On December 1, Year 2, Bar Ltd. announced its intention to acquire 800,000 outstanding voting shares of Down Corp. for $10 million in cash and one million common shares. On December 31, Year 2, the acquisition took place. Bar’s share price was $9 on the date of the announcement and $8 on the acquisition date. 

The 200,000 shares of Down that were not acquired by Bar had been purchased by a small group of original investors for $2 million. These shares have never been actively traded. Bar used business valuation techniques such as probability adjusted discounted cash flow analysis and selling prices of other comparable firms to claim that these shares were worth $4.2 million. 

Down has a research and development project underway to develop an artificial heart. Total costs incurred to date on the project equal $2.2 million. However, Bar estimates that the technology has a fair value of $5.5 million. Bar considers this R & D as in-process because it has not yet reached technological feasibility and additional R & D work is needed to bring the project to completion. No assets have been recorded in Down’s financial records for the R & D costs to date. 

The carrying value of Down’s other identifiable assets and liabilities were $25 million and $12 million, respectively, whereas the fair value was $27 million and $12 million, respectively, as determined by independent appraisals. The CFO has asked you to prepare a report to explain how the acquisition price should be measured and allocated, and how the noncontrolling interest should be measured and presented on the consolidated financial statements. Provide the rationale for any decision that involves choosing between different monetary values.

Required 

Prepare the report for the CFO.