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Statement of Financial Accounting Standards No. 164-not-for-profit entities: mergers and acquisitions (including an amendment of FASB Statement No. 142).

SUMMARY

Why Is the FASB Issuing This Statement and When Is It Effective?

The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a not-for-profit entity provides in its financial reports about a combination with one or more other not-for-profit entities, businesses, or nonprofit activities. To accomplish that, this Statement establishes principles and requirements for how a not-for-profit entity:

a. Determines whether a combination is a merger or an acquisition

b. Applies the carryover method in accounting for a merger

c. Applies the acquisition method in accounting for an acquisition, including determining which of the combining entities is the acquirer

d. Determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects of a merger or an acquisition.

This Statement also improves the relevance, representational faithfulness, and comparability of the information a not-for-profit entity provides about goodwill and other intangible assets after an acquisition by amending FASB Statement No. 142, Goodwill and Other Intangible Assets, to make it fully applicable to not-for-profit entities.

This Statement is effective for:

a. Mergers for which the merger date is on or after the beginning of an initial reporting period beginning on or after December 15, 2009

b. Acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2009.

It may not be applied to mergers or acquisitions before those dates.

Because the following items were not effective for not-for-profit entities upon their initial effective dates, this Statement also provides an effective date for them:

a. Statement 142's requirements on subsequent accounting for goodwill and other intangible assets acquired in an acquisition by a not-for-profit entity (Statement 142 refers to assets acquired in a business combination.)

b. The amendments that FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, made to Accounting Research Bulletin ARB No. 51, Consolidated Financial Statements, and to other existing pronouncements

c. The amendments that FASB Statement No. 141 (revised 2007), Business Combinations, made to existing pronouncements.

A not-for-profit entity shall apply those items prospectively in the first set of initial or annual financial statements for a reporting period beginning on or after December 15, 2009. Application before that date is prohibited.

What Is the Scope of This Statement?

This Statement provides guidance on accounting for a combination of not-for-profit entities, which is a transaction or other event that results in a not-for-profit entity initially recognizing another not-for-profit entity, a business, or a nonprofit activity in its financial statements. This Statement applies to a combination that meets the definition of either a merger of not-for-profit entities or an acquisition by a not-for-profit entity. This Statement does not apply to:

a. The formation of a joint venture

b. The acquisition of an asset or a group of assets that does not constitute either a business or a nonprofit activity

c. A combination between not-for-profit entities, businesses, or nonprofit activities under common control

d. A transaction or other event in which a not-for-profit entity obtains control of another entity but does not consolidate that entity, as permitted or required by AICPA Statement of Position 94-3, Reporting of Related Entities by Not-for-Profit Organizations, or AICPA Audit and Accounting Guide, Health Care Organizations.

How Will This Statement Improve Current Accounting Practice?

Until now, not-for-profit entities have accounted for mergers and acquisitions by analogizing to guidance developed for business entities, specifically, APB Opinion No. 16, Business Combinations. FASB Statement No. 141, Business Combinations, replaced Opinion 16 for business entities, and Statement 141 was itself replaced by Statement 141(R). However, the Board excluded not-for-profit entities from the scope of both Statement 141 and Statement 141(R), pending the issuance of guidance developed specifically for them. This Statement provides that guidance, which takes into account the unique features of not-for-profit entities and the combinations in which they engage.

Unique Features of Not-for-Profit Entities and Their Combinations

Combinations by not-for-profit entities and combinations by business entities are similar in many ways. In particular, acquisitions by the two types of entities are sufficiently similar that the same basic accounting method--the acquisition method--is appropriate for both. But not-for-profit entities differ from business entities in some important ways. Thus, this project began by identifying and analyzing differences between not-for-profit entities and business entities and the combinations in which they engage. The Board then considered how the similarities and differences between business entities and not-for-profit entities should affect the financial accounting and reporting requirements for combinations of not-for-profit entities.

One fundamental difference between combinations of not-for-profit entities and combinations involving only businesses has significant financial reporting implications. Because a not-for-profit entity lacks the type of ownership interests that business entities have, negotiations in not-for-profit mergers and acquisitions generally focus on the furtherance for the benefit of the public of the mission, governance, and programs of the entity, rather than on maximizing returns for equity holders. Many mergers and acquisitions by not-for-profit entities do not involve a transfer of consideration. In other words, many mergers and acquisitions by not-for-profit entities are not fair value exchanges but rather are nonreciprocal transfers. That fundamental difference contributed significantly to this Statement's requirement that different accounting methods apply to a merger of not-for-profit entities and an acquisition by a not-for-profit entity For an acquisition, those combinations result in a contribution of the acquiree's net assets to the acquirer, which this Statement refers to as an inherent contribution received to distinguish it from other contributions received by a not-for-profit entity

Determining Whether a Combination Is a Merger or an Acquisition

This Statement requires use of the carryover method to account for a merger of not-for-profit entities, which is a combination in which the governing bodies of two or more not-for-profit entities cede control of those entities to create a new not-for-profit entity In contrast, the acquisition method must be used to account for an acquisition by a not-for-profit entity, which is a combination in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses. This Statement also provides implementation guidance on distinguishing between a merger and an acquisition, including illustrations of how that guidance might be applied to hypothetical combinations.

Applying the Carryover Method

Under the carryover method, the combined entity's initial set of financial statements carry forward the assets and liabilities of the combining entities, measured at their carrying amounts in the books of the combining entities at the merger date. An entity applying the carryover method recognizes neither additional assets or liabilities nor changes in the fair value of recognized assets and liabilities not already recognized in the combining entities' financial statements before the merger under generally accepted accounting principles (GAAP). (Exceptions are made to reflect a consistent method of accounting for the new entity if the merging entities used different methods and to eliminate the effects of intraentity transactions.) This Statement's guidance on applying the carryover method improves on Opinion 16's guidance on applying the pooling method in several ways.

First, in Opinion 16, the measurement date--the date as of which information about the merging entities' assets and liabilities was included in the combined entity's financial statements--was the beginning of the period in which the merger occurred, regardless of the actual date of the merger. The measurement date for a merger in this Statement is the merger date--the date the combination becomes effective. The not-for-profit entity that results from a merger is a new entity and therefore a new reporting entity An entity's history begins at its inception; a new entity has no previous operations. The guidance on measurement date and related presentation issues in this Statement is consistent with the merged entity's status as a new entity.

This Statement also provides additional guidance for the carryover method. For example, this Statement provides guidance on how to make the classifications and designations that are required to apply other GAAP, such as applying hedge accounting requirements. The new entity is to carry forward into the opening balances in its financial statements the merging entities' classifications and designations unless either:

a. The merger results in a modification of a contract in a manner that would change those previous classifications or designations; or

b. Reclassifications are necessary to conform accounting policies.

This Statement also specifies minimum disclosures to be made as of the merger date to enable users of the new entity's financial statements to evaluate the nature and financial effect of the merger that resulted in its formation.

Applying the Acquisition Method

The acquisition method in this Statement is the same as the acquisition method described in Statement 141 (R), with the addition of guidance on items unique or especially significant to a not-for-profit entity and the elimination of guidance that does not apply to a not-for-profit acquirer. For example, this Statement's guidance on identifying both the acquirer and the acquisition date is in substance the same as the guidance that Statement 141 (R) provides on those issues, but this Statement uses different terminology and adds a few details unique to not-for-profit entities.

Recognizing Goodwill or a Contribution Received

The area in which this Statement provides guidance that differs most in substance from that in Statement 141(R) is recognition of goodwill. Unlike business entities, some not-for-profit entities are solely or predominantly supported by contributions and returns on investments. Others are more "businesslike," receiving most, or even all, of their support from fees for services. An example of the former is a soup kitchen; an example of the latter is a not-for-profit hospital that charges fees to cover its costs. In general, the more business-like a not-for-profit entity, the more relevant is information about goodwill acquired to users of the entity's financial statements. This Statement recognizes that information about goodwill may be of limited use to donors in their assessments of whether to provide resources to a not-for-profit entity Accordingly, this Statement requires an acquirer that expects the operations of the acquiree as part of the combined entity to be predominantly supported by contributions and returns on investments to recognize as a separate charge in its statement of activities the amount that otherwise would be recognized as a goodwill asset as of the acquisition date. Predominantly supported by means that contributions and returns on investments are expected to be significantly more than the total of all other sources of revenues.

As already noted, many acquisitions by not-for-profit entities constitute an inherent contribution received because the acquirer receives net assets without transferring consideration. This Statement requires the acquirer to recognize such a contribution received as a separate credit in its statement of activities on the acquisition date.

Recognizing and Measuring Noncontrolling Interests

This Statement requires that a recognized noncontrolling interest in another entity, whether a business or another not-for-profit entity, be measured at its fair value at the acquisition date. In addition, as noted in discussing effective date, this Statement makes Statement 160's amendments to ARB 51 effective for not-for-profit entities. Many of those amendments deal with accounting for a noncontrolling interest after its acquisition. This Statement also provides guidance on and illustrates presentation of a noncontrolling interest in a not-for-profit entity's financial statements.

Other Provisions of the Acquisition Method That Are Specific to Not-for-Profit Entities

This Statement also provides other guidance on applying the acquisition method in areas that are unique or especially significant for not-for-profit entities. For example, this Statement establishes exceptions to its recognition principle for donor relationships, collections, and conditional promises to give.

This Statement also provides guidance on how to present in the statement of activities and the statement of cash flows various items that are unique to not-for-profit entities, including the immediate charge or credit to the statement of activities for the amount that otherwise would be recognized as goodwill or an inherent contribution received, respectively For an entity subject to the health care Guide, that guidance indicates whether specific items are to be within the performance indicator.

Like Statement 14 I(R), this Statement establishes disclosure objectives for an acquisition and requires minimum disclosures needed to meet those objectives. The disclosure objectives are the same as for a business combination, as are many of the minimum disclosures required. But the minimum disclosures are tailored for acquisitions by not-for-profit entities in some areas. For example, this Statement requires disclosure of the amount of collection items acquired that are recognized in the statement of activities as a decrease in the acquirer's net assets rather than as assets in accordance with FASB Statement No. 116, Accounting for Contributions Received and Contributions Made.

How Does This Statement Affect Convergence with International Reporting Standards?

International convergence is not a consideration for financial reporting standards applicable only to not-for-profit entities, like this one. The IASB'S standards do not deal explicitly with not-for-profit entities.
CONTENTS

Objective/1
Standards of Financial Accounting and
Reporting:
Scope/2
Key Terms/3
Distinguishing between a Merger and an
Acquisition/4-5
Financial Reporting for a Merger/6-19
 Recognition Principle/8-11
 Classifying or Designating Assets and
 Liabilities in a Merger/10-11
 Measurement Principle/12-14
 Presentation/15-16
 Disclosures for a Merger/17-19
Financial Reporting for an Acquisition/20-91
 Identifying the Acquirer/23-24
 Determining the Acquisition Date/25-26
 Recognizing and Measuring the Identifiable
 Assets Acquired, the Liabilities Assumed, and
 Any Noncontrolling Interest in the
 Acquiree/27-91
 Recognition Principle/27-34
 Recognition Conditions/28-31
 Classifying or Designating Identifiable
 Assets Acquired and Liabilities
 Assumed in an Acquisition/32-34
 Measurement Principle/35-36
 Exceptions to the Recognition or
 Measurement Principles/37-49
 Exceptions to the Recognition
 Principle/38-40
 Donor Relationships/38
 Collections/39
 Conditional Promises to Give/40
 Exceptions to both the Recognition
 and Measurement Principles/41-47
 Assets and Liabilities Arising from
 Contingencies/41-42
 Income Taxes/43-44
 Employee Benefits/45
 Indemnification Assets/46-47
 Exceptions to the Measurement
 Principle/48-49
 Reacquired Rights/48
 Assets Held for Sale/49
 Recognizing and Measuring Goodwill
 Acquired or a Contribution
 Received/50-58
 Goodwill Acquired/50-53
 Contribution Received/54-55
 Consideration Transferred/56-58
 Contingent Consideration/58
 Additional Guidance for Applying the
 Acquisition Method/59-69
 An Acquisition Achieved in
 Stages/59-60
 Measurement Period/61-66
 Determining What Is Part of the
 Acquisition Transaction/67-69
 Acquisition-Related Costs/69
 Presentation/70-75
 Statement of Activities/71-74
 Statement of Cash Flows/75
 Subsequent Measurement/76-84
 Reacquired Rights/77
 Assets and Liabilities Arising from
 Contingencies/78
 Indemnification Assets/79
 Contingent Consideration/80
 Contingent Consideration
 Arrangements Assumed by an
 Acquirer/81
 Goodwill and Other Intangible Assets
 Acquired in an Acquisition/82
 Ownership Interests in
 Subsidiaries/83
 Other Statements That Provide
 Guidance on Subsequent
 Measurement/84
 Disclosures for an Acquisition/85-91
Effective Date and Transition/92-101
 Transition for Previously Recognized
 Goodwill/95-99
 Transition for Previously Recognized
 Intangible Assets Other Than Goodwill
 Acquired in a Purchase Accounted for under
 Opinion 16/100
 Income Taxes/101
Appendix A: Implementation Guidance/A1-A148
Appendix B: Disclosures for and Illustration of
Presentation of Noncontrolling Interests Required
by ARB 51, as Amended by Statement 160 and
This Statement/B1-B10
Appendix C: Basis for Conclusions/C1-C206
Appendix D: Background Information/D1-D20
Appendix E: Amendments to Existing
Pronouncements and Other Authoritative
Literature/E1-E26


OBJECTIVE

1. The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a not-for-profit reporting entity provides in its financial reports about a combination with one or more other not-for-profit entities, businesses, or nonprofit activities. To accomplish that, this Statement establishes principles and requirements for how a not-for-profit entity:

a. Determines whether a combination is a merger or an acquisition

b. Applies the carryover method in accounting for a merger

c. Applies the acquisition method in accounting for an acquisition, including determining which of the combining entities is the acquirer

d. Determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects of a merger or an acquisition.

This Statement also improves the relevance, representational faithfulness, and comparability of the information a not-for-profit entity provides about goodwill and other intangible assets after an acquisition and changes in the noncontrolling interest in subsidiaries after a merger or an acquisition. To accomplish that, it amends both FASB Statement No. 142, Goodwill and Other Intangible Assets, and ARB No. 51, Consolidated Financial Statements, as amended by FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, to make their provisions fully applicable to not-for-profit entities.

All paragraphs in this Statement have equity authority. Paragraphs in bold set out the main principles.

STANDARDS OF FINANCIAL ACCOUNTING AND REPORTING

SCOPE

2. This Statement applies to a transaction or other event that meets either the definition of a merger of not-for-profit entities in paragraph 3(q) or the definition of an acquisition by a not-for-profit entity in paragraph 3(c). This Statement does not apply to:

a. The formation of a joint venture

b. The acquisition of an asset or a group of assets that does not constitute either a business or a nonprofit activity (Paragraphs A135-A140 describe the typical accounting for an asset acquisition.)

c. A combination between not-for-profit entities, businesses, or nonprofit activities under common control (Paragraphs A141-A148 describe the typical accounting for a transfer of assets or an exchange of shares between entities under common control.)

d. A transaction or other event in which a not-for-profit entity obtains control of another not-for-profit entity but does not consolidate that entity, as permitted or required by AICPA Statement of Position 94-3, Reporting of Related Entities by Not-for-Profit Organizations (SOP 94-3), (1) or AICPA Audit and Accounting Guide, Health Care Organizations (health care Guide). For example, SOP 94-3 and the health care Guide permit, but do not require, an entity to consolidate another not-for-profit entity in which it has a controlling economic interest other than a majority ownership or voting interest, such as control through a contract or an affiliation agreement. Thus, if one not-for-profit entity obtains control of another by means of a contract, for example, but chooses not to consolidate that entity, this Statement does not apply to the transaction in which control was obtained. Similarly, this Statement does not apply if a not-for-profit entity that obtained control in a transaction or other event in which consolidation was permitted but not required decides in a subsequent annual reporting period to begin consolidating a controlled entity that it initially chose not to consolidate.

KEY TERMS

3. This Statement uses the following terms with the specified definitions:

a. An acquiree is a business that the acquirer obtains control of in a business combination or a nonprofit activity or business that a not-for-profit acquirer obtains control of in an acquisition.

b. The acquirer is the entity that obtains control of the acquiree.

c. An acquisition by a not-for-profit entity is a transaction or other event in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses and initially recognizes their assets and liabilities in the acquirer's financial statements.

d. The acquisition date is the date on which the acquirer obtains control of the acquiree (paragraph 3(c) of FASB Statement No. 141 (revised 2007), Business Combinations).

e. A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants (paragraph 3(d) of Statement 141(R)).

f. Collections are works of art, historical treasures, or similar assets that are all of the following:

(1) Held for public exhibition, education, or research to further public service rather than financial gain

(2) Protected, kept unencumbered, cared for, and preserved

(3) Subject to an organizational policy that requires the proceeds of items that are sold to be used to acquire other items for collections (paragraph 209 of FASB Statement No. 116, Accounting for Contributions Received and Contributions Made).

g. A conditional promise to give is a promise to give that depends on the occurrence of a specified future and uncertain event to bind the promisor (paragraph 209 of Statement 116).

h. A contribution is an unconditional transfer of cash or other assets to an entity or a settlement or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as an owner (paragraph 5 of Statement 116). An inherent contribution is made if an entity voluntarily transfers assets (or net assets) or performs services for another entity in exchange either for no assets or for assets of substantially lower value and unstated rights or privileges of a commensurate value are not involved.

i. Contingent consideration usually is an obligation of the acquirer to transfer additional assets or equity interests to the former owners or members of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met. However, contingent consideration also may give the acquirer the right to the return of previously transferred consideration if specified conditions are met (paragraph 3(f) of Statement 141(R)).

j. Control of a for-profit business has the meaning of controlling financial interest in paragraph 2 of ARB 51 (paragraph 3(g) of Statement 141(R)).

k. Control of a not-for-profit entity is "the direct or indirect ability to determine the direction of management and policies through ownership, contract, or otherwise" (paragraph 20 of SOP 94-3, and paragraph 11.08 of the health care Guide).

1. The term equity interests is used broadly to mean ownership interests of investor-owned entities; owner, member, or participant interests of mutual entities; and owner or member interests in the net assets of not-for-profit entities.

m. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (paragraph 5 of FASB Statement No. 157, Fair Value Measurements).

n. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination or an acquisition by a not-for-profit entity that are not individually identified and separately recognized (paragraph 30) of Statement 141(R)).

o. An asset is identifiable if it either:

(1) Is separable, that is, capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability, regardless of whether the entity intends to do so; or

(2) Arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations (paragraph 3(k) of Statement 141(R)).

p. An intangible asset is an asset (not including a financial asset) that lacks physical substance. As used in this Statement, the term intangible asset excludes goodwill (paragraph 3(1) of Statement 141(R)).

q. A merger of not-for-profit entities is a transaction or other event in which the governing bodies of two or more not-for-profit entities cede control of those entities to create a new not-for-profit entity To cede control requires that the merging entities not retain shared control of the new entity To qualify as a new entity, the combined entity must have a newly formed governing body; a new entity often is, but need not be, a new legal entity

r. The merger date is the date on which the merger becomes effective.

s. Noncontrolling interest is the equity in (net assets of) a subsidiary not attributable, directly or indirectly, to a parent (ARB 51, as amended).

t. A nonprofit activity is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing benefits, other than goods or services at a profit or profit equivalent, as a fulfillment of an entity's purpose or mission (for example, goods or services to beneficiaries, customers, or members). As with a not-for-profit entity, a nonprofit activity possesses characteristics that distinguish it from a business or a for-profit business entity

u. A not-for-profit entity is an entity that possesses the following characteristics that distinguish it from a for-profit business entity:

(1) Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return

(2) Operating purposes other than to provide goods or services at a profit

(3) Absence of ownership interests with characteristics that are similar to those of a for-profit business entity

Not-for-profit entities have those characteristics in varying degrees. Entities that fall outside this definition include all investor-owned entities and entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance companies, credit unions, farm and rural electric cooperatives, and employee benefit plans (paragraph 209 of Statement 116).

v. The term owners is used broadly to include holders of equity interests of investor-owned entities; owners, members of, or participants in mutual entities; and owner or member interests in the net assets of not-for-profit entities.

w. A public entity is an entity that has issued debt or equity securities or is a conduit bond obligor for conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets), that is required to file financial statements with the Securities and Exchange Commission, or that provides financial statements for the purpose of issuing any class of securities in a public market. (That is the same as the definition of public business enterprise in paragraph 9 of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, as amended by FASB Staff Position FAS 126-1, Applicability of Certain Disclosure and Interim Reporting Requirements for Obligors for Conduit Debt Securities). The phrase conduit debt securities used in that definition of a public entity refers to certain limited-obligation revenue bonds, certificates of participation, or similar debt instruments issued by a state or local governmental entity for the express purpose of providing financing for a specific third party (the conduit bond obligor) that is not a part of the state or local government's financial reporting entity Although conduit debt securities bear the name of the governmental entity that issues them, the governmental entity often has no obligation for such debt beyond the resources provided by a lease or loan agreement with the third party on whose behalf the securities are issued. Further, the conduit bond obligor is responsible for any future financial reporting requirements. (Paragraph 4 of FSP FAS 126-1 defines a public entity to include a conduit bond obligor and paragraph 5 of that FSP defines conduit bond obligor.)

DISTINGUISHING BETWEEN A MERGER AND AN ACQUISITION

4. A not-for-profit entity shall determine whether a transaction or other event is a merger or an acquisition by applying the definitions in this Statement (paragraphs 3(q) and 3(c), respectively).

5. Paragraphs A2-A28 in Appendix A provide guidance on distinguishing between a merger and an acquisition.

FINANCIAL REPORTING FOR A MERGER

6. The not-for-profit entity resulting from a merger (the new entity) shall account for the merger by applying the carryover method described in this Statement.

7. Applying the carryover method requires combining the assets and liabilities recognized in the separate financial statements of the merging entities as of the merger date (or that would be recognized if the entities issued financial statements as of that date), (2) adjusted as necessary in accordance with paragraphs 9, 13, and 14.

Recognition Principle

8. The new entity shall recognize in its financial statements the assets and liabilities reported in the separate financial statements of the merging entities as of the merger date in accordance with generally accepted accounting principles (GAAP).

9. The carryover method is applied by combining the assets and liabilities recognized in the financial statements of the merging entities as of the merger date; the new entity does not recognize additional assets or liabilities, such as internally developed intangible assets, that GAAP did not require or permit the merging entities to recognize. However, if a merging entity's separate financial statements are not prepared in accordance with GAAP, those statements shall be adjusted to GAAP before the new entity recognizes the assets and liabilities.

Classifying or Designating Assets and Liabilities in a Merger

10. The new entity shall carry forward at the merger date the merging entities' classifications and designations of their assets and liabilities unless one of the exceptions in paragraph 11 applies.

11. In some situations, GAAP provides for different accounting depending on how an entity classifies or designates a particular asset or liability. Paragraphs 33 and 34 provide examples of such classifications and designations. The new entity shall carry forward into the opening balances in its financial statements (paragraph 16(a)) the merging entities' classifications and designations unless either:

a. The merger results in a modification of a contract in a manner that would change those previous classifications or designations; or

b. Reclassifications are necessary to conform accounting policies in accordance with paragraph 13.

In the first situation ((a) above), the new entity shall classify or designate the asset or liability on the basis of the contractual terms, economic conditions, its operating or accounting policies, and other pertinent conditions as they exist at the date of that modification. In the second situation ((b) above), the new entity shall classify or designate the asset or liability on the basis of the conformed accounting policies at the merger date.

Measurement Principle

12. The new entity shall measure the assets and liabilities in its financial statements as of the merger date at the amounts reported in the financial statements of the merging entities as of that date prepared in accordance with GAAP, adjusted as necessary in accordance with paragraphs 13 and 14.

13. The merging entities may have measured assets and liabilities using different methods of accounting in their separate financial statements. The new entity shall adjust the amounts of those assets and liabilities as necessary to reflect a consistent method of accounting. However, because the carryover method does not reflect a "fresh-start" measurement, a merger is not an event that permits the election of accounting options that are restricted to the entity's initial acquisition or recognition of an item (or the reversal of a previous election). Thus, for example, one merging entity's election of the fair value option in FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, for a particular financial asset or liability permits neither the new entity's election of the fair value option for other financial assets or liabilities at the merger date nor the reversal of the previous selection of the fair value option.

14. The new entity shall eliminate the effects of any intraentity transactions on its assets, liabilities, and net assets as of the merger date.

Presentation

15. The entity resulting from a merger is a new reporting entity, with no activities before the date of the merger. Thus, the new entity's initial reporting period begins with the merger date, and the merger itself shall not be reported as activity of the new entity's initial reporting period. Rather, the combined assets, liabilities, and net assets of the merging entities are included in the statement of financial position as of the beginning of that initial reporting period, if presented.

16. The new entity's statement of activities and statement of cash flows for its initial reporting period shall:

a. Include in the reported amounts as of the beginning of the period (the opening amounts), such as cash and cash equivalents at the beginning of the period, the combined amounts of the merging entities' assets, liabilities, and net assets (in total and by classes of net assets) as of the merger date. Accounting changes necessary to adjust a merging entity's financial statements to GAAP in accordance with paragraph 9, to conform the individual accounting policies of the merging entities in accordance with paragraph 13, or to eliminate intraentity balances in accordance with paragraph 14 shall be reflected in the opening amounts.

b. Report activity from the merger date through the end of the reporting period.

Disclosures for a Merger

17. The new entity shall disclose information that enables users of its financial statements to evaluate the nature and financial effect of the merger that resulted in its formation.

18. To meet the objective in paragraph 17, the new entity shall disclose the following information for the merger that resulted in its formation:

a. The name and a description of each merging entity

b. The merger date

c. The primary reasons for the merger

d. For each merging entity:

(1) The amounts recognized as of the merger date for each major class of assets and liabilities and each class of net assets

(2) The nature and amounts, if applicable, of any significant assets (for example, conditional promises receivable or collections) or liabilities (for example, conditional promises payable) that GAAP does not require to he recognized.

e. The nature and amount of any significant adjustments made to conform the individual accounting policies of the merging entities or to eliminate intraentity balances

f. If the new entity is a public entity, as defined in paragraph 3(w) of this Statement, the following supplemental pro forma information:

(1) If the merger occurs at other than the beginning of an annual reporting period and the entity's initial financial statements thus cover less than an annual reporting period, the following information for the current reporting period as though the merger date had been the beginning of the annual reporting period:

(a) Revenue

(b) For an entity subject to the health care Guide, the performance indicator

(c) Changes in unrestricted net assets, changes in temporarily restricted net assets, and changes in permanently restricted net assets.

(2) If the new entity presents comparative financial information in the annual reporting period following the year in which the merger occurs, the entity shall disclose the supplemental pro forma information in paragraph 18(f)(1)(a)-(c) for the comparable prior reporting period as though the merger date had been the beginning of that prior annual reporting period.

If disclosure of any of the information required by this subparagraph is impracticable, the entity shall disclose that fact and explain why the disclosure is impracticable. This Statement uses the term impracticable with the same meaning as impracticability in paragraph 11 of FASB Statement No. 154, Accounting Changes and Error Corrections.

19. If the specific disclosures required by this Statement and other GAAP do not meet the objective in paragraph 17, the entity shall disclose whatever additional information is necessary to meet that objective.

FINANCIAL REPORTING FOR AN ACQUISITION

20. A not-for-profit entity shall account for each acquisition of a business or nonprofit activity by applying the acquisition method as described in this Statement.

21. A not-for-profit entity that acquires assets that are neither a business nor a nonprofit activity under the definitions in paragraph 3(e) or 3(t) shall account for the transaction or other event as an asset acquisition.

22. The acquisition method in this Statement is the same as the acquisition method described in Statement 141(R). However, guidance on items unique or especially significant to a not-for-profit entity (including the provisions of paragraph 51 on the nonrecognition of goodwill for particular acquirees) has been added, and guidance that does not apply to a not-for-profit acquirer has been eliminated. Applying the acquisition method requires:

a. Identifying the acquirer

b. Determining the acquisition date

c. Recognizing and measuring the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree

d. Recognizing and measuring goodwill (or the immediate charge to the statement of activities required by paragraph 51 (3)) or the contribution received.

Identifying the Acquirer

23. For each acquisition, one of the combining entities shall be identified as the acquirer.

24. The existing guidance on control and consolidation of not-for-profit entities shall be used to identify the acquirer--the entity that obtains control of the acquiree--as follows:

a. For a not-for-profit acquirer other than a health care entity, the guidance on related entities in SOP 94-3

b. For a not-for-profit health care acquirer, Chapter 11 of the health care Guide.

If an acquisition has occurred but applying the guidance in SOP 94-3, the health care Guide, or ARB 51 does not clearly indicate which of the combining entities is the acquirer, the factors in paragraphs A39-A44 shall be considered in making that determination.

Determining the Acquisition Date

25. The acquirer shall identify the acquisition date, which is the date on which it obtains control of the acquiree.

26. The date on which the acquirer obtains control of the acquiree generally is the date on which the acquirer legally transfers the consideration (if any), acquires the assets, and assumes the liabilities of the acquiree--the closing date. For an acquisition by a not-for-profit entity, the date on which the acquirer obtains control of another not-for-profit entity with sole corporate membership generally also is the date on which the acquirer becomes the sole corporate member of that entity However, the acquirer might obtain control on a date that is either earlier or later than the closing date. For example, the acquisition date precedes the closing date if a written agreement provides that the acquirer obtains control of the acquiree on a date before the closing date. An acquirer shall consider all pertinent facts and circumstances in identifying the acquisition date.

Recognizing and Measuring the Identifiable Assets Acquired, the Liabilities Assumed, and Any Noncontrolling Interest in the Acquiree

Recognition Principle

27. As of the acquisition date, the acquirer shall recognize, separately from goodwill, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. Recognition of identifiable assets acquired and liabilities assumed is subject to the conditions specified in paragraphs 28 and 29.

Recognition Conditions

28. To qualify for recognition as part of applying the acquisition method, the identifiable assets acquired and liabilities assumed must meet the definitions of assets and liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements, at the acquisition date. For example, costs the acquirer expects but is not obligated to incur in the future to effect its plan to exit an activity of an acquiree or to terminate the employment of or relocate an acquiree's employees are not liabilities at the acquisition date. Therefore, the acquirer does not recognize those costs as part of applying the acquisition method. Instead, the acquirer recognizes those costs in its postcombination financial statements in accordance with other applicable GAAP.

29. In addition, to qualify for recognition as part of applying the acquisition method, the identifiable assets acquired and liabilities assumed must be part of what the acquirer and the acquiree (or its former owners) exchanged (or what was contributed) in the acquisition transaction rather than the result of separate transactions. The acquirer shall apply the guidance in paragraphs 67-69 to determine which assets acquired or liabilities assumed are part of the exchange for the acquiree (or the inherent contribution of the acquiree) and which, if any, are the result of separate transactions to be accounted for in accordance with their nature and the applicable GAAP

30. The acquirer's application of the recognition principle and conditions may result in recognizing some assets and liabilities that the acquiree had not previously recognized as assets and liabilities in its financial statements. For example, the acquirer recognizes the acquired identifiable intangible assets, such as a brand name, a patent, or a customer relationship, that the acquiree did not recognize as assets in its financial statements because it developed them internally and charged the related costs to expense.

31. Paragraphs A45-A85 provide guidance on recognizing operating leases and intangible assets. Paragraphs 38-47 specify the types of identifiable assets and liabilities that include items for which this Statement provides limited exceptions to the recognition principle and conditions in paragraphs 27-29.

Classifying or Designating Identifiable Assets Acquired and Liabilities Assumed in an Acquisition

32. At the acquisition date, the acquirer shall classify or designate the identifiable assets acquired and liabilities assumed as necessary to subsequently apply other GAAP. The acquirer shall make those classifications or designations on the basis of the contractual terms, economic conditions, its operating or accounting policies, and other pertinent conditions as they exist at the acquisition date.

33. In some situations, GAAP provides for different accounting depending on how an entity classifies or designates a particular asset or liability Examples of classifications or designations that the acquirer shall make on the basis of the pertinent conditions as they exist at the acquisition date include but are not limited to:

a. Classification of particular investments in securities as trading or other than trading in accordance with the health care Guide

b. Designation of a derivative instrument as a hedging instrument in accordance with FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities

c. Assessment of whether an embedded derivative should be separated from the host contract in accordance with Statement 133 (which is a matter of classification as paragraph 32 of this Statement uses that term).

34. This Statement provides two exceptions to the principle in paragraph 32:

a. Classification of a lease contract as either an operating lease or a capital lease in accordance with FASB Statement No. 13, Accounting for Leases, as interpreted by FASB Interpretation No. 21, Accounting for Leases in a Business Combination

b. Classification of a contract written by an entity that is in the scope of FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises, as amended, as an insurance or reinsurance contract or a deposit contract. The acquirer shall classify those contracts on the basis of the contractual terms and other factors at the inception of the contract (or, if the terms of the contract have been modified in a manner that would change its classification, at the date of that modification, which might be the acquisition date).

Measurement Principle

35. The acquirer shall measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their acquisition-date fair values.

36. Paragraphs A93-A101 provide guidance on measuring the fair value of particular identifiable assets acquired, liabilities assumed, and a noncontrolling interest in an acquiree.

Exceptions to the Recognition or Measurement Principles

37. This Statement provides limited exceptions to its recognition and measurement principles. Paragraphs 38-49 specify the types of identifiable assets and liabilities that include items for which this Statement provides limited exceptions. The acquirer shall apply the specified GAAP or the specified requirements rather than the recognition and measurement principles in paragraphs 27 and 35 to determine when to recognize or how to measure the assets or liabilities identified in paragraphs 38-49. That will result in some items being either:

a. Recognized either by applying recognition conditions in addition to those in paragraphs 28 and 29 or by applying the requirements of other GAAP, with results that differ from applying the recognition principle and conditions in paragraphs 27-29; or

b. Measured at an amount other than their acquisition-date fair values.

Exceptions to the Recognition Principle

Donor relationships

38. The acquirer shall not recognize an acquired donor relationship as an identifiable intangible asset separately from goodwill. Paragraph A72 discusses the nature of donor relationships.

Collections

39. An acquirer that has an organizational policy of not capitalizing collections in accordance with Statement 116 shall not recognize as an asset those items (works of art, historical treasures, or similar assets) that it acquires as part of an acquisition and adds to its collection. Rather, the acquirer shall:

a. Recognize the cost of the purchased (either by the transfer of consideration or the assumption of liabilities in excess of assets acquired) collection items as a decrease in the appropriate class of net assets in the statement of activities and as a cash outflow for investing activities

b. Not recognize the fair value of contributed collection items--either as an asset or as contribution revenue.

Paragraphs A86-A92 provide guidance on determining whether an acquired collection item is purchased or contributed and, if purchased, the appropriate amount of cost to attribute to them. An acquired item that is not added to the acquirer's collection shall be recognized as an asset and measured at fair value in accordance with this Statement.

Conditional promises to give

40. An acquirer shall apply the guidance in paragraphs 22 and 23 of Statement 116 to account for conditional promises to give, which requires the acquirer to:

a. Recognize a conditional promise only if the conditions on which it depends are substantially met as of the acquisition date

b. Recognize a transfer of assets with a conditional promise to contribute them as a refundable advance unless the conditions have been substantially met as of the acquisition date.

Exceptions to bath the Recognition and Measurement Principles

Assets and liabilities arising from contingencies

41. The acquirer shall recognize as of the acquisition date assets acquired and liabilities assumed that would be within the scope of FASB Statement No. 5, Accounting for Contingencies, if not acquired or assumed in a business combination, except for assets or liabilities arising from contingencies that are subject to Specific guidance in this Statement, as follows:

a. If the acquisition-date fair value of the asset or liability arising from a contingency can be determined during the measurement period, that asset or liability shall be recognized at the acquisition date measured at fair value. For example, the acquisition-date fair value of a warranty obligation often can be determined.

b. If the acquisition-date fair value of the asset or liability arising from a contingency cannot be determined during the measurement period, an asset or liability shall be recognized at the acquisition date if both of the following criteria are met:

(1) Information available before the end of the measurement period indicates that it is probable that an asset existed or that a liability had been incurred at the acquisition date. It is implicit in this condition that it must be probable at the acquisition date that one or more future events confirming the existence of the asset or liability will occur.

(2) The amount of the asset or liability can be reasonably estimated.

Criteria (1) and (2) shall be applied using the guidance in Statement 5 and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss, for application of similar criteria in paragraph 8 of Statement 5.

If neither criterion (a) nor criterion (b) is met at the acquisition date using information that is available during the measurement period about facts and circumstances that existed as of the acquisition date, the acquirer shall not recognize an asset or liability as of the acquisition date. In periods after the acquisition date, the acquirer shall account for an asset or a liability arising from a contingency that does not meet the recognition criteria at the acquisition date in accordance with other applicable GAAP, including Statement 5, as appropriate. 42. Contingent consideration arrangements of an acquiree assumed by the acquirer in an acquisition shall be recognized initially at fair value in accordance with the guidance for contingent consideration arrangements in paragraph 58.

Income taxes

43. The acquirer shall recognize and measure a deferred tax asset or liability arising from the assets acquired and liabilities assumed in an acquisition in accordance with FASB Statement No. 109, Accounting for Income Taxes, as amended.

44. The acquirer shall account for the potential tax effects of temporary differences, carryforwards, and any income tax uncertainties of an acquiree that exist at the acquisition date or that arise as a result of the acquisition in accordance with Statement 109, as amended, and related interpretative guidance, including FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes.

Employee benefits

45. The acquirer shall recognize and measure a liability (or asset, if any) related to the acquiree's employee benefit arrangements in accordance with other GAAP, as amended. For example, employee benefits in the scope of the following standards would be recognized and measured in accordance with those standards:

a. APB Opinion No. 12, Omnibus Opinion--1967 (deferred compensation contracts)

b. FASB Statement No. 43, Accounting for Compensated Absences

c. FASB Statement No. 87, Employers' Accounting for Pensions

d. FASB Statement No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits

e. FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions f. FASB Statement No. 112, Employers' Accounting for Postemployment Benefits

g. FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (one-time termination benefits)

h. FASB Statement No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans.

Indemnification assets

46. The seller in an acquisition by a not-for-profit entity may contractually indemnify the acquirer for the outcome of a contingency or uncertainty related to all or part of a specific asset or liability. For example, the seller may indemnify the acquirer against losses above a specified amount on a liability arising from a particular contingency; in other words, the seller will guarantee that the acquirer's liability will not exceed a specified amount. As a result, the acquirer obtains an indemnification asset. The acquirer shall recognize an indemnification asset at the same time that it recognizes the indemnified item, measured on the same basis as the indemnified item, subject to the need for a valuation allowance for uncollectible amounts. Therefore, if the indemnification relates to an asset or a liability that is recognized at the acquisition date and measured at its acquisition-date fair value, the acquirer shall recognize the indemnification asset at the acquisition date measured at its acquisition-date fair value. For an indemnification asset measured at fair value, the effects of uncertainty about future cash flows because of collectibility considerations are included in the fair value measure, and a separate valuation allowance is not necessary (paragraph A93).

47. In some circumstances, the indemnification may relate to an asset or a liability that is an exception to the recognition or measurement principles. For example, an indemnification may relate to a contingency that is not recognized at the acquisition date because it does not satisfy the criteria for recognition in paragraph 41 at that date. Alternatively, an indemnification may relate to an asset or a liability, for example, one that results from an uncertain tax position, that is measured on a basis other than acquisition-date fair value (paragraphs 43 and 44). In those circumstances, the indemnification asset shall be recognized and measured using assumptions consistent with those used to measure the indemnified item, subject to management's assessment of the collectibility of the indemnification asset and any contractual limitations on the indemnified amount. Paragraph 79 provides guidance on the subsequent accounting for an indemnification asset.

Exceptions to the Measurement Principle

Reacquired rights

48. The acquirer shall measure the value of a reacquired right recognized as an intangible asset in accordance with paragraph A52 on the basis of the remaining contractual term of the related contract regardless of whether market participants would consider potential contractual renewals in determining its fair value. Paragraphs A52 and A53 provide additional recognition guidance. Paragraph 77 provides guidance on the subsequent measurement of reacquired rights.

Assets held for sale

49. At the acquisition date, the acquirer shall measure an acquired long-lived asset (or disposal group) that is classified as held for sale in accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, at fair value less cost to sell in accordance with paragraphs 34 and 35 of that Statement.

Recognizing and Measuring Goodwill Acquired or a Contribution Received

Goodwill Acquired

50. Unless the operations of the acquiree as part of the combined entity are expected to be predominantly supported by contributions and returns on investments (paragraphs 51 and 52), the acquirer shall recognize goodwill as of the acquisition date, measured as the excess of (a) over (b) below:

a. The aggregate of:

(1) The consideration transferred measured at its acquisition-date fair value (paragraph 56)

(2) The fair value of any noncontrolling interest in the acquiree

(3) In an acquisition achieved in stages, the acquisition-date fair value of the acquirer's previously held equity interest in the acquire.

b. The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this Statement.

51. If the operations of the acquiree as part of the combined entity are expected to be predominantly supported by contributions and returns on investments, the acquirer shall recognize an excess of the amount in paragraph 50(a) over the amount in paragraph 50(b) as a separate charge in its statement of activities as of the acquisition date rather than as goodwill. Predominantly supported by means that contributions and returns on investments are expected to be significantly more than the total of all other sources of revenues.

52. An acquirer shall consider all relevant qualitative and quantitative factors in determining the expected nature of the predominant source of support for an acquiree's operations as part of the combined entity For example, an acquirer shall consider qualitative and quantitative information about all forms of contributed support, including contributions that are precluded from being recognized or are not required to be recognized in the financial statements (such as certain contributed services and collection items and conditional promises to give). Paragraph 71 provides guidance on presenting the separate charge in the statement of activities.

53. In some acquisitions by not-for-profit entities, no consideration is transferred (and items 50(a)(2) and 50(a)(3) also are not present). In that situation, the result of the equation in paragraph 50 will be to measure goodwill or the separate charge to the statement of activities as the excess of liabilities assumed over assets acquired.

Contribution Received

54. The acquirer shall recognize an excess of the amount in paragraph 50(b) over the amount in paragraph 50(a) as a separate credit in its statement of activities as of the acquisition date. (4)

55. In an acquisition effected without the transfer of consideration (and in which items 50(a)(2) and 50(a)(3) also are not present), the excess amount will be the excess of assets acquired over liabilities assumed (also see paragraph 53). Paragraph 72 provides guidance on reporting the separate credit (an inherent contribution received) in the statement of activities.

Consideration Transferred

56. The consideration transferred in an acquisition by a not-for-profit entity shall be measured at fair value, which shall be calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer and the liabilities incurred by the acquirer. The acquirer might transfer consideration to the former owner of the acquiree or to a designee of the former owner. The acquirer also might receive assistance from an unrelated third party, which shall be taken into account in measuring consideration transferred. (Paragraphs A107 and A108 provide an example of assistance received from a third party.) Examples of potential forms of consideration include cash, other assets, a business or a nonprofit activity of the acquirer, and contingent consideration (paragraph 58).

57. An asset transferred by the acquirer to an unrelated third party as a required condition of an acquisition shall be accounted for as consideration transferred for the acquiree unless the acquirer retains control over the transferred assets. An acquirer that retains control over the transferred assets shall measure those assets and liabilities at their carrying amounts immediately before the acquisition date and shall not recognize a gain or loss in the statement of activities on assets or liabilities it controls both before and after the acquisition. Examples of asset transfers in which control over the future economic benefits of the transferred assets is retained by the acquirer include the following:

a. The assets are transferred to the acquiree rather than to its former owners or are otherwise transferred to a recipient that is controlled by the acquirer. By virtue of its control over the recipient, the acquiring entity has the ability to revoke the transfer or to direct the use of the assets to itself or an affiliate.

b. The asset transfer is otherwise revocable, repayable, or refundable.

c. The assets are transferred with the stipulation that they he used on behalf of, or for the benefit of, the acquiree, the acquirer, the consolidated entity, or their affiliates. Paragraphs A100 and A101 illustrate an asset transfer in which the acquirer retains control over the future economic benefits after the acquisition.

Contingent consideration

58. The consideration the acquirer transfers in exchange for the acquiree includes any asset or liability resulting from a contingent consideration arrangement (paragraph 3(i)). The acquirer shall recognize the acquisition-date fair value of contingent consideration as part of the consideration transferred in exchange for the acquiree. Paragraph 80 provides guidance on the subsequent measurement of contingent consideration.

Additional Guidance for Applying the Acquisition Method

An Acquisition Achieved in Stages

59. An acquirer sometimes obtains control of an acquiree in which it held an equity interest immediately before the acquisition date. For example, on December 31, 20X1, Entity A holds a 35 percent noncontrolling equity interest in Entity B. On that date, Entity A purchases an additional 40 percent interest in Entity B, which gives it control of Entity B. This Statement refers to such a transaction as an acquisition achieved in stages, sometimes also referred to as a step acquisition.

60. In an acquisition achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree (in the example in paragraph 59, the 35 percent noncontrolling equity interest in Entity B) at its acquisition-date fair value and recognize the resulting gain or loss, if any, in the statement of activities. An entity subject to the health care Guide shall include the gain or loss in the performance indicator. In prior reporting periods, an acquirer that is subject to the health care Guide may have recognized changes in the value of its equity interest in the acquiree outside the performance indicator (for example, because the investment was classified as other than trading). If so, the amount that was recognized outside the performance indicator shall be reclassified and included in the calculation of gain or loss on the previously held equity interest as of the acquisition date.

Measurement Period

61. If the initial accounting for an acquisition is incomplete by the end of the reporting period in which the acquisition occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. During the measurement period, the acquirer also shall recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends as soon as the acquirer receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. However, the measurement period shall not exceed one year from the acquisition date.

62. The measurement period is the period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for the acquisition. The measurement period provides the acquirer with a reasonable time to obtain the information necessary to identify and measure the following as of the acquisition date in accordance with the requirements of this Statement:

a. The identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree

b. The consideration transferred for the acquiree

c. In an acquisition achieved in stages, the equity interest in the acquiree previously held by the acquirer

d. The resulting goodwill recognized in accordance with paragraph 50 (or the charge to the statement of activities in accordance with paragraph 51) or the contribution received recognized in accordance with paragraph 54.

63. The acquirer shall consider all pertinent factors in determining whether information obtained after the acquisition date should result in an adjustment to the provisional amounts recognized or whether that information results from events that occurred after the acquisition date. Pertinent factors include the time at which additional information is obtained and whether the acquirer can identify a reason for a change to provisional amounts. Information that is obtained shortly after the acquisition date is more likely to reflect circumstances that existed at the acquisition date than is information obtained several months later. For example, unless an intervening event that changed its fair value can be identified, the sale of an asset to a third party shortly after the acquisition date for an amount that differs significantly from its provisional fair value determined at that date is likely to indicate an error in the provisional amount.

64. The acquirer recognizes an increase (decrease) in the provisional amount recognized for an identifiable asset (liability) by means of a decrease (increase) in goodwill or by a direct credit (charge) to the statement of activities if goodwill is not recognized as an asset in accordance with paragraph 51. However, new information obtained during the measurement period sometimes may result in an adjustment to the provisional amount of more than one asset or liability. For example, the acquirer might have assumed a liability to pay damages related to an accident in one of the acquiree's facilities, part or all of which are covered by the acquiree's liability insurance policy. If the acquirer obtains new information during the measurement period about the acquisition-date fair value of that liability, the adjustment to goodwill resulting from a change to the provisional amount recognized for the liability would be offset (in whole or in part) by a corresponding adjustment to goodwill resulting from a change to the provisional amount recognized for the claim receivable from the insurer.

65. During the measurement period, the acquirer shall recognize adjustments to the provisional amounts as if the accounting for the acquisition had been completed at the acquisition date. Thus, the acquirer shall revise comparative information for prior periods presented in financial statements as needed, including making any change in depreciation, amortization, or other income effects recognized in completing the initial accounting. Paragraphs A102-A105 provide additional guidance.

66. After the measurement period ends, the acquirer shall revise the accounting for an acquisition only to correct an error in accordance with Statement 154.

Determining What Is Part of the Acquisition Transaction

67. The acquirer and the acquiree may have a preexisting relationship or other arrangement before negotiations for the acquisition began, or they may enter into an arrangement during the negotiations that is separate from the acquisition. In either situation, the acquirer shall identify any amounts that are not part of what the acquirer and the acquiree (or its former owners) exchanged in the acquisition, that is, amounts that are not part of the exchange for the acquiree. The acquirer shall recognize as part of applying the acquisition method only the consideration transferred for the acquiree. Separate transactions shall be accounted for in accordance with the relevant GAAP.

68. A transaction entered into by or on behalf of the acquirer or primarily for the benefit of the acquirer or the combined entity, rather than primarily for the benefit of the acquiree (or its former owners) before the combination, is likely to be a separate transaction. The following are examples of separate transactions that are not to be included in applying the acquisition method:

a. A transaction that in effect settles preexisting relationships between the acquirer and acquiree (paragraphs A109-A116)

b. A transaction that compensates employees or former owners of the acquiree for future services (paragraphs Al17-A121)

c. A transaction that reimburses the acquiree or its former owners for paying the acquirer's acquisition-related costs (paragraph 69)

d. A payment by a former owner of an acquired business that is unrelated to the acquiree, such as a contribution to fund activities of the acquirer or its affiliates that are unrelated to those of the acquiree. Those contributions made should be accounted for in accordance with Statement 116.

Paragraphs A106-A108 provide additional guidance for determining whether a transaction is separate from the acquisition transaction.

Acquisition-related costs

69. Acquisition-related costs are costs the acquirer incurs to effect an acquisition. Those costs include finder's fees; advisory, legal, accounting, valuation, and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt securities shall be recognized in accordance with other applicable GAAP.

Presentation

70. The financial statements of the acquirer (the combined entity) shall report an acquisition as activity of the period in which it occurs.

Statement of Activities

71. The acquirer shall report the excess amount in paragraph 51 as a separate line item on the face of its statement of activities, appropriately described, for example, as "excess of consideration paid over net assets acquired in acquisition of Entity AB" (or as "excess of liabilities assumed over assets acquired in acquisition of Entity AB"). Paragraph A125 illustrates one way an acquirer might present that amount in its statement of activities. If the acquirer is within the scope of the health care Guide, the separate charge recognized in accordance with paragraph 51 shall be presented within the performance indicator.

72. The acquirer shall report the excess amount in paragraph 54 in a separate line item on the face of the statement of activities, appropriately described, for example, as "excess of assets acquired over liabilities assumed in donation of Entity XY" or as "contribution received in donation of Entity XY." In another situation, that excess might be described as "excess of fair value of net assets acquired over consideration paid in acquisition of Entity XY." If the acquirer is within the scope of the health care Guide, whether the recognized contribution received is presented within or outside the performance indicator depends on whether the contribution is unrestricted or restricted. An unrestricted contribution shall be presented within the performance indicator. A contribution that is either temporarily restricted or permanently restricted shall be presented outside the performance indicator.

73. The acquirer shall classify an inherent contribution received presented in accordance with paragraph 72 on the basis of the type of restrictions imposed on the related net assets. In classifying those net assets, an acquirer shall:

a. Include restrictions imposed on the net assets of the acquiree by a donor before the acquisition and those imposed by the donor of the business or nonprofit activity acquired, if any, in accordance with paragraph 14 of Statement 116

b. Report donor-restricted contributions as restricted support even if the restrictions are met in the same reporting period in which the acquisition occurs. That is, the acquirer shall not apply the reporting exception in paragraph 14 of Statement 116 to restricted net assets acquired in an acquisition.

Thus, the contribution received may increase permanently restricted net assets, temporarily restricted net assets, unrestricted net assets, or some combination of those items. Paragraphs A127-A130 illustrate the application of this paragraph's guidance on reporting donor restrictions on a contribution received.

74. An acquirer that transfers assets as consideration for an acquired nonprofit activity or business shall assess whether that transaction satisfies a donor-imposed restriction or otherwise results in a change in its net asset classifications. For example:

a. Transferring consideration in an acquisition might satisfy a donor-imposed restriction on the acquirer's net assets that were restricted for acquisition of land, buildings, works of art, or other long-lived assets if the acquiree has the qualifying assets. If so, the acquirer may either report the expiration of those restrictions separately or aggregate and report them together with other similar expirations of donor-imposed restrictions during the period in which the acquisition occurs.

b. The acquirer shall report other changes to its net asset classifications separately from both any other reclassifications and any expiration of those restrictions during the period in which the acquisition occurs. For example, an acquirer that transfers as consideration its unrestricted assets and acquires assets from the acquiree that have permanent or temporary donor restrictions shall recognize a reclassification in its statement of activities.

Statement of Cash Flows

75. The acquirer shall present the following cash inflows and outflows and noncash items related to an acquisition in the statement of cash flows:

a. The entire amount of any net cash flow (cash paid as consideration, if any, less acquired cash of the acquiree) shall be reported as an investing activity.

b. Noncash contributions received and any other noncash amounts received or transferred shall be reported in related disclosures as noncash activities in accordance with paragraph 32 of FASB Statement No. 95, Statement of Cash Flows. Paragraphs A131-A133 illustrate those requirements.

Subsequent Measurement

76. In general, an acquirer shall subsequently measure and account for assets acquired and liabilities assumed or incurred in an acquisition in accordance with other applicable GAAP for those items, depending on their nature (paragraphs 82-84). However, this Statement provides guidance on subsequently measuring and accounting for the following assets acquired and liabilities assumed or incurred in an acquisition:

a. Reacquired rights

b. Assets and liabilities arising from contingencies recognized as of the acquisition date

c. Indemnification assets

d. Contingent consideration

e. Contingent consideration arrangements assumed by the acquirer.

Reacquired Rights

77. A reacquired right recognized as an intangible asset in accordance with paragraph A52 shall be amortized over the remaining contractual period of the contract in which the right was granted. An acquirer that subsequently sells a reacquired right to a third party shall include the carrying amount of the intangible asset in determining the gain or loss on the sale.

Assets and Liabilities Arising from Contingencies

78. An acquirer shall develop a systematic and rational basis for subsequently measuring and accounting for assets and liabilities arising from contingencies, depending on their nature.

Indemnification Assets

79. At each subsequent reporting date, the acquirer shall measure an indemnification asset that was recognized in accordance with paragraphs 46 and 47 at the acquisition date on the same basis as the indemnified liability or asset, subject to any contractual limitations on its amount and, for an indemnification asset that is not subsequently measured at its fair value, management's assessment of the collectibility of the indemnification asset. The acquirer shall derecognize the indemnification asset only when it collects the asset, sells it, or otherwise loses the right to it.

Contingent Consideration

80. Some changes in the fair value of contingent consideration and contingent consideration arrangements assumed from an acquiree that the acquirer recognizes after the acquisition date may be the result of additional information about facts and circumstances that existed at the acquisition date that the acquirer obtained after that date. Such changes are measurement period adjustments in accordance with paragraphs 61-65. However, changes resulting from events after the acquisition date, such as meeting an earnings or other performance target, reaching a specified share price, or reaching a milestone on a research and development project, are not measurement period adjustments. The acquirer shall account for such changes by remeasuring the related asset or liability to fair value at each reporting date until the contingency is resolved and recognizing the changes in fair value in the statement of activities. An entity subject to the health care Guide shall recognize the changes within the performance indicator unless the arrangement is a hedging instrument for which Statement 133, in effect, requires such entities to recognize the changes outside the performance indicator.

Contingent Consideration Arrangements Assumed by an Acquirer

81. Contingent consideration arrangements of an acquiree assumed by the acquirer shall be measured subsequently in accordance with the guidance for contingent consideration arrangements in paragraph 80.

Goodwill and Other Intangible Assets Acquired in an Acquisition

82. A not-for-profit entity shall apply Statement 142, as amended, in subsequently accounting for goodwill and other intangible assets recognized in an acquisition of a business or a nonprofit activity. (5)

Ownership Interests in Subsidiaries

83. A not-for-profit entity shall apply ARB 51, as amended by Statement 160 and this Statement, in accounting for changes in a parent's ownership interest in a subsidiary after control is obtained. (6)

Other Statements That Provide Guidance on Subsequent Measurement

84. Examples of other Statements that provide guidance on subsequently measuring and accounting for assets acquired and liabilities assumed or incurred in an acquisition include:

a. The following Statements provide guidance on the subsequent accounting for an insurance or reinsurance contract acquired:

(1) Statement 60

(2) FASB Statement No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments

(3) FASB Statement No. 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts

(4) FASB Statement No. 120, Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration Participating Contracts. b. Statement 109, as amended, prescribes the subsequent accounting for deferred tax assets (including valuation allowances) and liabilities acquired.

Disclosures for an Acquisition

85 The acquirer shall disclose information that enables users of its financial statements to evaluate the nature and financial effect of an acquisition that occurs either:

a. During the current reporting period; or

b. After the reporting date but before the financial statements are issued or are available to be issued.

86. To meet the objective in paragraph 85, the acquirer shall disclose the following information for each acquisition that occurs during the reporting period:

a. The name and a description of the acquiree.

b. The acquisition date.

c. If applicable, the percentage of ownership interests, such as voting equity instruments, acquired.

d. The primary reasons for the acquisition and a description of how the acquirer obtained control of the acquiree.

e. A qualitative description of the factors, such as expected synergies from combining operations of the acquiree and the acquirer, intangible assets that do not qualify for separate recognition, or other factors, such as the nonrecognition of collections, that make up either:

(1) The goodwill recognized; or

(2) The separate charge recognized in the statement of activities in accordance with paragraph 51.

f. The acquisition-date fair value of the total consideration transferred (or if no consideration was transferred, that fact) and the acquisition-date fair value of each major class of consideration, such as:

(1) Cash

(2) Other tangible or intangible assets, including a business or subsidiary of the acquirer

(3) Liabilities incurred, for example, a liability for contingent consideration. g. For contingent consideration arrangements and indemnification assets:

(1) The amount recognized as of the acquisition date

(2) A description of the arrangement and the basis for determining the amount of the payment

(3) An estimate of the range of outcomes (undiscounted) or, if a range cannot be estimated, that fact and the reasons why a range cannot be estimated. If the maximum amount of the payment is unlimited, the acquirer shall disclose that fact. h. For acquired receivables not subject to the requirements of AICPA Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer:

(1) The fair value of the receivables

(2) The gross contractual amounts receivable

(3) The best estimate at the acquisition date of the contractual cash flows not expected to be collected.

The disclosures shall be provided by major class of receivable, such as loans, contributions, direct finance leases in accordance with Statement 13, and any other class of receivables.

i. The amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed.

j. For assets and liabilities arising from contingencies recognized at the acquisition date:

(1) The amounts recognized at the acquisition date and the measurement basis applied (that is, at fair value or at an amount recognized in accordance with Statement 5 and Interpretation 14)

(2) The nature of the contingencies.

An acquirer may aggregate disclosures for assets and liabilities arising from contingencies that are similar in nature.

k. For assets and liabilities arising from contingencies that have not been recognized at the acquisition date, the disclosures required by Statement 5 if the criteria for disclosures in that Statement are met. The disclosures, if any, required by this paragraph and by paragraph 86(j) shall be included in the note that describes the acquisition.

1. The total amount of goodwill that is expected to be deductible for tax purposes.

m. The amount of collection items acquired that are recognized in the statement of activities as a decrease in the acquirer's net assets in accordance with paragraph 39.

n. The undiscounted amount of conditional promises to give acquired or assumed and a description and the amount of each group of promises with similar characteristics, such as amounts of promises conditioned on establishing new programs, completing a new building, or raising matching gifts by a specified date.

o. For transactions that are recognized separately from the acquisition of assets and assumptions of liabilities in the acquisition (paragraph 67):

(1) A description of each transaction

(2) How the acquirer accounted for each transaction

(3) The amounts recognized for each transaction and the line item in the financial statements in which each amount is recognized

(4) If the transaction is the effective settlement of a preexisting relationship, the method used to determine the settlement amount.

p. The disclosure of separately recognized transactions required by paragraph 86(o) shall include the amount of acquisition-related costs, the amount recognized as an expense, and the line item or items in the statement of activities in which that expense is recognized. The amount of any issuance costs not recognized as an expense and how they were recognized also shall be disclosed.

q. If the acquisition results in an inherent contribution received, a description of the reasons that the transaction resulted in a contribution received (paragraphs 54 and 55).

r. For each acquisition in which the acquirer holds less than 100 percent of the equity interests in the acquiree at the acquisition date:

(1) The fair value of the noncontrolling interest in the acquiree at the acquisition date

(2) The valuation technique(s) and significant inputs used to measure the fair value of the noncontrolling interest.

s. In an acquisition achieved in stages:

(1) The acquisition-date fair value of the equity interest in the acquiree held by the acquirer immediately before the acquisition date

(2) The amount of any gain or loss recognized as a result of remeasuring to fair value the equity interest in the acquiree held by the acquirer before the acquisition (paragraph 60) and the line item in the statement of activities in which that gain or loss is recognized.

t. If the acquirer is a public entity as defined in paragraph 3(w):

(1) Each of the following amounts attributable to the acquiree since the acquisition date that are included in the statement of activities for the reporting period:

(a) Revenues

(b) For an entity subject to the health care Guide, the performance indicator

(c) Changes in unrestricted net assets, changes in temporarily restricted net assets, and changes in permanently restricted net assets.

(2) The following supplemental pro forma information for the current reporting period as though the acquisition date for all acquisitions that occurred during the current year had been the beginning of the annual reporting period:

(a) The revenue of the combined entity

(b) For an entity subject to the health care Guide, the performance indicator

(c) Changes in unrestricted net assets, changes in temporarily restricted net assets, and changes in permanently restricted net assets.

(3) If the acquirer presents comparative financial statements, the supplemental pro forma information in paragraph 86(t)(2)(a)-(c) for the comparable prior reporting period as though the acquisition date for all acquisitions that occurred during the current year had been the beginning of the comparable prior annual reporting period.

If disclosure of any of the information required by this subparagraph is impracticable, the acquirer shall disclose that fact and explain why the disclosure is impracticable. (Paragraph 18(f) indicates that this Statement uses the term impracticable with the same meaning as impracticability in paragraph 11 of Statement 154.)

87. For individually immaterial acquisitions occurring during the reporting period that are material collectively, the acquirer shall disclose the information required by paragraph 86(e)-(t) in the aggregate.

88. If the date of an acquisition is after the reporting date but before the financial statements are issued or available for issue, the acquirer shall disclose the information required by paragraph 86 unless the initial accounting for the acquisition is incomplete at the time the financial statements are issued or are available to be issued. In that situation, the acquirer shall describe which disclosures could not be made and the reason that they could not be made.

89. The acquirer shall disclose information that enables users of its financial statements to evaluate the financial effects of adjustments recognized in the current reporting period that relate to acquisitions that occurred in the current or previous reporting periods.

90. To meet the objective in paragraph 89, the acquirer shall disclose the following information for each material acquisition or in the aggregate for individually immaterial acquisitions that are material collectively:

a. If the initial accounting for an acquisition is incomplete (paragraph 61) for particular assets, liabilities, noncontrolling interests, or items of consideration and the amounts recognized in the financial statements for the acquisition thus have been determined only provisionally:

(1) The reasons that the initial accounting is incomplete

(2) The assets, liabilities, equity interests, or items of consideration for which the initial accounting is incomplete

(3) The nature and amount of any measurement period adjustments recognized during the reporting period in accordance with paragraph 61.

b. For each reporting period after the acquisition date until the entity collects, sells, or otherwise loses the right to a contingent consideration asset, or until the entity settles a contingent consideration liability or the liability is cancelled or expires:

(1) Any changes in the recognized amounts, including any differences arising upon settlement

(2) Any changes in the range of outcomes (undiscounted) and the reasons for those changes

(3) The disclosures required by paragraph 32 of Statement 157.

c. A reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period as required by Statement 142, as amended.

91. If the specific disclosures required by this Statement and other GAAP do not meet the objectives set out in paragraphs 85 and 89, the acquirer shall disclose whatever additional information is necessary to meet those objectives.

EFFECTIVE DATE AND TRANSITION

92. This Statement shall be applied prospectively to:

a. Mergers for which the merger date is on or after the beginning of an initial reporting period beginning on or after December 15, 2009

b. Acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2009.

Earlier application is prohibited. This Statement shall be applied in both annual and interim periods after its effective date.

93. A not-for-profit entity shall apply the following standards prospectively in the first set of initial or annual financial statements for a reporting period beginning on or after December 15, 2009:

a. Statement 142's requirements on subsequent accounting for goodwill and other intangible assets acquired in an acquisition (Statement 142 refers to assets acquired in a business combination)

b. The amendments Statement 160 made to ARB 51 and to other existing pronouncements

c. The amendments Appendix D of this Statement makes to ARB 51 on disclosure and presentation of noncontrolling interests

d. The amendments Statement 141(R) made to existing pronouncements.

94. Except for goodwill as indicated in paragraphs 95 and 97 and other intangible assets as indicated in paragraph 100, assets and liabilities that arose from mergers or acquisitions whose dates preceded the application of this Statement shall not be adjusted upon application of this Statement.

Transition for Previously Recognized Goodwill

95. An entity that is predominantly supported by contributions and returns on investments shall write off previously recognized goodwill by a separate charge in the statement of activities for the effect of the accounting change. That charge shall be presented as required by paragraphs 98 and 99.

96. An entity that is not predominantly supported by contributions and returns on investments shall establish its reporting units on the basis of the guidance in paragraph 54 of Statement 142 as follows:
 At the date this Statement is initially
 applied, an entity shall establish its reporting
 units based on its reporting structure at
 that date and the guidance in paragraphs 30
 and 31 [of Statement 142]. Recognized net
 assets, excluding goodwill, shall be
 assigned to those reporting units using the
 guidance in paragraphs 32 and 33 [of
 Statement 142]. Recognized assets and liabilities
 that do not relate to a reporting unit,
 such as an environmental liability for an
 operation previously disposed of, need not
 be assigned to a reporting unit. All goodwill
 recognized in an entity's statement of financial
 position at the date this Statement is initially
 applied shall be assigned to one or
 more reporting units. Goodwill shall be
 assigned in a reasonable and supportable
 manner. The sources of previously recognized
 goodwill shall be considered in making
 that initial assignment as well as the
 reporting units to which the related
 acquired net assets were assigned. The guidance
 in paragraphs 34 and 35 [of Statement
 142] may be useful in assigning goodwill to
 reporting units upon initial application of
 this Statement.


That guidance sometimes may result in a single reporting unit for the entire entity.

97. After establishing its reporting units, an entity that is not predominantly supported by contributions and returns on investments shall subject previously recognized goodwill in each reporting unit to the transitional impairment evaluation required by paragraphs 55-58 of Statement 142, as follows:
 Goodwill in each reporting unit shall be
 tested for impairment as of the beginning
 of the fiscal year in which this Statement is
 initially applied in its entirety (in accordance
 with paragraphs 19-21 [of Statement 142]).
 An entity has six months from the date it initially
 applies this Statement to complete the
 first step of that transitional goodwill
 impairment test. However, the amounts
 used in the transitional goodwill impairment
 test shall be measured as of the beginning
 of the year of initial application. If the
 carrying amount of the net assets of a reporting
 unit (including goodwill) exceeds the
 fair value of that reporting unit, the second
 step of the transitional goodwill impairment
 test must be completed as soon as possible,
 but no later than the end of the year of initial
 application.

 An impairment loss recognized as a
 result of a transitional goodwill impairment
 test shall be recognized as the effect of a
 change in accounting principle. The effect
 of the accounting change and related
 income tax effects shall be presented in the
 [statement of activities] between the captions
 extraordinary items and [change in net
 assets]....

 If events or changes in circumstances
 indicate that goodwill of a reporting unit
 might be impaired before completion of the
 transitional goodwill impairment test,
 goodwill shall be tested for impairment
 when the impairment indicator arises (refer
 to paragraph 28 [of Statement 142]). A
 goodwill impairment loss that does not
 result from a transitional goodwill impairment
 test shall not be recognized as the
 effect of a change in accounting principle;
 rather it shall be recognized in accordance
 with paragraph 43 [of Statement 142].

 In addition to the transitional goodwill
 impairment test, an entity shall perform the
 required annual goodwill impairment test
 in the year that this Statement is initially
 applied in its entirety. That is, the transitional
 goodwill impairment test may not be considered
 the initial year's annual test unless
 an entity designates the beginning of its fiscal
 year as the date for its annual goodwill
 impairment test.


98. An entity shall present a write-off of goodwill in accordance with paragraph 95 or an impairment loss recognized as a result of a transitional goodwill impairment evaluation, and the related income tax effects, if any, in a separate line item in the statement of activities. A not-for-profit entity shall present that transitional impairment loss outside a performance indicator or any intermediate measure of operations, if one is presented.

99. An entity that reports on an interim basis shall recognize a write-off of goodwill or a transitional impairment loss for goodwill in the first interim period regardless of the period in which an impairment loss is measured. Interim periods of the fiscal year that precede the period in which the write-off of goodwill or transitional goodwill impairment loss is measured shall be restated to reflect the accounting change in those periods. The aggregate amount of the accounting change shall be included in restated changes in net assets of the first interim period of the year of initial application (and in any year-to-date or last-12-months-to-date financial reports that include the first interim period). Whenever financial information is presented that includes the periods that precede the period in which the transitional goodwill impairment loss is measured, it shall be restated.

Transition for Previously Recognized Intangible Assets Other Than Goodwill Acquired in a Purchase Accounted for under Opinion 16

100. An entity that previously recognized intangible assets other than goodwill in a transaction accounted for using the purchase method in APB Opinion No. 16, Business Combinations, shall reassess the useful lives of those intangible assets using the guidance in paragraph 11 of Statement 142 and adjust the remaining amortization periods as necessary. For example, the amortization period for a previously recognized intangible asset might be increased if its original useful life was estimated to be longer than the 40-year maximum amortization period allowed by APB Opinion No. 17, Intangible Assets. That reassessment shall be completed before the end of the first interim period of the fiscal year in which this Statement is initially applied. The entity shall test previously recognized intangible assets deemed to have indefinite useful lives for impairment as of the beginning of the fiscal year in which this Statement is initially applied in accordance with paragraph 17 of Statement 142. That transitional intangible asset impairment test shall be completed in the first interim period in which this Statement is initially applied, and any resulting impairment loss shall be recognized as the effect of a change in accounting principle. A not-for-profit entity shall present that transitional impairment loss, net of any related income tax effects, in a separate line item outside a performance indicator or any intermediate measure of operations, if one is presented.

Income Taxes

101. For acquisitions of businesses or nonprofit activities in which the acquirer is subject to taxes on portions of its income and the acquisition date was before the effective date of this Statement, the acquirer shall apply the requirements of Statement 109, as amended, prospectively That is, the acquirer shall not adjust the accounting for prior acquisitions for previously recognized changes in acquired tax uncertainties or previously recognized changes in the valuation allowance for acquired deferred tax assets. However, after the effective date of this Statement:

a. The acquirer shall recognize, as an adjustment to income tax expense (or a direct adjustment to contributed capital in accordance with paragraph 26 of Statement 109), changes in the valuation allowance for acquired deferred tax assets.

b. The acquirer shall recognize changes in the acquired income tax positions in accordance with Interpretation 48, as amended.

The provisions of this Statement need not be applied to immaterial items.

This Statement was adopted by the affirmative votes of four members of the Financial Accounting Standards Board. Mr. Siegel abstained.

Robert H. Herz, Chairman

Thomas J. Linsmeier

Leslie F. Seidman

Marc A. Siegel

Lawrence W. Smith

(1.) See paragraphs 8-14 of SOP 94-3 for related guidance.

(2.) The remainder of the discussion of the carryover method refers to financial statements of the merging entities, rather than a more precise, but longer, phrase such as assets and liabilities that would be recognized in the financial statements of the merging entities if statements are prepared. Use of the shorter phrase is not intended to exclude, for example, a not-for-profit entity that has not prepared or issued financial statements. In that situation, the phrase refers to the items in the entity's financial records that would be the basis for preparing financial statements.

(3.) For ease of reference and also because the immediate charge in accordance with paragraph 51 is the same amount that otherwise would be recognized as goodwill, subsequent guidance generally refers to recognizing identifiable assets or liabilities separately from goodwill without referring explicitly to the immediate charge. Those references should be understood to include the immediate charge in accordance with paragraph 51.

(4.) For ease of reference in subsequent guidance and discussion, this Statement generally refers to an excess of the amount in paragraph 50(b) over the amount in paragraph 50(a) as a contribution received, which in most situations is consistent with its nature. However, as indicated in paragraph 72, an acquirer may choose to refer to that amount in other terms.

(5) Statement 141(R) amended Statement 142 to require the acquirer to (among other things):

a. Recognize intangible assets used in research and development activities, regardless of whether those assets have an alternative future use

b. Classify research and development intangible assets as indefinite-lived until the completion or abandonment of the associated research and development efforts. Appendix E, which amends other existing pronouncements for the provisions of this Statement, amends Statement 142 to make applicable to not-for-profit entities provisions for goodwill and other intangible assets acquired in an acquisition by a not-for-profit entity In addition, paragraph 93 of this Statement makes Statement 141(R)'s amendments to other pronouncements effective for not-for-profit entities.

(6) Appendix E amends ARB 51 to make Statement 160's amendments to ARB 51 and other pronouncements apply to not-for-profit entities.
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Publication:Journal of Accountancy
Date:Aug 1, 2009
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