805 Business Combinations Case Study 1.What is the total consideration transferred by BuyCo in the Transaction, and how should that consideration be measured?
2. How should the share Value Commitment be reflected on the December 31, 20X1, balance sheet of BuyCo?
3. What journal entries, if any, are required to record the change in fair value for the Share Value Commitment between December 31, 20X1, and June 30, 20X2?
Please answer the question in a memo format, like talking to a client. 2 and a half pages minimum or 3 would be great.
Please use attached word document to use as reference. use to support your argument.
This is a case study question, so answer all questions but in Memo format. Write a memo.
Must use 3 references (not more than 3) from attached word document to support your argument.
in PDF is the case and the questions, in work, the references which need to use to support your arguments. 3 references only.
Thanks 805-10-1
The objective of the Subtopics in this Topic that address business
combinations is to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its financial
reports about a business combination and its effects.
805 Business Combinations
20 Identifiable Assets and Liabilities, and Any Noncontrolling
Interest
20 Glossary
General Note: The Master Glossary contains all terms identified as glossary terms throughout the Codification. Clickin
may contain identical terms with different definitions, some of which may not be appropriate for a particular Subtopic.
Subtopic Glossary Section (Section 20).
Acquiree
The business or businesses that the acquirer obtains control of in a business
combination. This term also includes a nonprofit activity or business that a not-forprofit acquirer obtains control of in an acquisition by a not-for-profit entity.
Acquirer
The entity that obtains control of the acquiree. However, in a business
combination in which a variable interest entity (VIE) is acquired, the primary
beneficiary of that entity always is the acquirer.
Acquisition by a Not-for-Profit Entity
A transaction or other event in which a not-for-profit acquirer obtains control of one
or more nonprofit activities or businesses and initially recognizes their assets and
liabilities in the acquirers financial statements. When applicable guidance in
Topic 805 is applied by a not-for-profit entity, the term business combination has
the same meaning as this term has for a for-profit entity. Likewise, a reference to
business combinations in guidance that links to Topic 805 has the same meaning as
a reference to acquisitions by not-for-profit entities.
Acquisition Date
The date on which the acquirer obtains control of the acquiree.
Bargain Purchase Option
A provision allowing the lessee, at his option, to purchase the leased property for a
price that is sufficiently lower than the expected fair value of the property at the
date the option becomes exercisable that exercise of the option appears, at lease
inception, to be reasonably assured.
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
Glossary term superseded by Accounting Standards Update No. 2016-02
Bargain Renewal Option
A provision allowing the lessee, at his option, to renew the lease for a rental
sufficiently lower than the fair rental of the property at the date the option becomes
exercisable that exercise of the option appears, at lease inception, to be reasonably
assured. Fair rental of a property in this context shall mean the expected rental for
equivalent property under similar terms and conditions.
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
Glossary term superseded by Accounting Standards Update No. 2016-02
Business
An integrated set of activities and assets that is capable of being conducted and
managed for the purpose of providing a return in the form of dividends, lower
costs, or other economic benefits directly to investors or other owners, members,
or participants. Additional guidance on what a business consists of is presented in
paragraphs 805-10-55-4 through 55-9.
Note: The following definition is Pending Content; see Transition Guidance in
paragraph 805-10-65-4.
Paragraphs 805-10-55-3A through 55-6 and 805-10-55-8 through 55-9 define what
is considered a business.
Business Combination
A transaction or other event in which an acquirer obtains control of one or
more businesses. Transactions sometimes referred to as true mergers or mergers
of equals also are business combinations. See also Acquisition by a Not-for-Profit
Entity.
Capital Lease
From the perspective of a lessee, a lease that meets any of the four lease
classification criteria in paragraph 840-10-25-1.
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
Glossary term superseded by Accounting Standards Update No. 2016-02
Contingency
An existing condition, situation, or set of circumstances involving uncertainty as to
possible gain (gain contingency) or loss (loss contingency) to an entity that will
ultimately be resolved when one or more future events occur or fail to occur.
Contract
Note: The following definition is Pending Content; see Transition Guidance in 60610-65-1.
An agreement between two or more parties that creates enforceable rights and
obligations.
Contract Asset
Note: The following definition is Pending Content; see Transition Guidance in 60610-65-1.
An entitys right to consideration in exchange for goods or services that the entity
has transferred to a customer when that right is conditioned on something other
than the passage of time (for example, the entitys future performance).
Control
The same as the meaning of controlling financial interest in paragraph 810-10-158.
Customer
A user or reseller.
Note: The following definition is Pending Content; see Transition Guidance in 60610-65-1.
A party that has contracted with an entity to obtain goods or services that are an
output of the entitys ordinary activities in exchange for consideration.
Defensive Intangible Asset
An acquired intangible asset in a situation in which an entity does not intend to
actively use the asset but intends to hold (lock up) the asset to prevent others from
obtaining access to the asset.
Direct Financing Lease
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
From the perspective of a lessor, a lease that meets none of the criteria in
paragraph 842-10-25-2 but meets the criteria in paragraph 842-10-25-3(b).
Fair Value
The price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date.
Finance Lease
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
From the perspective of a lessee, a lease that meets one or more of the criteria in
paragraph 842-10-25-2.
Financial Asset
Cash, evidence of an ownership interest in an entity, or a contract that conveys to
one entity a right to do either of the following:
o
a. Receive cash or another financial instrument from a second entity
o
b. Exchange other financial instruments on potentially favorable terms with the
second entity.
Financial Statements Are Available to Be Issued
Financial statements are considered available to be issued when they are complete
in a form and format that complies with GAAP and all approvals necessary for
issuance have been obtained, for example, from management, the board of
directors, and/or significant shareholders. The process involved in creating and
distributing the financial statements will vary depending on an entitys management
and corporate governance structure as well as statutory and regulatory
requirements.
Gain Contingency
An existing condition, situation, or set of circumstances involving uncertainty as to
possible gain to an entity that will ultimately be resolved when one or more future
events occur or fail to occur.
Goodwill
An asset representing the future economic benefits arising from other assets
acquired in a business combination or an acquisition by a not-for-profit entity that
are not individually identified and separately recognized. For ease of reference, this
term also includes the immediate charge recognized by not-for-profit entities in
accordance with paragraph 958-805-25-29.
Identifiable
An asset is identifiable if it meets either of the following criteria:
o
a. It is separable, that is, capable of being separated or divided from the entity and
sold, transferred, licensed, rented, or exchanged, either individually or together
with a related contract, identifiable asset, or liability, regardless of whether the
entity intends to do so.
o
b. It arises from contractual or other legal rights, regardless of whether those
rights are transferable or separable from the entity or from other rights and
obligations.
Indirectly Related to the Leased Property
The provisions or conditions that in substance are guarantees of the lessor’s debt or
loans to the lessor by the lessee that are related to the leased property but are
structured in such a manner that they do not represent a direct guarantee or loan.
Examples include a party related to the lessee guaranteeing the lessor’s debt on
behalf of the lessee, or the lessee financing the lessor’s purchase of the leased
asset using collateral other than the leased property.
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
Glossary term superseded by Accounting Standards Update No. 2016-02
Intangible Assets
Assets (not including financial assets) that lack physical substance. (The term
intangible assets is used to refer to intangible assets other than goodwill.)
Lease
An agreement conveying the right to use property, plant, or equipment (land
and/or depreciable assets) usually for a stated period of time.
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
A contract, or part of a contract, that conveys the right to control the use of
identified property, plant, or equipment (an identified asset) for a period of time in
exchange for consideration.
Lease Liability
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
A lessees obligation to make the lease payments arising from a lease, measured on
a discounted basis.
Lease Payments
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
See paragraph 842-10-30-5 for what constitutes lease payments from the
perspective of a lessee and a lessor.
Lease Receivable
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
A lessors right to receive lease payments arising from a sales-type lease or a direct
financing lease plus any amount that a lessor expects to derive from the underlying
asset following the end of the lease term to the extent that it is guaranteed by
the lessee or any other third party unrelated to the lessor, measured on a
discounted basis.
Lease Term
The fixed noncancelable lease term plus all of the following, except as noted in the
following paragraph:
o
a. All periods, if any, covered by bargain renewal options.
o
b. All periods, if any, for which failure to renew the lease imposes a penalty on the
lessee in such amount that a renewal appears, at lease inception, to be reasonably
assured
o
c. All periods, if any, covered by ordinary renewal options during which any of the
following conditions exist:
?
1. A guarantee by the lessee of the lessor’s debt directly or indirectly related to the
leased property is expected to be in effect.
?
2. A loan from the lessee to the lessor directly or indirectly related to the leased
property is expected to be outstanding.
o
d. All periods, if any, covered by ordinary renewal options preceding the date as of
which a bargain purchase option is exercisable
o
e. All periods, if any, representing renewals or extensions of the lease at the
lessor’s option.
The lease term shall not be assumed to extend beyond the date a bargain purchase
option becomes exercisable.
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
The noncancellable period for which a lessee has the right to use an underlying
asset, together with all of the following:
o
a. Periods covered by an option to extend the lease if the lessee is reasonably
certain to exercise that option
o
b. Periods covered by an option to terminate the lease if the lessee is reasonably
certain not to exercise that option
o
c. Periods covered by an option to extend (or not to terminate) the lease in which
exercise of the option is controlled by the lessor.
Legal Entity
Any legal structure used to conduct activities or to hold assets. Some examples of
such structures are corporations, partnerships, limited liability companies, grantor
trusts, and other trusts.
Lessee
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
An entity that enters into a contract to obtain the right to use an underlying
asset for a period of time in exchange for consideration.
Lessor
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
An entity that enters into a contract to provide the right to use an underlying
asset for a period of time in exchange for consideration.
Loss Contingency
An existing condition, situation, or set of circumstances involving uncertainty as to
possible loss to an entity that will ultimately be resolved when one or more future
events occur or fail to occur. The term loss is used for convenience to include many
charges against income that are commonly referred to as expenses and others that
are commonly referred to as losses.
Market Participants
Buyers and sellers in the principal (or most advantageous) market for the asset or
liability that have all of the following characteristics:
o
a. They are independent of each other, that is, they are not related parties,
although the price in a related-party transaction may be used as an input to a fair
value measurement if the reporting entity has evidence that the transaction was
entered into at market terms
o
b. They are knowledgeable, having a reasonable understanding about the asset or
liability and the transaction using all available information, including information
that might be obtained through due diligence efforts that are usual and customary
o
c. They are able to enter into a transaction for the asset or liability
o
d. They are willing to enter into a transaction for the asset or liability, that is, they
are motivated but not forced or otherwise compelled to do so.
Mineral Rights
The legal right to explore, extract, and retain at least a portion of the benefits from
mineral deposits.
Net Investment in the Lease
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
For a sales-type lease, the sum of the lease receivable and the unguaranteed
residual asset.
For a direct financing lease, the sum of the lease receivable and the unguaranteed
residual asset, net of any deferred selling profit.
Noncancelable Lease Term
That portion of the lease term that is cancelable only under any of the following
conditions:
o
a. Upon the occurrence of some remote contingency
o
b. With the permission of the lessor
o
c. If the lessee enters into a new lease with the same lessor
o
d. If the lessee incurs a penalty in such amount that continuation of the lease
appears, at inception, reasonably assured.
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
Glossary term superseded by Accounting Standards Update No. 2016-02
Noncontrolling Interest
The portion of equity (net assets) in a subsidiary not attributable, directly or
indirectly, to a parent. A noncontrolling interest is sometimes called a minority
interest.
Not-for-Profit Entity
An entity that possesses the following characteristics, in varying degrees, that
distinguish it from a business entity:
o
a. Contributions of significant amounts of resources from resource providers who
do not expect commensurate or proportionate pecuniary return
o
b. Operating purposes other than to provide goods or services at a profit
o
c. Absence of ownership interests like those of business entities.
Entities that clearly fall outside this definition include the following:
o
a. All investor-owned entities
o
b. Entities that provide dividends, lower costs, or other economic benefits directly
and proportionately to their owners, members, or participants, such as mutual
insurance entities, credit unions, farm and rural electric cooperatives, and employee
benefit plans.
Operating Lease
From the perspective of a lessee, any lease other than a capital lease.
From the perspective of a lessor, a lease that meets the conditions in
paragraph 840-10-25-43(d).
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
From the perspective of a lessee, any lease other than a finance lease.
From the perspective of a lessor, any lease other than a sales-type lease or a direct
financing lease.
Orderly Transaction
A transaction that assumes exposure to the market for a period before the
measurement date to allow for marketing activities that are usual and customary
for transactions involving such assets or liabilities; it is not a forced transaction (for
example, a forced liquidation or distress sale).
Penalty
Any requirement that is imposed or can be imposed on the lessee by the lease
agreement or by factors outside the lease agreement to do any of the following:
o
a. Disburse cash
o
b. Incur or assume a liability
o
c. Perform services
o
d. Surrender or transfer an asset or rights to an asset or otherwise forego an
economic benefit, or suffer an economic detriment. Factors to consider in
determining whether an economic detriment may be incurred include, but are not
limited to, all of the following:
?
1. The uniqueness of purpose or location of the property
?
2. The availability of a comparable replacement property
?
3. The relative importance or significance of the property to the continuation of the
lessee’s line of business or service to its customers
?
4. The existence of leasehold improvements or other assets whose value would be
impaired by the lessee vacating or discontinuing use of the leased property
?
5. Adverse tax consequences
?
6. The ability or willingness of the lessee to bear the cost associated with relocation
or replacement of the leased property at market rental rates or to tolerate other
parties using the leased property.
Note: The following definition is Pending Content; see Transition Guidance in 84210-65-1.
Any requirement that is imposed or can be imposed on the lessee by
the lease agreement or by factors outside the lease agreement to do any of the
following:
o
a. Disburse cash
o
b. Incur or assume a liability
o
c. Perform services
o
d. Surrender or transfer an asset or rights to an asset or otherwise forego an
economic benefit, or suffer an economic detriment. Factors to consider in
determining whether an economic detriment may be incurred include, but are not
limited to, all of the following:
?
1. The uniqueness of purpose or location of the underlying asset
?
2. The availability of a comparable replacement asset
?
3. The relative importance or significance of the underlying asset to the
continuation of the lessee’s line of business or service to its customers
?
4. The existence of leasehold improvements or other assets whose value would be
impaired by the lessee vacating or discontinuing use of the underlying asset
?
5. Adverse tax consequences
?
6. The ability or willingness of the lessee to bear the cost associated with relocation
or replacement of the underlying asset at market rental rates or to tolerate other
parties using the underlying asset.
Private Company
Note: The following definition is Pending Content; see Transition Guidance in 35020-65-2.
An entity other than a public business entity, a not-for-profit entity, or an employee
benefit plan within the scope of Topics 960 through 965 on plan accounting.
Public Business Entity
A public business entity is a business entity meeting any one of the criteria below.
Neither a not-for-profit entity nor an employee benefit plan is a business entity.
o
a. It is required by the U.S. Securities and Exchange Commission (SEC) to file or
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