How Is the Recorded Cost Determined in an Acquisition Business

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The Answer is Under the revised standard for business combinations, the acquirer must recognize all assets acquired, liabilities assumed and any noncontrolling interest at fair value, measured as of the acquisition date (the date that control is attained). Fair value is defined by the FASB ASC (820-10-20) as an exit value. It is the exchange price that would occur in an orderly transaction to sell an asset or transfer a liability in the most advantageous market. Thus, fair value is market based and is not entity specific. Fair value excludes transaction costs because they are the incremental direct costs incurred to sell an asset or settle a debt. As such, they are specific to the transaction, and have nothing to do with the value of the asset acquired itself or the liability assumed.
Fair value must be applied to assets and liabilities that meet the definition of assets and liabilities under SFAC No. 6. This means that the acquirer must recognize all assets and liabilities of the acquiree - even those that are not on the acquiree's books. Thus, the acquirer must identify and measure intangibles such as brand names and even in-process research and development as well as advertising jingles. In order to recognize such an intangible asset, it must meet either of the two following criteria: (1) separability or (2) contractual or legal. Separability means that the intangible can be sold, transferred, licensed, rented or exchanged. The contractual/legal criterion is that the asset arises from some contractual or legal right.

How Is the Recorded Cost Determined in an Acquisition Business

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