Valuation of the Acquiree
In a typical cooperative merger, it may be more reliable to measure the equity or member interests of the Acquiree, rather than attempting to measure the value of the interests transferred by the Acquirer. As a result, in most cases, the determination of the consideration transferred will be determined by valuing the business of the Acquiree.
In order to determine the value of the Acquiree’s equity, it will be necessary to have the cooperative that is being acquired valued. This valuation must be done according to the mandates of acquisition and is a complicated process that needs to be prepared by a qualified business valuation professional. It is important to note that the valuation cannot be done by the same accounting firm that audits the acquirer. To do so would create an independence issue and result in the accounting firm being unable to provide assurance services for the acquirer post acquisition.
The professional business valuator will approach the valuation of the Acquiree’s business by applying three valuation approaches: 1. The Market Approach 2. The Income Approach and 3. The Cost approach
Each of these approaches will be considered in all valuations.
Identify the Acquirer
It is necessary to identify the acquirer in order to apply the rules and procedures of acquisition. The Acquirer is the entity that obtains control of the Acquiree. The entity that issues equity is usually the Acquirer. Factors determining control can include relative voting rights of the combined entity post-acquisition, composition of the governing body and senior management of the combined entity, relative size of the entities and terms of the exchange of equity interests.
Paragraphs B14-B18 of Appendix B to AASB3 provide some indicators to assist in assessing which entity is the acquirer:
What are the relative voting rights in the combined entity after the business combination ?
Is there a large minority voting interest in the combined entity?
What is the composition of the governing body of the combined entity?
What is the composition of the senior management that governs the combined entity subsequent to the combination?
What are the terms of exchange of equity interests
Which entity is larger?
Which entity initiated the exchange?
Determining the controlling entity is the key to identification of the acquirer . However, doing so may not be straightforward in many business combinations, and the accountant might be required to make a reasoned judgment based on the circumstances.
PART B Report
Bachelor of Business
MIT665801 Today’s Accounting Practitioner
Trimester 02, 2011
Lecture: Susan Currie
MIT100064 Xuedi hu
Table of Content Introduction 2 Why impairment testing is carried out? 2
How existence of goodwill affects the impairment test? 3
How often the test needs to carried out? 3
Example of Goodwill Impairment Testing 3
Three steps are required for goodwill impairment testing: 4
Conclusions 5 References 5