ARE BALANCE SHEETS WRONG? a Roundtable Discussion of Goodwill and Intangible Assets Edited by Bob Schmidt, Manager, Brandes Institute
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Technical Line: a Closer Look at the Accounting for Asset Acquisitions
No. 2019-05 Updated 10 September 2020 Technical Line A closer look at the accounting for asset acquisitions In this issue: Overview ............................ 1 What you need to know Scope ................................. 2 • The new definition of a business in ASC 805 has resulted in additional transactions being accounted for as asset acquisitions rather than business combinations. A transaction Initial accounting ................ 4 may be considered an asset acquisition under ASC 805 and an acquisition of a business Determine that the for purposes of SEC reporting. transaction is an asset acquisition ..................... 4 • Asset acquisitions are accounted for by allocating the cost of the acquisition to the Measure the cost of the individual assets acquired and liabilities assumed on a relative fair value basis. asset acquisition ............. 5 Goodwill is not recognized in an asset acquisition. Allocate the cost of the • Entities may need to reassess the design of their internal controls over asset acquisitions asset acquisition ........... 18 to make sure they sufficiently address the risks of material misstatements. Evaluate the difference between cost and • This publication includes updated interpretive guidance on several practice issues, fair value...................... 21 including noncash consideration, contingent consideration and exchanges of share- Present and disclose based payment awards in asset acquisitions. the asset acquisition ..... 26 Subsequent accounting .... 26 Overview Other considerations ........ 28 Determining whether an entity has acquired a business or an asset or a group of assets is SEC reporting critical because the accounting for a business combination differs significantly from that of an considerations ............... 30 asset acquisition. Internal control over That is, business combinations are accounted for using a fair value model under which assets asset acquisitions ......... -
Are Accruals During Initial Public Offerings Opportunistic?
Review of Accounting Studies, 3, 175–208 (1998) c 1998 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands. Are Accruals during Initial Public Offerings Opportunistic? SIEW HONG TEOH [email protected] University of Michigan Business School, Ann Arbor, MI 48109-1234 T. J. WONG Hong Kong University of Science and Technology GITA R. RAO Colonial Management Associates Abstract. We find evidence that initial public offering (IPO) firms, on average, have high positive issue-year earnings and abnormal accruals, followed by poor long-run earnings and negative abnormal accruals. The IPO- year abnormal, and not expected, accruals explain the cross-sectional variation in post-issue earnings and stock returns. The results are robust with respect to alternative abnormal accruals and earnings performance measures. IPO firms adopt more income-increasing depreciation policies when they deviate from similar prior performance same industry non-issuers, and they provide significantly less for uncollectible accounts receivable than their matched non-issuers. The results taken together suggest opportunistic earnings management partially explains the new issues anomaly. Accrual accounting provides managers with discretion in the reporting of earnings. This allows financial reports to reflect managerial information about underlying economic con- ditions more accurately than is possible with a strictly mechanical reporting rule. However, if in some circumstances managers wish to mislead investors, discretion provides greater scope for obscuring true underlying firm performance. The incentives to manage earnings may be especially strong when the firm is planning to sell shares to the market, as in an initial public offering (IPO). IPOs are a major corporate event as evidenced by the size of the IPO market. -
Life Sciences Industry Accounting Guide Acquisitions and Divestitures
Life Sciences Industry Accounting Guide Acquisitions and Divestitures March 2020 The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, and is reproduced with permission. This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms. Copyright © 2020 Deloitte Development LLC. All rights reserved. -
Discussion of Theoretical-Practical Aspects of Squeeze Out
Littera Scripta, 2019, Volume 12, Issue 1 Discussion of theoretical-practical aspects of squeeze out Iveta Sedlakova, Katarina Kramarova, Ladislav Vagner University of Zilina, The Faculty of Operation and Economics of Transport and Communications, Univerzitna 1, Zilina 010 01, Slovak Republic Abstract The presented article has mainly a nature of theoretical discussion on the issue of squeeze out. The squeeze out entitles a majority shareholder to exercise his rights to buy out remaining shares of an offeree company. It a specific transaction mechanism with an impact on shareholders, offeree company, procedural regulation of the transfer of ownership rights arising from shares, methodological aspects of determining a squeeze out price of shares of minority shareholders, efficiency of capital markets etc. In case of Slovakia, the squeeze out has been used for more than one decade, however the number of such kind transactions is low. The main objective of the article is to point on specifics of that transaction and methodological aspects of determination of a general value of shares as a criterion of a fair price relying on basic attributes of procedural regulation of squeeze out in Slovakia, synthesis of knowledge from empirical studies, existing legal and financial theory as well practical experience one of the authors. Keywords: consideration, fair price, general value, share, squeeze out Introduction Determining the value of a company (business valuation), parts of a company, its assets or other property is not a new instrument from the view of the Slovak (or Czechoslovak) economy. Its existence was already evident at a time when our economy had the feature of central planned economy. -
How to Calculate Goodwill – and Why It Exists
How to Calculate Goodwill – and Why It Exists Would You Like a Write-Up with Your Plug? This Video: We Haven’t Covered This Before?!! I was looking at this channel the other day and realized that we had videos on Negative Goodwill and Purchase Price Allocation for Noncontrolling Interests… But nothing on a far more basic topic: how to calculate Goodwill in the first place! This Video: We Haven’t Covered This Before?!! Also, we get a surprising number of questions about this topic, even though there’s detailed coverage of it in our guides and courses… and lots of articles online! So, here goes, starting with why Goodwill exists and a simple example: Why Goodwill Exists • SHORT ANSWER: Goodwill is an accounting construct that exists because in M&A deals, Buyers almost always pay more than what Sellers’ Balance Sheets are worth (i.e., Assets – Liabilities) • The Buyer “gets” all the Seller’s Assets and Liabilities, so that makes its Balance Sheet go out of balance when a deal closes • We create Goodwill to fix this imbalance and ensure that Assets = Liabilities + Equity on the Combined Balance Sheet • Basic Calculation: Goodwill = Equity Purchase Price – Seller’s Common Shareholders’ Equity + Seller’s Existing Goodwill +/- Other Adjustments to Seller’s Balance Sheet Why Goodwill Exists – Simple Example • EX: Buyer pays $1000 in Cash for the Seller, and the Seller has $1500 in Assets, $600 in Liabilities, and Common Equity of $900 • Next: Seller’s Common Equity is written down in the deal, and the Buyer’s Assets go down by $1000, then up -
Economic Value Added (EVA™)
UBS Global Research Valuation Series Economic Value Added (EVA™) EVA™: Use and abuse EVA™ is increasingly used for corporate and management appraisal and evaluation. The approach has gained so much popularity that it is now influencing the style, content and focus of sell-side research. While EVA™ can provide some useful insights into companies, as can many other techniques, it has shortcomings that should not be overlooked. ÆEVA™is based on a very simple concept; if a company earns a return that is greater than expected, then value has been added. In each year, the EVA™ is the difference between the actual and expected return (return spread) multiplied by the invested capital. The return spread and EVA™ are used as performance indicators. In addition, the total value added is the sum of all future annual EVA™s (in present value terms) and if this is added to the invested capital, it gives the total value of the company. ÆIn practice, the returns earned and the invested capital are based on accounting data where as the return demanded by investors is based on market (or economic) data. Consequently, EVA™ measures the difference between accounting and economic data and can, therefore, be influenced by different accounting practices and by management ‘adjustments’ to accounting information. Management may be incentivised to do this given that reward structures may be linked to EVA™. In an attempt to address these problems, a multitude of adjustments need to be made to the accounting data but these are often judgmental and restricted by the level of accounting disclosure. -
Definitions Attributed to Goodwill in the Economic
View metadata, citation and similar papers at core.ac.uk brought to you by CORE ECOFORUM provided by Ecoforum Journal (University of Suceava, Romania) [Volume 6, Issue 3(13), 2017] DEFINITIONS ATTRIBUTED TO GOODWILL IN THE ECONOMIC LITERATURE AND CONCEPTUAL DELIMITATIONS REGARDING THE WAY OF VALUATION AND EXPOSURE OF THIS PATRIMONIAL COMPONENT IN THE BALANCE SHEET Cristina-Gabriela LELIUC COSMULESE Stefan cel Mare University of Suceava, Romania, [email protected], Veronica GROSU Stefan cel Mare University of Suceava, Romania [email protected], Elena HLACIUC Stefan cel Mare University of Suceava, Romania [email protected] Abstract The purpose of this paper is to provide an exhaustive perspective on the evolution over time of the definition of the goodwill. The present paper is part of the research done in the doctoral thesis and we consider it very important to have a complete understanding of the concept studied to develop it further. In our demarche we used a chronological analysis and we revised definitions from the late 1800s to today. At the same time, it is desired to clarify and analyze the concept of goodwill both from the point of view of the accounting literature and the economic practice (regarding the evaluation and exposure of this patrimonial component in the balance sheet) and to a lesser extent in the legal aspect. Definitions are given by prominent researchers of time, published in magazines and books of a high rank or offered by international accounting commissions. In our opinion, this study is beneficial to researchers in the idea that it offers a complete picture of its concept and history, being a study focusing on the international accounting of goodwill in the past, present and future. -
Squeeze-Outs and Freeze-Outs in Limited Liability Companies
Washington University Law Review Volume 73 Issue 2 Limited Liability Companies January 1995 Squeeze-Outs and Freeze-Outs in Limited Liability Companies Franklin A. Gevurtz University of the Pacific Follow this and additional works at: https://openscholarship.wustl.edu/law_lawreview Part of the Business Organizations Law Commons Recommended Citation Franklin A. Gevurtz, Squeeze-Outs and Freeze-Outs in Limited Liability Companies, 73 WASH. U. L. Q. 497 (1995). Available at: https://openscholarship.wustl.edu/law_lawreview/vol73/iss2/5 This F. Hodge O'Neal Corporate and Securities Law Symposium is brought to you for free and open access by the Law School at Washington University Open Scholarship. It has been accepted for inclusion in Washington University Law Review by an authorized administrator of Washington University Open Scholarship. For more information, please contact [email protected]. SQUEEZE-OUTS AND FREEZE-OUTS IN LIMITED LIABILITY COMPANIES FRANKLIN A. GEVURTZ* I. INTRODUCTION In only six years since the Internal Revenue Service gave its blessing to the limited liability company (LLC), statutes providing for this new business entity have spread across the country. Presently, all but a few states have such laws.2 With its combination of limited liability for the owners and partnership-style flow-through tax treatment, the LLC provides an attractive option for closely held businesses.3 Indeed, it is not beyond the realm of reality to suggest that before too long the LLC may largely render the partnership, limited partnership and closely held corporation obsolete. While this new business form raises many questions, a most appropriate one for this symposium is to consider the prospects for squeeze-outs and freeze-outs in LLCs. -
1 Globalization: a Cautionary Tale 1
Notes 1 Globalization: A Cautionary Tale 1 . Trade data from the World Trade Organization, “Statistics: Trade and Tariff Data,” https://www.wto.org/english/res_e/statis_e/statis_e.htm (accessed May 11, 2015). Investment data from United Nations Conference on Trade and Development “FDI Flows and Stocks,” http://unctad.org/en/Pages/DIAE/FDI%20Statistics/FDI-Statistics. aspx (accessed May 11, 2015). 2 . The World Bank http://www.worldbank.org/en/topic/poverty (accessed May 11, 2015). 3 . See the case study, W. J. Henisz and B. A. Zelner, “AES-Telasi: Power Trip or Power Play?” (The Wharton School, 2006); or Paul Devlin’s film Power Trip (2003), for more in-depth coverage of AES and its failed entry to Georgia. 4. I explain some of the specific issues that IKEA faced in Russia, along with more gen- eral issues that similar companies face in emerging markets, in a blog post. See R. Salomon, “So You Want to Do Business In a Developing Country?” September 15, 2009, http://www.robertsalomon.com/so-you-want-to-do-business-in-a-developing-country / (accessed May 11, 2015). 5 . See “Tesco Plans Foray into US Market,” BBC News , February 9, 2006, http://news.bbc. co.uk/2/hi/business/4695890.stm (accessed June 24, 2015). 6 . In June 2007 I wrote a blog post forecasting that, given its strategy, Tesco would have trouble entering the US market. See R. Salomon, “Tesco’s American Foray,” June 27, 2007, http://www.robertsalomon.com/2007/06/ (accessed May 11, 2015). In March 2008, it was clear that many of those predictions had come true; Tesco failed to make a profit in the US market and exited a short time later. -
Applied Corporate Finance Real Companies, Real Data, Real Time Aswath Damodaran
Applied Corporate Finance Real Companies, Real Data, Real Time Aswath Damodaran Thursday – Friday, 13 – 14 August 2015 9 am – 5.30 pm (Registration starts at 8 am) Early bird saves Grand Ballroom Hotel Indonesia Kempinski IDR 3,000,000! Jalan M.H. Thamrin No.1 (Enter via West Mall Grand Indonesia) (*) Participant Fee: IDR 23,000,000 (exclusive VAT) Get a Certificate signed by Aswath Damodaran Secure your seats now before they are sold out! Email your registration form before 3 August 2015 to [email protected] or fax it to +6221 29928200/29928300 (*)Early Bird offer expires on 29 June 2015 Content This 2-day applied corporate finance seminar will cover the following sessions: • discuss different interests that make up the modern corporation and their different objectives, potential conflict and problems, how to convert a risk measure into a hurdle rate, and examine the cost of debt and resulting cost of capital • cover investment analysis – consider what a project is and how to estimate project cash flows, and examine different decision rules for determining a good or acceptable investment • evaluate financing choices made by a firm – how much to borrow, types of financing, approaches to coming up with optimal debt ratio • examine how much firms pay in dividends and whether they should pay more or less • explore determinants of intrinsic value in a company and what managers can do to enhance value Objective The objective of this seminar is provide participants with tools and techniques that have been developed in theory to answer corporate finance questions, and how best to apply them in practice. -
Business Combinations and Changes in Ownership Interests
25263 bd IFRS3 IAS27:25263 IFRS3/IAS27 bd 4/7/08 10:02 Page a Business combinations and changes in ownership interests A guide to the revised IFRS 3 and IAS 27 Audit.Tax.Consulting.Financial Advisory. 25263 bd IFRS3 IAS27:25263 IFRS3/IAS27 bd 4/7/08 10:02 Page b Contacts Global IFRS leadership team IFRS global office Global IFRS leader Ken Wild [email protected] IFRS centres of excellence Americas Robert Uhl [email protected] Asia Pacific Hong Kong Melbourne Stephen Taylor Bruce Porter [email protected] [email protected] Europe-Africa Copenhagen Johannesburg London Paris Jan Peter Larsen Graeme Berry Veronica Poole Laurence Rivat [email protected] [email protected] [email protected] [email protected] Deloitte’s www.iasplus.com website provides comprehensive information about international financial reporting in general and IASB activities in particular. Unique features include: • daily news about financial reporting globally. • summaries of all Standards, Interpretations and proposals. • many IFRS-related publications available for download. • model IFRS financial statements and checklists. • an electronic library of several hundred IFRS resources. • all Deloitte Touche Tohmatsu comment letters to the IASB. • links to several hundred international accounting websites. • e-learning modules for each IAS and IFRS – at no charge. • complete history of adoption of IFRSs in Europe and information about adoptions of IFRSs elsewhere around the world. • updates on developments in national accounting standards. 25263 bd IFRS3 IAS27:25263 IFRS3/IAS27 bd 4/7/08 10:02 Page c Contents 1. Introduction 1 1.1 Summary of major changes 1 1.2 Convergence of IFRSs and US GAAP 3 2. -
Valuations for Financial Reporting and Transfer Pricing Purposes, We Have Selected a Few Areas Where We Frequently See Variations, Including
Bridging the Divide: March 6, 2019 Valuations for Financial Reporting and Tax/Transfer Pricing Nate Levin, Managing Director, Valuation Advisory Susan Fickling-Munge, Managing Director, Transfer Pricing Simon Webber, Managing Director, Transfer Pricing DUFF & PHELPS Duff & Phelps is the global advisor that protects, restores and maximizes value for clients in the areas of valuation, corporate finance, investigations, disputes, cyber security, compliance and regulatory matters, and other governance-related issues. We work with clients across diverse sectors, mitigating risk to assets, operations and people. M O R E T H A N 6 , 5 0 0 C L I E N T S 1 5 , 0 0 0 I N C L U D I N G ENGAGEMENTS O V E R PERFORMED IN 50% O F T H E 2017 S & P 5 0 0 T H E E U R O P E A N D A S I A 3,500+ AMERICAS MIDDLE EAST PACIFIC T O T A L 2 , 0 0 0 + 1000+ 500+ PROFESSIONALS PROFESSIONALS PROFESSIONALS PROFESSIONALS GLOBALLY BRIDGING THE DIVIDE WEBCAST 2 ONE COMPANY ACROSS 28 COUNTRIES WORLDWIDE E U R O P E A N D THE AMERICAS MIDDLE EAST ASIA PACIFIC Addison Grenada Princeton Abu Dhabi Dublin Munich Bangalore Melbourne Atlanta Houston Reston Agrate Brianza Frankfurt Padua Beijing Mumbai Austin Los Angeles St. Louis Amsterdam Lisbon Paris Brisbane New Delhi Bogota Mexico City San Francisco Athens London Pesaro Guangzhou Shanghai Boston Miami São Paulo Barcelona Longford Porto Hanoi Shenzhen Buenos Aires Milwaukee Seattle Berlin Luxembourg Rome Ho Chi Minh City Singapore Cayman Islands Minneapolis Secaucus Bilbao Madrid Tel Aviv* Hong Kong Sydney Chicago Morristown