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    InstaPower & Q-Car: Interest, Goodwill, FASB, ASC, and IFRS

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    On February 18, 2014, Q-Car Corporation announced its plan to acquire 90 percent of the outstanding 1,000,000 shares InstaPower Corporation's common stock in a business combination later in the year following regulatory approval. Q-Car will account for the transaction in accordance with ASC 805, "Business Combinations."

    On May 1, 2014, Q-Car purchased a 90 percent controlling interest in InstaPower's outstanding voting shares. On this date, Q-Car paid $60 million in cash and issued one million shares of Q-Car common stock to the selling shareholders of InstaPower. Q-Car's share price was $20 on the announcement date and $27 on the acquisition date.

    InstaPower's remaining 100,000 shares of common stock are owned by a small number of investors who do not actively trade their shares. Using other valuation techniques (comparable firms, discounted cash flow analysis, etc.), Q-Car estimated the fair value of the InstaPower's non-controlling shares at $11,000,000.

    The parties agreed that Q-Car would issue to the selling shareholders an additional one 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.

    InstaPower has a research and development (R&D) project underway to develop a fast charging battery technology. The technology has a fair value of $14 million. Q-Car 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 InstaPower's financial records for the R&D costs to date.

    InstaPower's other assets and liabilities (at fair values) include the following:
    Cash $ 270,000
    Accounts receivable 800,000
    Land 2,930,000
    Building 19,000,000
    Machinery $ 46,000,000
    Trademark 8,000,000
    Accounts payable (1,000,000)
    Neither the receivables nor payables involve Q-Car.

    Answer the following questions citing relevant support from the ASC and IFRS.
    1. What is the total consideration transferred by Q-Car to acquire its 90 percent controlling interest in InstaPower?

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

    3. What is the acquisition-date value assigned to the 10 percent noncontrolling interest? What are the potential noncontrolling interest valuation alternatives available under IFRS?

    4. Under U.S. GAAP, what amount should Q-Car recognize as goodwill from the InstaPower acquisition? What alternative goodwill valuations are allowed under IFRS?

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    1. What is the total consideration transferred by Q-Car to acquire its 90 percent controlling interest in InstaPower?

    Cash $60,000,000
    Shares of Q-Car stock 27,000,000
    Contingency 10,000,000
    Total consideration transferred $97,000,000
    The shares of Q-Car stock and the contingency are both measured at their
    acquisition-date fair values (ASC 805-30-30-7, ASC 805-30-25-5).

    2. What values should Q-Car assign to identifiable assets and liabilities as part of the acquisition accounting?

    Cash $ 270,000
    Accounts receivable ...

    Solution Summary

    Analysis shown and citations given to the codification and IFRS.