On March 1, 2013, Nu-Auto Corporation announced its plan to acquire 90 percent of the outstanding 1,000,000

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On March 1, 2013, Nu-Auto Corporation announced its plan to acquire 90 percent of the outstanding 1,000,000 shares of Battery Tech Corporation's common stock in a business combination later in the year following regulatory approval. Nu-Auto will account for the transaction in accordance with ASC 805, Business Combinations.
On October 1, 2013, Nu-Auto acquired the 90 percent controlling interest in Battery Tech. On this date, Nu-Auto paid $60 million in cash and issued 1 million shares of Nu-Auto common stock to the selling shareholders of Battery Tech. Nu-Auto's share price was $20 on the announcement date and $27 on the acquisition date. Battery Tech's remaining 100,000 shares of common stock traded in the $108 to $112 per share range in the weeks before and after October 1, 2013. The parties agreed that Nu-Auto would issue to the selling shareholders an additional 1 million shares contingent upon the achievement of certain performance goals during the first 18 months following the acquisition. The acquisition-date fair value of the contingent stock issue was estimated at $10 million.
Battery Tech has a research and development (R&D) project underway to develop a proprietary fast-charging battery technology. The technology has a fair value of $14 million. Nu-Auto considers this R&D as in-process because it has not yet reached technological feasibility and additional R&D is needed to bring the project to completion. No assets have been recorded in Battery Tech's financial records for the research and development costs related to its fast-charging battery technology.
Battery Tech's other assets and liabilities include the following:
_____________________________Fair Value _______________Book Value
Cash . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,000 ........................ $ 270,000
Accounts receivable . . . . . . . . . . . . . . 800,000 ........................ 840,000
Land . . . . . . . . . . . . . . . . . . . . . . . . 2,930,000 ........................ 1,500,000
Building . . . . . . . . . . . . . . . . . . . . . 19,000,000 ....................... 13,000,000
Machinery . . . . . . . . . . . . . . . . . . . 46,000,000 ...................... 29,000,000
Trademark . . . . . . . . . . . . . . . . . . . . 8,000,000 ....................... −0−
Accounts payable . . . . . . . . . . . . . . (1,000,000) ...................... (1,000,000)
Neither the receivables nor payables involve Nu-Auto.
Answer the following questions citing relevant support from the ASC and IFRS.
1. What is the total consideration transferred by Nu-Auto to acquire its 90 percent controlling interest in Battery Tech?
2. What values should Nu-Auto assign to identifiable assets and liabilities as part of the acquisition accounting?
3. What is the acquisition-date value assigned to the 10 percent noncontrolling interest? What are the noncontrolling interest valuation alternatives available under IFRS?
4. Under U.S. GAAP, what amount should Nu-Auto recognize as goodwill from the acquisition? What alternative valuations are available for goodwill under IFRS?
Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Fundamentals of Advanced Accounting

ISBN: 978-0077667061

5th edition

Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik

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