Estimated study time: 55 minutes
Content:
Business combinations (ASC 805): Acquisition method required for all combinations (pooling-of-interests eliminated). Acquirer recognizes 100% of identifiable assets acquired and liabilities assumed at fair value on the acquisition date. Goodwill = consideration transferred + fair value of NCI + fair value of previously held equity interest − fair value of net identifiable assets. Bargain purchase: gain recognized immediately. Transaction costs expensed; contingent consideration measured at fair value at acquisition date with changes in fair value recognized in earnings for financial instrument liabilities.
Goodwill impairment (ASC 350): Two-step test replaced by simplified one-step: compare fair value of reporting unit to carrying value (including goodwill). If fair value < carrying value, impairment = excess of carrying value over fair value (not to exceed goodwill balance). Qualitative assessment (Step 0) may bypass quantitative test if more likely than not that fair value exceeds carrying value.
Investments: Equity method (ASC 323) — significant influence (presumed at 20–50% ownership); record at cost, adjust for investor's share of investee net income/loss and dividends. Investor's share of investee income increases investment; dividends decrease investment. Fair value option available. Trading securities — mark to fair value; gains/losses in P&L. Available-for-sale securities — mark to fair value; unrealized gains/losses in OCI. Held-to-maturity — carried at amortized cost (no FV adjustment). Equity securities (post-ASU 2016-01): all equity securities measured at fair value through P&L (except equity method investments); no longer AFS or HTM categories for equity.
Foreign currency translation (ASC 830): Functional currency determines translation method. If functional currency = foreign currency → Current Rate Method: assets/liabilities at closing rate; equity at historical rate; revenues/expenses at average rate; translation adjustment in OCI. If functional currency = USD → Temporal Method: monetary items at closing rate; nonmonetary items at historical rate; remeasurement gain/loss in P&L.
Derivatives and hedging (ASC 815): Derivatives measured at fair value with changes in P&L unless designated as a qualifying hedge. Fair value hedge: hedges fair value of a recognized asset/liability; gain/loss on derivative and offsetting loss/gain on hedged item both in P&L. Cash flow hedge: hedges variability of cash flows; gain/loss on derivative in OCI until hedged transaction affects P&L. Net investment hedge: hedges net investment in foreign subsidiary; gain/loss in OCI (CTA).
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