GAAP Policies and Procedures, Second Edition

Chapter 8. Business Combinations and Consolidated Financial Statements

Definitions of Terms		211
Concepts and Examples		212
	General Concepts	212
	Determining the Fair Value of Acquiree Assets	212
	Identification and Evaluation of Intangible Assets	213
	Goodwill Impairment Testing	214
	Contingent Consideration	216
	Noncontrolling Interests	217
	Leveraged Buyouts	217
	Reverse Acquisitions	218
	Spin-off Transactions	218
	Disposal of a Business Segment	218
	Consolidation Requirements	219
	Variable Interest Entities	219
Decision Trees		219
	Determination of Control in a Leveraged Buyout	219
Policies		220
Procedures		221
Controls		222
Forms and Reports		223
	Impairment Testing with Expected Present Value Form	223
Footnotes		223
Journal Entries		227
	Initial purchase transaction	227
	Negative goodwill offset	227
	Write-off of impaired goodwill	228
	Increased investment in subsidiary	228
	Spin-off of subsidiary	228

Definitions of Terms

 

acquisition

An entity pays cash, stock, and/or debt to acquire some portion of the voting stock of another entity, and the acquired entity continues to exist as a separate legal entity.

combination

An entity gains control over the assets of another entity.

consolidation

A new entity is formed to acquire other entities through an exchange of stock, after which the acquired entities are dissolved as separate legal entities.

controlling financial interest

Equity investors have voting rights to make decisions about an entity’s activities, must absorb the entity’s expected losses, and are entitled to the entity’s expected residual ...