09-28-2003, 11:47 AM
Hi Irfan and Raza!
My good friend Raza has put the ball in my court. Now, how can i not answer his post! So here is some food for thought.
Irfan we have to determine the legal form of the transaction.
A)Is it a purchase of shares by A corporation of B corporation.
--In this case we will have two situations
-I)Business Combination The acquirer and acquiree are clearly established.
II)Uniting of Interest The acquirer and acquiree are not established.
For detailed treatment, refer to IAS 22.
B)Is it a purchase of net assets and purchaser is not concerned with whatever happened to the vendor of assets.
The relevant IAS in this case again is IAS 22. If there are any local pronoucements or laws,they take precedence.
I assume that you are talking about the aquisition of net assets. In such cases, the assets should be revalued to FMV and you will end up with three situations(to simplify the matter, let us assume book value is not known)
1)Consideration paid is > FMV - Difference is positive Goodwill(intangible asset)-Assign FMV to assets
2)Consideration paid is = FMV - No Goodwill assign FMV to assets.
3)Consideration paid is < FMV - Negative Goodwill-Assgin FMV to assets.
Now treatment of Negative Goodwill is different in IAS 22 and US GAAP (APB -Accounting Principles Board Opinion 16). The recognition of Goodwill differs widely in different countries i.e Germany, UK and US.
US (APB 16) requires this negative amount to be deducted from non current assets acquired (except long term investments). If these assets are reduced to zero and some balance is left it should be established as deferred credit.
IAS 22 gives you three options
1)If expenses and losses are expected in future from acquisition-recognize this credit balance as revenue in those periods.
2)Any amount allocated to non current assets be amortized over the life of these assets.
3)Any remaining balance should be included in current income.
I hope i have made your life simple (i couldn't come up with a better joke)
Take Care
Edited by - Pervez on Sep 28 2003 065129 AM
Edited by - Pervez on Sep 28 2003 070232 AM
My good friend Raza has put the ball in my court. Now, how can i not answer his post! So here is some food for thought.
Irfan we have to determine the legal form of the transaction.
A)Is it a purchase of shares by A corporation of B corporation.
--In this case we will have two situations
-I)Business Combination The acquirer and acquiree are clearly established.
II)Uniting of Interest The acquirer and acquiree are not established.
For detailed treatment, refer to IAS 22.
B)Is it a purchase of net assets and purchaser is not concerned with whatever happened to the vendor of assets.
The relevant IAS in this case again is IAS 22. If there are any local pronoucements or laws,they take precedence.
I assume that you are talking about the aquisition of net assets. In such cases, the assets should be revalued to FMV and you will end up with three situations(to simplify the matter, let us assume book value is not known)
1)Consideration paid is > FMV - Difference is positive Goodwill(intangible asset)-Assign FMV to assets
2)Consideration paid is = FMV - No Goodwill assign FMV to assets.
3)Consideration paid is < FMV - Negative Goodwill-Assgin FMV to assets.
Now treatment of Negative Goodwill is different in IAS 22 and US GAAP (APB -Accounting Principles Board Opinion 16). The recognition of Goodwill differs widely in different countries i.e Germany, UK and US.
US (APB 16) requires this negative amount to be deducted from non current assets acquired (except long term investments). If these assets are reduced to zero and some balance is left it should be established as deferred credit.
IAS 22 gives you three options
1)If expenses and losses are expected in future from acquisition-recognize this credit balance as revenue in those periods.
2)Any amount allocated to non current assets be amortized over the life of these assets.
3)Any remaining balance should be included in current income.
I hope i have made your life simple (i couldn't come up with a better joke)
Take Care
Edited by - Pervez on Sep 28 2003 065129 AM
Edited by - Pervez on Sep 28 2003 070232 AM
