FASB Statement of Financial Accounting Standards #141

SUMMARY OF FASB 141, ISSUED BY THE FINANCIAL ACCOUNTING STANDARDS BOARD, JUNE 2001

THESE RULES APPLY ONLY TO FINANCIAL REPORTING UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, NOT TAX ACCOUNTING.

Statement of Financial Accounting Standards No. 141–Business Combinations:

In all business combinations, the acquiring firm must now use the purchase method of accounting. The pooling of interests accounting method, which was used only circumstances in which 12 specific merger criteria were met and simply summed the balance sheets of the acquirer and the acquiree, is now longer allowed.

The cost of the acquired firm must be allocated among the tangible and intangible assets acquired. That cost is based on the fair value of the consideration given or the fair value of the asset (or net assets) acquired, whichever is more clearly evident. Intangible assets must be separately recognized and valued if they meet one of two criteria:

(1) the contractual-legal criterion, or (2) the separability criterion.

To quote directly from Paragraph 39 of FASB 141:

“An intangible asset shall be recognized as an asset apart from goodwill if it arises from contractual or other legal rights (regardless of whether those rights are transferable or separable from the acquired entity or from other rights and obligations). If an intangible asset does not arise from contractual or other legal rights, it shall be recognized as an asset apart from goodwill only if it is separable, that is, it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged (regardless of whether there is an intent to do so). For purposes of this Statement, however, an intangible asset that cannot be sold, transferred, licensed, rented, or exchanged individually is considered separable if it can be sold, transferred, licensed, rented, or exchanged in combination with a related contract, asset, or liability. For purposes of this Statement, an assembled workforce shall not be recognized as an intangible asset apart from goodwill.”

FASB 141 applies to all business combinations initiated after June 30, 2001, or where the date of acquisition is July 1, 2001 or after.

The following transition provision applies to business combinations for which the acquisition date was before July 1, 2001, that were accounted for using the purchase method:

The carrying amount of (1) any recognized intangible assets that meet the recognition criteria in paragraph 39...that have been included in the amount reported as goodwill (or as goodwill and intangible assets) shall be reclassified and accounted for as an asset apart from goodwill as of the date Statement 142 is initially applied in its entirety.