unrecognized intangibles) to reflect its fair value.
Goodwill recognized in a business combination must be allocated among a firm’s identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, which of the following is true?a. No goodwill impairment loss is recognized unless the implied value for goodwill exceeds its carrying amount.b. A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value.c. A goodwill impairment loss is recognized for the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill.d. The reporting unit reduces the values assigned to its long-term assets (including any unrecognized intangibles) to reflect its fair value.
Choose the correct. When should a consolidated entity recognize a goodwill impairment loss?a. If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying amounts.b. Whenever the entity’s fair value declines significantly.c. If the fair value of a reporting unit with goodwill fall below its carrying amount.d. Annually on a systematic and rational basis.
Goodwill recognized in a business combination must be allocated among a firm’s identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, which of the following is true? No goodwill impairment loss is recognized unless the implied value for goodwill exceeds its carrying amount. A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value. A goodwill impairment loss is recognized for the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill. The reporting unit reduces the values assigned to its long-term assets (including any unrecognized intangibles) to reflect its fair value
In paragraph 44 of Statement of Financial Accounting Standards No. 141, “Business Combinations,” the Financial Accounting Standards Board directed that if the sum of the fair values of assets acquired and liabilities assumed in a business combination exceeds the cost of the acquired enterprise, such excess should be allocated as a pro rata reduction of amounts that otherwise would have been assigned to noncurrent assets other than specified exceptions.Instructions What support, if any, do you find for the action of the FASB? Explain.
Which of the following is/are true regarding goodwill achieved through acquisition as part of business combination? Where the acquirer was able to purchase the business at a discount, the excess of the market capitalization over the consideration transferred will be recognized in profit or loss. The acquirer shall recognize goodwill as of the acquisition date measured as the excess of the aggregate of the consideration transferred over the net of the fair values of all the assets acquired and the liabilities assumed Group of answer choices Both statements are true. None of these statements are true. 2 only. 1 only.
When should a consolidated entity recognize a goodwill impairment loss? If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying amounts. Whenever the entity’s fair value declines significantly. If the fair value of a reporting unit with goodwill fall below its carrying amount. Annually on a systematic and rational basis.
In a business combination, an acquirer's interest in the fair value of the net assets acquired exceeds the consideration transferred in the combination. Under IFRS 3 Business Combinations, the acquirer should a. reassess the recognition and measurement of the net assets acquired and the consideration transferred, then recognize any excess immediately in profit or loss b. recognize the excess immediately in other comprehensive income c. reassess the recognition and measurement of the net assets acquired and the consideration transferred, then recognize any excess immediately in other comprehensive income d. recognize the excess immediately in profit or loss
if the value implied by the purchase price of an acquired company exceeds the fair values of the identifiable net assets, the excess should be a. allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain b. allocated to reduce current and longlived assets c. allocated to gain on acquisition d. allocated to goodwill
All of the following statements are true, except: * a. When property is acquired in exchange for another, its cost is usually determined by reference to the fair value of the asset surrendered b. Property acquired in exchange for shares or other securities of the enterprise should be recorded at its fair value or the fair value of the securities, whichever is more clearly evident c. Donation of PPE should be recorded at the fair value of the donated asset d. When a group of assets is acquired for a lump sum price, the lump sum price should be allocated to the individual assets based on their carrying values.
In a business combination, an acquirer's interest in the fair value of the net assetsacquired exceeds the consideration transferred in the combination. Under PFRS3 Business Combinations, the acquirer should A. reassess the recognition and measurement of the net assets acquired and theconsideration transferred, then recognize any excess immediately in othercomprehensive income B. recognize the excess immediately in other comprehensive income C. recognize the excess immediately in profit or loss D. reassess the recognition and measurement of the net assets acquired and theconsideration transferred, then recognize any excess immediately in profit or loss