Given case information:

Exhibit 3

Facebooks Acquisition of WhatsApp: The Rise of Intangibles (A)

Facebook Inc. 2014 10-K Financial Statement Footnote (excerpts)

Note 1 Summary of Significant Accounting Policies (partial):

Business Combinations:

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates.

Managements estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Long-Lived Assets, Including Goodwill and Other Acquired Intangible Assets:

We evaluate the recoverability of property and equipment and finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have not recorded any significant impairment charge during the years presented.

We review goodwill for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. We have elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment under Accounting Standards Update (ASU) No. 2011-08, Goodwill and Other (Topic 350): Testing Goodwill for Impairment, issued by the Financial Accounting Standards Board (FASB). If we determine that it is more likely than not that its fair value is less than its carrying amount, then the two-step goodwill impairment test is performed. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step would need to be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. As of December 31, 2014, no impairment of goodwill has been identified.

Acquired finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. The estimated remaining useful lives for intangible assets range from less than one year to 15 years. Acquired indefinite-lived intangible assets related to our in-process research and development (IPR&D) are capitalized and subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, we will make a separate determination of useful life of the acquired indefinite-lived assets and the related amortization will be recorded as an expense over the estimated useful life of the specific projects.

In addition to the recoverability assessment, we routinely review the remaining estimated useful lives of property and equipment and finite-lived intangible assets. If we reduce the estimated useful life assumption for any asset, the remaining unamortized balance would be amortized or depreciated over the revised estimated useful life.

Note 2 Acquisitions (partial):

WhatsApp:

In October 2014, we completed our acquisition of WhatsApp Inc. (WhatsApp), a privately-held cross-platform mobile messaging company that is expected to provide us with strategic advantages in the mobile ecosystem and expand our mobile messaging offerings. Pursuant to the merger agreement, we issued approximately 178 million shares of our Class A common stock and paid $4.59 billion in cash...Upon acquisition, WhatsApp became our wholly-owned subsidiary. The acquisition was accounted for as a business combination. [...]

Oculus:

In July, we completed our acquisition of Oculus VR, Inc. (Oculus), a privately-held company developing virtual reality technology that is expected to expand our platform. Pursuant to the merger, we issued 23 million shares of our Class B common stock and paid $400 million in cash. [....] We have accounted for this acquisition as a business combination. This method requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date and that in-process research and development (IPR&D) be recorded at fair value on the balance sheet regardless of the likelihood of success of the related product or technology. [...]

Other:

During the year ended December 31, 2014, we also completed several other business acquisitions for total consideration of $485 million. These acquisitions were not material to our consolidated financial statements either individually or in the aggregate. We have included the financial results of WhatsApp, Oculus and the other business acquisitions, which are not material, in our consolidated financial statements from their respective dates of acquisition. [...]

The fair value of assets acquired and liabilities assumed from our acquisition of WhatsApp and Oculus was based on a preliminary valuation and our estimates and assumptions are subject to change within the measurement period. The primary areas of the purchase price that are not yet finalized are related to income taxes and residual goodwill. Measurement period adjustments that we determine to be material will be applied retrospectively to the period of acquisition in our consolidated financial statements and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could also be affected. The following table summarizes the allocation of estimated fair values of the net assets acquired during the year ended December 31, 2014, including the related estimated useful lives, where applicable:

IPR&D intangible assets represent the value assigned to acquired research and development projects that, as of the acquisition date had not established technological feasibility and had no alternative future use. The IPR&D intangible assets are capitalized and accounted for as indefinite-lived intangible assets and are subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project and launch of the product, we will make a separate determination of useful life of the IPR&D intangible assets and the related amortization will be recorded as an expense over the estimated useful life of the specific projects.

Goodwill generated from the WhatsApp acquisition is primarily attributable to expected synergies from future growth, from potential monetization opportunities, from strategic advantages provided in the mobile ecosystem, and from expansion of our mobile messaging offerings. Goodwill generated from all other business acquisitions completed during the year ended December 31, 2014 is primarily attributable to expected synergies from future growth, from potential monetization opportunities and, also for Oculus, as a potential to expand our platform. All goodwill generated during this period is not deductible for tax purposes.

Question:

Exhibit 3 (continued) WhatsApp Useful lives (in millions) (in years) Oculus Useful lives (in millions) (in years) Other Useful lives (in millions) (in years) $ $ 2,026 448 288 21 7 5 5 2 5 3-5 5 26 68 61 113 235 19 60 Finite-lived intangible assets: Acquired users Trade names Acquired technology Other IPR&D (Liabilities assumed) assets acquired Deferred tax liabilities Net assets acquired Goodwill Total fair value consideration 2 103 (107) (33) (899) $ 1,851 15,342 $ 17,193 320 $ (48) 210 275 485 1,533 1,853 S S Note 7 Goodwill and Intangible Assets (partial): The changes in carrying amount of goodwill for the years ended December 31, 2014 and 2013 are as follows (in millions): $ Balance as of December 31, 2012 Goodwill acquired Balance as of December 31, 2013 Goodwill acquired Effect of currency translation adjustment Balance as of December 31, 2014 $ 587 252 839 17,150 17,981 Exhibit 3 (continued) Intangible assets consist of the following (in millions): December 31, 2014 December 31, 2013 Useful lives from Gross Net Gross Net date of acquisitions Carrying Accumulated Carrying Carrying Accumulated Carrying (in years) Amount Amortization Amount Amount Amortization Amount Finite-lived intangible assets: Acquired users 3.7 $ 2,056 $ (85) $ 1,971 S 30 $ (6) $ 24 Acquired technology 2 - 10 813 669 227 Acquired patents 2 - 18 773 (239) 534 773 (142) 631 Trade names 2.7 632 (46) 586 45 (8) 37 Other 2 - 10 164 (55) 109 63 29 Total finite- lived intangible assets $ 4,438 $ (569) $ 3,869 $ 1,138 $ (255) $ 883 (65) 162 Indefinite-lived intangible assets: IPR&D 60 $ 60 S Total intangible assets S 4,498 $ (569) $ 3,929 $ 1,138 $ (255) $ 883 Indefinite-lived intangible assets: IPR&D S 60 $ 60 $ Total intangible assets $ 4,498 $ (569) $ 3,929 $ 1,138 $ (255) $ 883 Amortization expense of intangible assets for the years ended December 31, 2014, 2013, and 2012 was $319 million, $145 million, and $78 million, respectively. As of December 31, 2014, expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in millions): 2015 2016 2017 2018 2019 Thereafter Total 710 691 648 600 518 702 S 3,869 Data Question 5 Given the information in case Exhibit 3, what accounting entry was possibly made by Facebook to record the WhatsApp acquisition? Hints for Question 5: Facebook has substantially a no-par form of common stock (ordinary shares). Therefore, additional paid in capital is the proper account to use in your journal entry in place of share capital. The fair value of identifiable net assets and goodwill are shown on page 14 in the case. Note 2 Acquisitions (partial) on page 13 in the case provides some information about the consideration transferred (cash and shares). Use the data provided in the case to make the journal entry except for additional paid in capital. Please use the amount entered into additional paid in capital in your journal entry as the amount (i.e., the plug) to make the journal entry balance. Exhibit 3 (continued) WhatsApp Useful lives (in millions) (in years) Oculus Useful lives (in millions) (in years) Other Useful lives (in millions) (in years) $ $ 2,026 448 288 21 7 5 5 2 5 3-5 5 26 68 61 113 235 19 60 Finite-lived intangible assets: Acquired users Trade names Acquired technology Other IPR&D (Liabilities assumed) assets acquired Deferred tax liabilities Net assets acquired Goodwill Total fair value consideration 2 103 (107) (33) (899) $ 1,851 15,342 $ 17,193 320 $ (48) 210 275 485 1,533 1,853 S S Note 7 Goodwill and Intangible Assets (partial): The changes in carrying amount of goodwill for the years ended December 31, 2014 and 2013 are as follows (in millions): $ Balance as of December 31, 2012 Goodwill acquired Balance as of December 31, 2013 Goodwill acquired Effect of currency translation adjustment Balance as of December 31, 2014 $ 587 252 839 17,150 17,981 Exhibit 3 (continued) Intangible assets consist of the following (in millions): December 31, 2014 December 31, 2013 Useful lives from Gross Net Gross Net date of acquisitions Carrying Accumulated Carrying Carrying Accumulated Carrying (in years) Amount Amortization Amount Amount Amortization Amount Finite-lived intangible assets: Acquired users 3.7 $ 2,056 $ (85) $ 1,971 S 30 $ (6) $ 24 Acquired technology 2 - 10 813 669 227 Acquired patents 2 - 18 773 (239) 534 773 (142) 631 Trade names 2.7 632 (46) 586 45 (8) 37 Other 2 - 10 164 (55) 109 63 29 Total finite- lived intangible assets $ 4,438 $ (569) $ 3,869 $ 1,138 $ (255) $ 883 (65) 162 Indefinite-lived intangible assets: IPR&D 60 $ 60 S Total intangible assets S 4,498 $ (569) $ 3,929 $ 1,138 $ (255) $ 883 Indefinite-lived intangible assets: IPR&D S 60 $ 60 $ Total intangible assets $ 4,498 $ (569) $ 3,929 $ 1,138 $ (255) $ 883 Amortization expense of intangible assets for the years ended December 31, 2014, 2013, and 2012 was $319 million, $145 million, and $78 million, respectively. As of December 31, 2014, expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in millions): 2015 2016 2017 2018 2019 Thereafter Total 710 691 648 600 518 702 S 3,869 Data Question 5 Given the information in case Exhibit 3, what accounting entry was possibly made by Facebook to record the WhatsApp acquisition? Hints for Question 5: Facebook has substantially a no-par form of common stock (ordinary shares). Therefore, additional paid in capital is the proper account to use in your journal entry in place of share capital. The fair value of identifiable net assets and goodwill are shown on page 14 in the case. Note 2 Acquisitions (partial) on page 13 in the case provides some information about the consideration transferred (cash and shares). Use the data provided in the case to make the journal entry except for additional paid in capital. Please use the amount entered into additional paid in capital in your journal entry as the amount (i.e., the plug) to make the journal entry balance