Chapter 2 Summary

• The acquisition method applies to all business combinations, including those that do not involve a purchase transaction. If a business combination is achieved:

  1. without transfer of consideration, the fair value of acquirer's interest in the acquiree is substituted for the consideration transferred in computing for goodwill.
  2. by contract alone, all interests not held by the acquirer are attributed to NCI, even if the resulting NCI is 100%.
• • Provisional amounts may be used if accounting is incomplete by the end of the business combination year.
  • The provisional amounts are adjusted retrospectively for information obtained during the measurement period (i.e., maximum of 12 months from acquisition date) that provides evidence of facts and circumstances that existed as of the acquisition date.
• The consideration transferred includes only those that are transferred to the previous owners of the acquiree. It excludes those that are retained by the combined entity after the combination and those that are in effect used to settle a preexisting relationship.
• A reacquired right in a business combination is recognized as an intangible asset measured at the "at-market" value.The gain or loss on settlement of a pre-existing relationship is measured as follows:

  1. If contractual - at the lower of (i) "off-market" value, favorable/unfavorable determined based on the acquirer's perspective; and (ii) any settlement amount stated in the contract.
  2. If non-contractual - at fair value
• A contingent consideration is measured at acquisition-date fair value and included in the consideration transferred.