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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Proposed Revisions to Accounting for Business Combinations

As of mid‐2007, the FASB and IASB have combined several projects relating to business acquisitions into one combined project, entitled Business Combinations: Applying the Acquisition Method. The intended result is a standard of accounting for business combinations that can be used for both domestic and cross‐border financial accounting. The organizations have set a target release date for this new standard of the second quarter of 2007. FASB also has issued an Exposure Draft, Consolidated Financial Statements, Including Accounting and Reporting of Noncontrolling Interests in Subsidiaries. The first of these proposals, when adopted, will supersede FAS 141, although the major accomplishment of FAS 141—the banning of pooling‐of‐interests accounting—will stand. The second proposal will supersede ARB 51, as amended by FAS 94. The key matters addressed by these proposals, which are both promised for enactment by mid‐2007, are summarized in the following pages.

The promised standard on accounting for business combinations would mandate use of what is to be called the acquisitions method of accounting (currently, the purchase method). However, in contrast to current practice, it will require an acquiring entity to measure and recognize the acquired business at its full fair value (with no separate valuation allowance permitted), regardless of the percentage of the equity interests of the acquiree the purchaser holds at the acquisition ...

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