Merger & Acquisition Accounting Flashcards
7 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Merger & Acquisition Accounting flashcards as text
Under ASC 805, how should acquisition-related costs (e.g., advisory and legal fees) be treated by the acquirer?
Answer: Expensed as incurred in the period
ASC 805 requires acquisition-related costs to be expensed as incurred, not capitalized into goodwill or the purchase price.
A contingent consideration arrangement in a business combination requires the acquirer to pay an additional $5M if revenue targets are met. At acquisition date, this contingency has a fair value of $2M. How is it initially recorded?
Answer: At fair value of $2M in the purchase price allocation
ASC 805 requires contingent consideration to be recorded at fair value on the acquisition date as part of the purchase price allocation.
What is a 'bargain purchase' in the context of a business combination?
Answer: An acquisition where fair value of net identifiable assets exceeds the purchase price
A bargain purchase occurs when the fair value of net identifiable assets acquired exceeds the total consideration transferred, resulting in a gain rather than goodwill.
In a step acquisition, a company holds a 30% equity method investment and later acquires an additional 45% to gain control. How is the previously held 30% interest treated?
Answer: Remeasured at fair value with any gain or loss recognized in earnings
ASC 805 requires remeasurement of the previously held equity interest at fair value on the acquisition date, with the resulting gain or loss recognized in earnings.
Which of the following best describes the 'measurement period' under ASC 805 for a business combination?
Answer: Up to one year after the acquisition date to finalize fair value measurements
The measurement period under ASC 805 allows up to one year after the acquisition date to adjust provisional fair value estimates as new information is obtained.
In an asset acquisition (as opposed to a business combination), how are transaction costs treated?
Answer: Capitalized into the cost of the acquired assets
Unlike a business combination, transaction costs in an asset acquisition are capitalized and allocated to the acquired assets based on relative fair values.
When the acquirer and acquiree have a pre-existing relationship that is effectively settled in a business combination, how is the settlement amount treated?
Answer: Recognized separately from the business combination as a gain or loss
Amounts related to settling pre-existing relationships are recognized separately from the business combination and generally result in a gain or loss in earnings.