Swot Analysis Of Soar Company

Background

You have asked me to research on accounting treatment for goodwill and goodwill impairment under the scope of ASC-350 (Intangibles-Goodwill and Other) and ASC-805 (Business Combinations). Soar is a leading manufacturer and distributor of aircraft maintenance equipment and services, and it has two reporting units, namely Subsidiary A and Subsidiary B. Soar performs its annual goodwill impairment test on January 1.

Issues and Analysis

1. What is the meaning of “goodwill” acquired in a business combination?

Per ASC 805-30-20 (glossary), goodwill is defined as an intangible asset that represents the future economic benefits arising from other assets acquired in a merger or acquisition. Goodwill is not individually identified or separately

Generally, the goodwill amount should be the total fair value paid in excess of the net acquisition-date amounts of identifiable assets over the liabilities assumed in the acquired company. Simply put, the total fair value paid is the purchase price of the acquired company and it consists the fair value of any consideration transferred to the acquiree, any noncontrolling interest to the acquiree, and any acquirer’s previously held equity interest. ASC 805-30-30-2 provides guidance for business combinations where both parties only exchange equity interests. If the fair value of the acquiree’s equity interest is more reliably measurable, the amount of goodwill should be determined by the acquisition-date fair value of the acquiree’s equity interests rather than the equity interests transferred. ASC 805-30-30-3 states further guidance when there is no consideration transferred. In that case, the acquirer can use other permitted valuation

ASC 805-20-55-13 also provides example categories of identifiable intangible assets: Trademarks are marketing-related intangibles according to ASC 805-20-55-14a. Per ASC 805-20-55-20c, customer contracts belong to customer-related intangible assets. A licensing agreement is a form of contract-based intangible assets based on ASC 805-20-55-31a. In-process research and development is a form of technology-based intangible assets per ASC 805-20-55-38. On the other hand, assembled workforce is not an identifiable intangible asset and therefore should be subsumed into goodwill as ASC 805-20-55-6