POST ACQUISITION VALUATIONS FAS 141 and FAS 142 Larry Berkey Principal, Deloitte

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POST ACQUISITION VALUATIONS(FAS 141 and FAS
142)Larry BerkeyPrincipal, Deloitte
Touche(617) 437-3018laberkey_at_deloitte.com
Masssachusetts Software Internet Council
January 25, 2002
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FAS 141 OVERVIEW

• Record apart from goodwill if certain criteria
  are met.
• No minimum or maximum presumptions for useful
  lives exists.
• Certain assets will not be amortized.
• Impairment test timing and methodology differs
  based on whether assets are nonamortizing or
  amortizing.

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ASSET CLASSIFICATION EXAMPLES

• Typical finite-lived assets
• Software
• Non-compete / employment agreements
• Licenses
• Franchises
• Patents
• Leases
• Customer lists / relationships
• Typical indefinite-lived assets
• Goodwill
• Trademarks /trade names / brand names

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Summary

Understanding the Accounting Statements and
Implementation Issues
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FAS 142

• Step 1 Value the Reporting Unit
• Estimate the fair value of the reporting unit
  using the most appropriate methodology given the
  nature of the reporting unit.
• Compare fair value of the reporting unit to its
  carrying value (net book value).
• If carrying value exceeds fair value, impairment
  is indicated.
• Perform the second step of the goodwill
  impairment test.

Implementing the New Rules A Valuation
Perspective
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FAS 142

• Step 2 Calculate the Goodwill Impairment Loss
• The fair value of the reporting unit is allocated
  to the
• assets and liabilities of that unit as if the
  unit were
• being acquired.
• All assets are identified and valued, including
• unrecognized assets formerly included in
  goodwill.
• An impairment loss is recognized in the amount by
• which the carrying value exceeds the fair value
  of
• goodwill implied by the valuation analysis.

Implementing the New Rules A Valuation
Perspective