-
- Accounting alternatives
- application, 37–40
- election, timing, 37
- Accounting estimate, change, 212
- Accounting for Goodwill, a Consensus of the Private Company Council, (ASU 2014-02), 101–102, 186–187
- Accounting for Mergers and Acquisitions of Not-for-Profit Entities (APPS 5203), 31
- Accounting Standards Codification (ASC)
- 280-10, segment disclosures, 152
- 450-20, 40–41
- 730-10, 10, 19
- 740, 218
- 960, 103
- Accounting Standards Codification (ASC) 250, 37
- Accounting Standards Codification (ASC) 350, 218
- 350-20-35-3C, 187–188
- 350-20-35-8B, 188
- 350-20-35-28, 148
- 350-20-35-38, 116
- 350-20-50-1, 204–205
- 350-20-50-2, 206
- 350-20-55-23A-D, 163
- 350-30-25-1, 13
- 350-30-30-1, 13
- 350-30-35-3(d), 92–93
- 350-30-35-18/20, 98
- 350-30-35, impairment test, 99
- 350-30-50-2, 195
- 350-30-50-36, 126
- 350-30-55, 124–125
- 350-30-55-40, 196
- 350-30, indefinite-lived intangible assets (impairment tests), 113
- 350-30, purposes, 89
- 350-40, 10
- 350-40-25-27, addition, 13
- 350-40-65-2, 13
- 350-50, 17
- Accounting Standards Codification (ASC) 360
- 360-10, 98
- asset group, entry, 140
- Impairment or Disposal of Long-Lived Assets subsection, 112
- 360-10-35, facts/circumstances, 119
- Accounting Standards Codification (ASC) 805, 226
- 805 (business combination rules), 25, 155
- 805-20-55, intangible asset list, –5
- 805-50 guidance, 23
- 805-740, 19
- 805-740-55-9, 163, 188
- Accounting Standards Codification (ASC) 820
- 820 (fair value measurement guidance), 24–25
- 820 (valuation identification), 47–48
- 820-10-50, 198, 206
- Accounting Standards Codification (ASC) 985
- 985-20, impact, 10, 17
- 985-605, 13
- Accounting units
- asset removal, 128
- creation, guidelines, 122–124
- selection, effect, 128
- Account title, 253–255
- Acquired company, overpayment/underpayment, 253
- Acquired defensive intangible assets, 29–30
- IFRS, 30
- U.S. GAAP, 29–30
- Acquired goodwill, valuation, 83, 87
- Acquired intangible assets, measurement, 47
- Acquired IPR&D assets, 201–204
- Acquired net assets, fair values (excess), 242
- Acquiree
- customer base contact, 36
- noncontrolling interest, 31–43
- Acquirer, identification, 31, 33
- Acquisition
- date, determination, 31, 33
- method, 58
- Acquisition-date amounts, net, 87
- Actions/plans, restructuring, 158
- Actual future cost savings, 173e
- Actual net cash savings, 172e
- American Institute of Certified Public Accounts (AICPA)
- Assets Acquired to Be Used in Research and Development Activities, 202–204
- disclosures, 201–203
- Amortizable 197 intangible, taxpayer disposal, 223
- Amortization
- Amortizing assets, 209
- Annual goodwill testing, timing, 148–150
- Application development stage, 15
- Appraisal assumptions, 203–204
- Assembled workforce, 77
- asset identification, 43
- valuation, cost approach, 78t
- Assets. See Amortizing assets; Non-amortizing assets
- accounting unit grouping, 121–130
- acquisitions, 225
- accounting guidance (ASC 805-50), 24
- capitalization, 256
- cash flow generation, 123
- cash inflows, generation (absence), 137–138
- customer-related assets, 38
- expected usage, 91, 105
- fair value
- determination (ASC 820), 24–25
- purchase price, excess, 27
- function, testing costs, 28
- groupings, 142
- groups
- carrying amount, determination, 145
- creation, 140–143
- obsolescence/physical damage, evidence, 120
- operation, stability, 106
- product life cycle, 105
- purchase, 122
- removal, 128
- uncertainty, 175
- undiscounted expected cash flow, association, 146
- useful life, dependence, 106
- working condition, professional fees, 28
- Association of Chartered Certified Accountants (ACCA), “Impairment of Assets,” 207
- ASU 2011-08 (Basis for Conclusions), 156
- ASU 2012-02, 119
- Basis for Conclusions, 133–134
- ASU 2014-02, 101–102, 186
- ASU 2014-18, 36–37
- ASU 2017-04, 147–148, 151–154, 161–163, 188, 205–206
-
- Bargain purchase, 44–45
- Benetton, real-time information,
- Black-Scholes-Merton formula, 52
- Bloomberg BNA annotations, 243–247
- Branding strategy, 123
- Brokered market, 49
- Business
- acquisition, concept, 26
- combination rules (ASC 805), 25
- conducting, costs, 29
- Business Enterprise Value (BEV), 60, 65
-
- Capital Asset Pricing Model (CAPM), 65
- Carrying amount, 212
- determination, 145
- equity, contrast, 37
- level, analysis (change), 160–161
- positive level, impact, 161–163
- reductions, 186
- Cash flow
- amount/timing, variations (expectations), 178–180
- deterioration, 137
- estimated future cash flows, variation, 179e
- estimated future net cash flows, determination, 165–175
- forecast, 55
- generation, 123
- loss, 144
- timing, variation, 175
- Cash-generating units (CGUs), 213, 247
- goodwill allocation, 182–183
- IFRS, impact, 129–130
- recoverable amount, 184
- Cash inflows, generation (absence), 137–138
- Churn rate, 92
- Citibank, online banking system,
- Closed-form model, 52
- Codification. See Accounting Standards Codification; Financial Accounting Standards Board
- examples, analysis, 124–128
- Competition, effects, 91
- Competitors, expected actions, 106
- Computer software
- amortization, absence, 232–233
- internal use examples, 11
- CON , 26
- CON , 175
- Conduit bond, usage, 104
- Consideration, overvaluation, 252–253
- Contingent assets/liabilities, 40–42
- Contract assets, consideration, 38
- Contract services, R&D costs, 20
- Contractual-legal criterion, 25, 34
- Contractual life, renewal/extension, 198
- Contributory asset charge (CAC), 54, 69
- Contributory assets, required return, 74t
- Contributory charge, basis, 69–70
- Corporate debt, E&Y position, 154
- Corporation, interests, 232
- Cost approach, 57–59
- International Glossary of Business Valuation Terms definition, 58
- shortcomings, 66
- usage, 68t, 78t, 84t
- Cost factors, 133, 150, 157
- Cost model, revaluation model (contrast), 107–109
- Costs accumulation, 144
- Cost savings, intangible asset (comparison), 175
- Covenant, competition (absence), 229
- Current-period operating loss, 144
- Customer relationships, 66–67
- asset identification, 60
- valuation, cost approach, 68t
- Customers
- churn rate, 92
- customer-based intangibles, 227–228
- customer-related assets, sale, 38
- lists, 97
-
- Dealer market, 49
- Debt-free cash flows, prospective financial information, 60
- Debt principal payments, E&Y perspective, 140
- Defensive assets, useful lives (estimation), 97
- Defensive intangibles assets, 29–30
- Deferred tax asset, recognition, 217
- Deferred tax consequences, 216–221
- Dell, customer-designed computers,
- Demand, effects, 91
- Deposit liabilities, market participant exchange, 36
- Development
- costs, capitalization (IAS 38 requirements), 23
- Development phase, activities examples, 22
- Directly attributable costs, examples, 28
- Disclosures
- IFRS, impact, 247–248
- U.S. GAAP, impact, 243–247
- Discounted cash flow (DCF), 53–54, 248
- analysis, 61t–62t
- International Glossary of Business Valuation Terms definition, 53
- variation, 69
- Discount rate
- determination, 175–181
- risk-adjusted discount rate, 177
- selection, 176
- Discrete cash flows, 141
- Disposal costs, deduction, 139
- Dollar-for-dollar basis, 225
-
- Earnings, interpretation, 257–258
- Economic environment, deterioration, 150
- Economic factors, 91, 123
- Effects of Changes in Foreign Exchange Rates, The, (IAS 21), 183
- Employee benefits cost (IAS 19), 28
- Enterprise market capitalization, decline, 158
- Entity
- disclosure, 212–213
- events/circumstances assessment, 157–158
- Entity-specific events, impact, 133, 150, 158
- Environment, deterioration, 157
- Equity, carrying amount (contrast), 37
- Ernst & Young (E&Y), 39, 100–102, 128
- asset groupings, 142
- corporate debt position, 154
- debt principal payment perspective, 140
- Estate, interests, 232
- Estimated future cash flows, variation, 179e
- Estimated future cost savings, 173e
- Estimated future net cash flows, determination, 165–175
- Estimated useful life, determination, 90–99, 104–107
- Excel formula, equal sign (usage), 167
- Excel worksheet, preparation, 166e
- Exchange market, 49
- Excluded items, 231–233
- Expenditures, examples, 28–29
- Externally marketed software, 14
-
- Fair value
- cost approach, 57–59
- decline, 131
- determination, 32–33
- estimation
- DCF method, 54
- inputs, observation, 48–49
- excess, 242
- income approach, 52–55
- market/income approach, 56–57
- measurement, 47–48
- consistency/comparability, increase, 50
- guidance (ASC 820), 24–25
- valuation techniques, 52–59
- multiple valuation approaches, 59
- Fair Value Measurement (IFRS 13), 47
- Favorable interpretation, 257
- Financial Accounting Standards (FAS)
- , guidance, 40
- 109, 219
- 141(R), 40, 202, 254–255
- 141, impact, 40
- 142, , 258
- Financial Accounting Standards Board (FASB)
- Basis for Conclusions, 38
- Codification
- events/circumstances, examples, 133
- subtopics,
- Concepts Statement No. , 25–26
- Master Glossary, 83
- Financial contracts, interests, 232
- Financial performance, 158
- Financial reporting goodwill, 219
- tax-deductible goodwill, contrast, 220–221
- Financial statement
- Finite-lived intangible assets, impairment testing, 139–146
- Finite lives, 109–110
- Fixed assets, asset identification, 60
- Form 10-Q, 150
- Franchise, 229–230
- Fresh-start reporting (ASC 852), 37
- Future cash flow, pricing, 138
- Future economic benefits, application,
-
- Gain, recognition (approach), 45
- Generally accepted accounting principles. See U.S. generally accepted accounting principles
- Going-concern value, 221, 224–226, 256
- Goodwill
- amortization, 101–104, 221–235
- annual goodwill testing, timing, 148–150
- annual impairment test, change, 117
- asset, 248–249
- deferred tax consequences, 215–221
- definition, 253–255
- disclosures, requirement, 197e, 204–210
- disposal group inclusion, 205
- entity recognition, 235
- evaluation, 147
- FASB Master Glossary definition, 83
- financial statement presentation, 193, 193e
- gross amount, 205
- impairment, 163–165
- impairment testing, 111, 146
- date, change, 148–149
- example, 240–241
- quantitative goodwill impairment test, 160–165
- issues, recurrence, 253–259
- measurement, 87, 234, 249–250
- nature/components, 248–259
- post-acquisition, value, 255–256
- recognition/measurement, 31, 44–45
- U.S. GAAP/IFRS guidance, differences, 237–240
- value, 224–226
- Governmental license, 70
- Government-granted licenses/permits/rights, 228–229
- Government license, asset identification, 60
- Greenfield method, 55, 75t–76t
-
- Historical costs, nonadjustment, 66–67
- Historical experience, 91
- Hosting contract, definition, 13
- Hosting services, fees (ASC 350-40 impact), 12–13
-
- IAS , 212
- IAS 16, 164, 186, 233
- IAS 19, 28
- IAS 21, 183
- IAS 36, 164, 183, 186, 211
- approach, 142
- events/changes, examples, 120–121
- requirement, 118
- IAS 38
- analysis, 105
- impact, –9
- requirements, 23
- U.S. GAAP, comparison,
- IAS 40, 233
- Identifiable assets
- acquisition-date amounts, net, 87
- recognition/measurement, 31, 33–43
- Identifiable intangible asset, definition, 25
- Identification of Contributory Assets and Calculation of Economic Rents, 54
- Illiquidity, 175, 180–181
- Impairment
- calculations, application, 185
- indicators, 158
- losses, 185, 192, 196, 198, 205–210
- calculation, IFRS (impact), 137–139
- determination, 188
- disclosure, U.S. GAAP/IFRS requirement, 213
- gross amount, 205
- recognition, 198
- Impairment test, 99, 101–102
- annual test, change, 117
- conducting, U.S. GAAP perspective, 144
- Impairment testing, 111, 115–139
- indefinite-lived intangible assets, memo template, 259–263
- interim impairment testing, timing, 118–121
- rules, 111–115
- timing, 116–118
- Income approach, 52–55
- International Glossary of Business Valuation Terms definition, 52
- methods, Practicing CPA description, 52–53
- Indefinite-lived intangible assets, 93, 145
- factors, combination, 122–123
- fair value, decline, 134
- impairment
- Indefinite lives, 110
- Indirect costs, R&D costs, 20
- Industry-specific costs, capitalization,
- Information base, 227
- In-process research and development (IPR&D), 42–43
- Inputs, availability, 50–51
- Intangible assets (intangibles), 224–231. See also Customers; Supplier-based intangibles
- acquired defensive intangible assets, 29–30
- acquisition, 13, 212
- business combination, 31–45
- period, disclosures (requirement), 194
- ASC 805-20-55 list,
- asset acquisition, 23–30
- carrying amounts, 212
- completion, technical feasibility, 21
- contractual-legal criterion, 34
- considerations, 92–93
- meeting, 34–35
- control attribute,
- cost, expenditures (examples), 28–29
- cost savings, comparison, 175
- deferred tax consequences, 215–221
- definitional criteria, –9
- economic benefits, 21
- examples, –9
- excluded items, 231–233
- existence, 212
- expenditures, examples, 28–29
- financial statement presentation, requirement, 191–193
- finite life, 105
- impairment testing, 139–146
- future economic benefits,
- IAS 38, impact,
- identifiability attribute,
- IFRS list,
- IFRS definition, attributes, –9
- impairment testing, 111
- impairment tests, 112e
- indefinite lives, impairment testing, 115–139
- internally generated intangible assets, IFRS rules, 21–23
- I.R.C. 197, impact, 221–235
- purchase, R&D costs, 20
- recognition, , –9
- relevance, –3
- renewal/extension terms, 194
- sales, 210
- self-created intangible assets, –23
- separability criterion, considerations, 96–97
- technology-based intangible assets, useful lives, 107
- treatment, 32e
- types, 4e
- useful life
- change, 198–199
- determination, 90
- decisions, 94e–96e
- U.S. GAAP/IFRS guidance, differences, 237–240
- valuation, 66–83
- inputs, 48–51
- principles, application, 59–83
- techniques, 48–59
- Intangible assets, disclosures
- acquired IPR&D assets, 201–204
- impairment losses, 196–197
- internal research and development, 199–201
- legal/contractual life, renewal/extension, 198
- requirements, 194–201, 196e, 197e
- rules, 194–196
- Intangible assets, fair value, 36–37
- cost approach, 57–59
- income approach, 52–55
- market/income approach, 56–57
- measurement, valuation techniques, 52–59
- multiple valuation approaches, 59
- Interest, risk-free rate, 175–178
- Interim impairment testing
- Interim impairment testing, timing, 118–121
- Internally developed software
- capitalization, –17
- marketing, ASC 985-20 (impact), 10
- Internally generated intangible assets, IFRS rules, 21–23
- Internal research and development, 199–201
- Internal-use software, product qualification, 11
- International Accounting Standards Board (IASB), IAS No. 14, 182
- International Financial Reporting Standard (IFRS), 233–235
- 3 (fair value excess), 44
- 3, intangible asset list,
- 3(R), requirement, 30
- 13, impact, 47, 139
- disclosure requirements, 210–213
- goodwill impairment testing, 181–186
- impact, 137–139
- intangibles, measurement, 104–110
- interim impairment testing, 119–121
- rules, 27–29
- I.R.C. 197
- I.R.C. 1253(d)(1), 230
-
- Land
- easements (ASC 350-30-55-29), 124–125
- interests, 232
- Lattice model, 52
- Legal factors, adverse change, 144
- Legal life, renewal/extension, 198
- Liabilities
- assumption, 31–43
- uncertainty, price (bearing), 177–178
- U.S. GAAP recognition, 41
- License valuation, greenfield method, 75t–76t
- LINEST function, 173, 178
- Long-lived asset
- cash flow dependence, 143
- market value, 143
- Long-lived intangible asset, depreciation, 145
-
- Macroeconomic conditions, impact, 133, 150, 157
- Maintenance expenditure level, requirement, 106
- Management Discussion and Analysis (MD&A), 199
- Manufacturing facility, acquiree lease, 34
- Market approach
- International Glossary of Business Valuation definition, 56
- straight market approach, 57
- Market/income approach, 56–57
- Marketing strategy, 123
- Markets
- examples, 49
- imperfections, 175, 180–181
- interest rates, 120
- Materials/equipment/facilities, R&D costs, 20
- Memo, template, 259–263
- Milk quotas, intangible asset example, 108
- Money, time value, 175
- Multi-period excess earnings method (MPEEM), 54–55, 69
- Multi-period excess earnings model, 72t–73t
-
- National Association of Securities Dealers Automated Quotations (NASDAQ), 48
- Net cash flow, estimation methods, 174–175
- Net present value (NPV), 189–190
- Net working capital, asset identification, 60
- New York Stock Exchange, 49
- Non-amortizing assets, 209
- Non-compete agreement, 77, 79
- Non-competition agreement
- analysis, scenario method, 80t–82t
- Non-competition agreement, asset identification, 60
- Noncompetition agreements, 38–39
- Noncontrolling interest, fair value, 87
- Non-goodwill asset, 185
- Nonlinear data, actual net cash savings, 172e
- Non-monetary asset, physical substance (absence),
- Non-taxable business, combination, 218
- Not-for-profit entity, status, 103
- Nuclear power plant, acquiree ownership/operation, 34–35
-
- Obsolescence
- Operating cash flows, generation,
- Operating losses, 158
- Operating segment (business component), 152–153
- Over-the-counter markets, 49
-
- Partnership, interests, 232
- Personnel, R&D costs, 20
- Physical damage, evidence, 120
- Pink Sheets LLC, 49
- Post-acquisition balance sheet, fair value nonrecognition, 77
- Postimplementation-operations stage, 15
- Preacquisition contingency, fair value, 40
- Preliminary project stage, 14
- Present rate
- discount rate, determination, 175–181
- Present value
- actual cost, 171e
- calculation, 165–181
- estimated cost, 171e
- estimated future cost savings, 173e
- estimation
- straight line, determination, 168e
- PricewaterhouseCoopers, 39, 116
- Principal-to-principal market, 49
- Private companies
- accounting alternative, 36–40, 189
- goodwill, amortization, 101–104
- Private Company Council (PCC), accounting (alternative), 186–187
- Private enterprises
- goodwill impairment testing, 186–190
- U.S. GAAP perspective, 186–190
- Product life cycles, 105
- Proprietary software, 79, 83
- asset identification, 60
- valuation, cost approach, 84t
- Proprietary technology, 69–70
- Prospective financial information (PFI), 60
- Public business entity, status, 103
- Public information, product life cycles, 105
-
- Qualitative assessment, 156–160, 187–188
- introduction, 131
- purpose, 130–135
- Qualitative factors, assessment, 147
- Quantitative goodwill impairment test, 160–165
- Quantitative impairment test, 136–139
- Quantitative threshold, application, 23
-
- Reacquired rights, 107
- Reasonably possible, term (usage), 199
- Recognition and Measurement in Financial Statements of Business Enterprises (FASB Concepts No. 5), 25–26
- Recognition criteria,
- Recoverability
- Recoverable amount, determination, 183–184
- Regression analysis, 165–166
- Relief-from-royalty method, 57, 67
- Renewals
- Reorganization transaction, fresh-start reporting (ASC 852), 37
- Replacement costs, 58–59
- Replacement costs, basis, 57
- Reporting unit, 151–155
- assets/liabilities, assignation, 153–154
- definition, 152
- events, impact, 151
- fair value, 153, 161–162
- goodwill, assignation, 154–155
- identification, 151–153
- level, 187
- reorganization, 155
- Reproduction cost, 58
- Research and development (R&D)
- activities, 19–20
- categories, 20
- disclosure, SEC Comment Letter, 241–243
- assets, acquisition, 19
- expenses, guidance (ASC 730-10), 19
- in-process research and development (IPR&D), acquisition, 26–27
- internal research and development, 199–201
- process, acquisition/development/improvement, 19
- software creation/usage, 16–17
- total R&D expense, composition, 242
- Research phase, activities examples, 22
- Residual cash flow, 70
- Revaluation model, cost model (contrast), 107–109
- Revenues
- guidance (ASC 985-605), 11
- uncertain continuity, 92
- Risk-adjusted discount rate, 177
- Risk-free asset, 178
- Risk-free interest rate, 176–177
- Royalty rates, 48
-
- Scenario method, 80t–82t
- incremental income/deficit, 55
- Securities and Exchange Commission (SEC)
- comment letters, 201, 208–210
- requirements, 103
- staff comment letters, 203–204
- Securities Exchange Act of 1934, requirements, 103
- Security, market price (nonrepresentation), 162
- Segment Reporting (International Accounting Standards Board IAS No. 14), 182
- Self-created intangible assets, –23
- Self-generated intangible assets, impact,
- Separability criterion, 25, 33–35
- Separately acquired intangible assets, cost (IAS 38 analysis), 28
- Separate sales factor, 123
- Service contract, 13
- Share price, decrease, 158
- Short-term Treasury bills, U.S. government default, 177
- Significant penalty, 11–12
- Single asset factor, 122
- Small-to-medium enterprises (SMEs), goodwill impairment testing, 186–190
- IFRS perspective, 189–190
- Software
- application development stage, 15
- costs, 17
- fair value recognition, 17
- internal use, 14–16
- postimplementation-operation stage, 15
- preliminary project stage, 14
- research and development usage, 16–17
- tools, development costs, 18
- upgrades/enhancements, 15–16
- Software as a Service (SaaS), 11
- development/maintenance costs, 12
- Stock exchange seats, intangible asset example, 108
- Straight line, determination, 168e
- Straight market approach, 57
- Supplier-based intangibles, 228
-
- Tangible assets, impact,
- Tax-deductible amortization expense, 217
- Tax-deductible goodwill, 219
- financial reporting goodwill, contrast, 220–221
- Taxi medallions, intangible asset example, 108
- Technology
- technology-based intangible assets, useful lives, 107
- valuation, multi-period excess earnings model, 72t–73t
- Technology patent, acquiree ownership, 35
- Time value of money, 175
- Total assets, intangible asset classification,
- Total R&D expense, composition, 242
- Trademark, 229–230
- Trade name, 229–230
- asset identification, 60
- fair value, 67, 69
- Tradename, valuation, 71t
- Treasury Regulations 1.1060-1T(c)/1.338-6/7, 225
- TREND function/formula, 169–172, 178
- Trust, interests, 232
-
- Unobservable inputs, 50
- Unpatented technology, 97
- Useful life
- determination, 92, 104–107
- estimation, 97
- timing, 210
- U.S. generally accepted accounting principles (U.S. GAAP), 24–27, 108, 203
- financial statements, preparation, 104
- IAS 38, comparison,
- impact, 243–247
-
- Valuation
- approaches, 51–59
- data/inputs requirement, 48
- cost approach, 68t
- data, interpretation, 257
- errors, 257–259
- principles, application, 59–83
- Value-in-use, 114, 184, 189
-
- Wal-Mart supply chain, inventory management shift,
- Walt Disney Company
- goodwill/investments, 244–246
- intangible assets/long-lived assets, 244–246
- Walt Disney Company, 10-K annual report, 243–247
- Warehouse contract, value (determination process), 169
- Website
- application, infrastructure development stage, 17–18
- costs, accounting guidance (ASC 350-50), 17
- hosting, fees, 18
- operation, software costs, 17
- Website development, 17–19
- content development stage, 18
- graphics development stage, 18
- operating stage, 18–19
- planning stage, 17
- Weighted average cost of capital (WACC), 60, 63t–64t, 65, 83
- return, required rate (reconciliation), 85t–86t
- Weighted average return (WARA), 83
- Without significant penalty, term (meaning), 13
- Workforce, placement, 226–227
- Working papers, 237
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