Codification Exercise Case #3 Accounting for an Acquisition:

U.S. GAAP versus IFRSOn September 23, 2020, Hi-Tech Power Corporation ("Hi-Tech") announced its plan to acquire 80 percent of the outstanding 500,000 shares of Alternative Energy Corporations common stock in a business combination following regulatory approval. Hi-Tech will account for the transaction in accordance with ASC 805, Business Combinations.

On December 1, 2020, Hi-Tech purchased an 80 percent controlling interest in Hi-Techs outstanding voting shares. On this date, Hi-Tech paid $40 million in cash and issued one million shares of Hi-Tech common stock to the selling shareholders of Alternative Energy. Hi-Techs share price was $26 on the announcement date and $24 on the acquisition date.

Alternative Energys remaining 100,000 shares of common stock had been purchased for $3,000,000 by a small number of original investors. These shares have never been actively traded. Using other valuation techniques (comparable firms, discounted cash flow analysis, etc.), Hi-Tech estimated the fair value of Alternative Energys noncontrolling shares at $16,500,000.

The parties agreed that Hi-Tech would issue to the selling shareholders an additional one million shares contingent upon the achievement of certain performance goals during the first 24 months following the acquisition. The acquisition-date fair value of the contingent stock issue was estimated at $8 million.

Alternative Energy has a research and development (R&D) project underway to develop a new alternate means of storing solar energy. Total costs incurred to date on the project equal $4,400,000. However, Hi-Tech estimates that the technology has a fair value of $11 million. Hi-Tech 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 Alternative Energys financial records for the R&D costs to date.

Alternative Energys other assets and liabilities (at fair values) include the following:

Cash$425,000 Accounts receivable 788,000 Land 3,487,000 Building 16,300,000 Machinery 39,000,000 Patents 7,000,000 Accounts payable(1,500,000)

Neither the receivables nor payables involve Hi-Tech.

In preparation for approving the acquisition, the Board of Directors met to discuss the acquisition. One of the Directors, Mr. Carslaw, asked for more detail concerning the value placed on the acquisition and the valuation of certain intangible assets. Mr. Carslaw serves on the Board of Directors of other companies, including a large international corporation, so he is curious if there would be any difference in accounting for this acquisition if IFRS was used instead of U.S. GAAP. He specifically asked the following questions:

1. What is the total consideration transferred by Hi-Tech to acquire its 80 percent controlling interest in Alternative Energy?

2. What values should Hi-Tech assign to identifiable intangible assets as part of the acquisition accounting?

3. What is the acquisition-date value assigned to the 20 percent noncontrolling interest? What are the potential noncontrolling interest valuation alternatives available under IFRS?

4. Under U.S. GAAP, what amount should Hi-Tech recognize as goodwill from the Alternative Energy acquisition? What alternative goodwill valuations are allowed under IFRS?The CEO has asked you to do the research and prepare a memo which addresses Mr. Carslaws questions.

Required: Prepare the required memo for Mr. Carslaw. Use the sample memo format as the framework for writing your memo. You must cite support from the ASC and IFRS in preparing your memo.