If the acquisition transaction and the sale transaction are with different parties (no relationship) and are transacted at arms length, then each transaction should be accounted for on a standalone basis. The acquired business should be accounted for as “held-for-sale” as of the acquisition date. This is due to the fact that the Company had already started negotiations with the buyer and the Company already had a plan to sell prior to the acquisition date.
No, you would still need to record provisional amounts for the intangibles and any other asset category that is being valued based on the best information available as of the acquisition date. You can then true-up the amounts based on the final valuation as a measurement period adjustment.
When the cost of the assets is greater than the fair value, the excess cost is allocated to the nonfinancial assets acquired. This causes each acquired asset to be recognized at an amount greater than its individual fair value. No excess cost is allocated to financial assets or indefinite-lived intangibles because that would result in an immediate impairment loss for those assets. Indefinite-lived intangibles should be measured at their fair value since they are subject to the impairment testing under ASC 350. Long-lived assets are allocated the excess cost and recorded above their fair value because those assets are subject to impairment under ASC 360. Under ASC 360, long lived assets are first tested for recoverability based on future undiscounted cash flows at the asset grouping level. This makes it unlikely that a recently acquired asset group would fail the recoverability test that would cause an immediate impairment.
This clause is considered a down-round feature. The down round feature in itself does not cause the instrument to be accounted for as a liability. The stock options are indexed to and settled in the company’s stock, and as such, should be accounted for as equity. There is no embedded feature that requires bifurcation and derivative accounting. Since the options are equity-classified, the company does not need to account for changes in fair value attributable to the down round feature through the income statement. If triggered, the effect of the down round feature should be reflected in EPS.
This discretionary clause calls into question whether the grant date has been established because the mutual understanding of the key terms may have not been reached. The key to establishing a grant date is that the employer and employee have reached a mutual understanding of the key terms and conditions of the award. You would need to assess management’s intent and the purpose for the provision, including whether management believes it will exercise its right, whether management has exercised its right in the past, how frequently the right has been exercised, and the employees’ awareness of the discretion provision.
You would have to assess if the stock options are within the scope of ASC 718 (purpose of the awards, if service is required, etc.). If it is within the scope of ASC 718, you would need to assess to see if the upfront payment is considered a substantive stock transaction for accounting purposes. Under ASC 718, an equity instrument is not considered to be issued until it vests. If the employee is not unconditionally entitled to the options during the vesting period, the initial purchase consideration received is considered a deposit or prepayment of the option price. Similarly, the Company does not have a right to keep the cash deposit unless the employee terminates during the vesting period or meets the conditions to forfeit its rights. Therefore, it is recognized as a liability until the option vests.
No, if an entity does not have a variable interest in the entity, it cannot be the primary beneficiary of a VIE. One of requirements to be the primary beneficiary is that it absorbs the variability in the entity through its interest.
Yes, you could potentially have an implicit variable interest through an arrangement outside the legal entity. You would need to analyze the arrangements you have with related parties, especially if a related party has an explicit variable interest in the legal entity. You would also need to analyze guarantee arrangements for implicit variable interests. It is best to obtain a legal entity structure as a starting point to understand all the relationships as it relates to the VIE.
Amortized cost is the amount the investment was purchased for, adjusted for accrued interest, accretion/amortization of discounts/premiums, collection of cash, write-offs and FX adjustments.
ASC 842 does not provide explicit guidance regarding sublease income presentation. Generally, you would present them gross unless subleasing is not a significant business activity or net presentation would be more meaningful. However, if the sublease does not relieve the sublessor’s obligation under the head lease, you should present sublease income and lease expense gross on the income statement to be consistent with the gross presentation on the balance sheet.
You would record the receivable as contra-equity (deduction to stockholders’ equity) until the proceeds are received.
If a private company later becomes public, you are required to reverse the effect of any private company accounting alternatives in your historical financial statements when you become public. If you intend to become public, I’d recommend not adopting the private company accounting alternative to avoid restating prior years.
If there is not a market mechanism to facilitate net settlement outside the contract (i.e. publicly traded), the shares are not considered readily convertible to cash. Therefore, the investor would still have risk and the net settlement criteria would not be met.
If you hold cash in a different currency than your functional currency, you would have gains or losses on remeasurement to your functional currency that would be recorded in the income statement. These gains/losses are not cash flows and should be included in a separate line item as part of the reconciliation of the change in cash and cash equivalents during the period (typically called “Effect of exchange rate changes on cash and cash equivalents.”)
If the debt that is settled was issued by the acquirer, then the acquirer would account for the debt extinguishment under ASC 470 where an extinguishment gain or loss would be recognized if the reacquisition price (fair value or stated settlement amount) differs from the net carrying amount of the debt. If the debt that is settled was issued by the acquiree, then the acquirer would be effectively settling a receivable and would apply the guidance under ASC 805-10-55-21. Any gain or loss recorded on settlement of the debt would be outside of the business combination.