Question

Davis acquires 100% of Reynolds in an acquisition . At date of acquisition , Reynolds had in process research and development costs they had spent $300, 000 for 3 years ago and is now recorded on its books at $100, 000 This R and D has not yet reached technological feasibility and no alternative use has been identified. At acquisition date, Reynolds continues to work on this project and the fair value is considered to be $200, 000. How much will Davis recorded this for at acquisition date using the:__________.

a. Acquisition method
b. Purchase method
c. Pooling of interests method
d. Do either of answers a, b, c above differ is this transaction was structured as either a statutory merger or statutory consolidation.

Answer 1

a) When an asset is acquired in any form, it is been acquired at the fair market value of that asset which is $200,000. In this case, since the product is not yet technically feasible, so the same amount shall be disclosed in the balance sheet as it is still contingent.

b) When an asset it purchased we look for market value of the asset. So it will be booked at $200,000 but the contingent clause shall not be mentioned here.

c) In case of pooling of interest the book value of the asset i.e $ 1,000,000 shall be the value to be recorded in the books of account.

d) The answers would not differ.