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SFAS No.
25 Business Combinations |
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 Status |
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Revised by the
Financial Accounting Standards Committee In Taiwan on 22 December 2005
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Summary |
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The purpose of this Statement is to establish the accounting
standards for business |
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combinations that use the purchase method. |
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The scope of this Statement includes business combinations where a
corporation acquiring |
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control of one or more subsidiaries, or where a newly formed
corporation acquiring control of |
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several existing corporations. |
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The transactions of acquiring part or all of the shares from the
minority stockholders of a |
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subsidiary are not regarded as business combination provided in this
statement, but still shall |
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follow the accounting treatment stipulated herein. This statement
does not apply when (1) a |
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corporation transfers all assets and liabilities to its newly formed
subsidiary, and (2) the |
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transfer of all assets and liabilities or the exchange of shares
among affiliated companies (e.g. |
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between parent company and its subsidiaries or among the
subsidiaries) under common |
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control. |
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The
net assets acquisition method and the acquisition cost measurement
basis |
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In a business combination accounted for by the purchase method, the
acquisition of |
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assets, the issuance of stock and the recording of assets and
liabilities after the combination |
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should follow the historical cost principle. |
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Except for the issuer of equity stock, a corporation adopting the
historical cost principle to |
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record acquisitions of net assets should follow the guidelines
provided below: |
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(a)An asset acquired in cash is valued at the amount of cash paid. |
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(b)An asset acquired by assets other than cash is valued either at
the fair value of the non- |
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cash assets contributed or at the fair value of the property
acquired, whichever is more |
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objectively evident. |
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(c)An asset acquired by issuing or assuming a debt is valued at the
present value of the |
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debt or at the fair value of the property acquired whichever is more
objectively evident. |
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If the equity stock issued in a business combination is traded in an
active market, the |
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marketprice of the stock usually is more clearly evident than the
fair value of the net assets of
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the
acquired corporation and should be used to determine the fair value
of the net assets of |
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the
acquired corporation. The impacts of possible price variations,
trading volumes, issuing |
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costs and other factors are also considered. Furthermore, the
market price fluctuations for a |
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reasonable period of time before and after the announcement of the
combination agreement |
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should also be considered. |
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(a)An asset acquired in cash is valued at the amount of cash paid. |
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(b)An asset acquired by assets other than cash is valued either at
the fair value of the non- |
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cash assets contributed or at the fair value of the property
acquired, whichever is more |
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objectively evident. |
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(c)An asset acquired by issuing or assuming a debt is valued at the
present value of the |
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debt or at the fair value of the property acquired whichever is more
objectively evident. |
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If the equity stock issued in a business combination is traded in an
active market, the market price of the stock usually is more clearly
evident than the fair value of the net assets of the acquired
corporation and should be used to determine the fair value of the
net assets of the acquired corporation. The impacts of possible
price variations, trading volumes, issuing costs and other factors
are also considered. Furthermore, the market price fluctuations for
a reasonable period of time before and after the announcement of the
combination agreement should also be considered. |
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When acquiring another company, a corporation should determine the
total cost and assign the total cost to individual assets acquired
and liabilities assumed on the basis of their respective fair values |
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Measurement
of minority interests |
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The minority interests on the consolidated financial statements
should be measured |
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based on the book value of the acquired corporation. |
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Accounting
treatment for assets acquired and liabilities assumed |
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An acquiring corporation should allocate the acquisition cost to the
assets acquired and |
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liabilities assumed. The allocation steps are as follows: |
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(a)All identifiable assets acquired and liabilities assumed in a
business combination, whether |
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or not shown in the financial statements of the acquired
corporation, should be measured |
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based upon their fair values at the acquisition date. |
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(b)Compare the fair values of all identifiable net assets acquired
with the acquisition cost. |
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When the cost exceeds the fair value of identifiable net assets
acquired, the excess |
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should be recorded as goodwill. When the fair value of identifiable
net assets acquired |
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exceeds the cost, the difference should be assigned to non-current
assets acquired |
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(except for financial assets not under equity method, assets to be
disposed, deferred tax |
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assets, prepaid pension or other retirement benefits cost)
proportionate to their |
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respective fair values. If these assets are all reduced to zero
value, the remaining |
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excess should be recognized as extraordinary gain. |
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Contingent
consideration |
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A business combination agreement may, within a certain period in the
future (contingency |
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period), provide for the issuance of additional stock, the
distribution of cash or other assets |
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contingent on the occurrence of a specified future event or
transaction (contingent event). The |
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aforementioned contingent consideration should be accounted for
according to rules described |
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in
this Statement. |
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Subsequent
measurement for goodwill |
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After initial recognition of the goodwill acquired from a business
combination, an acquiring corporation should measure the goodwill at
its cost less than accumulated impairment. An acquiring corporation
should follow the rules specified in the Statements of Financial
Accounting Standards No. 35: Impairment of Assets to conduct
impairment test annually. Whenever there are certain events or
circumstance changes to indicate that the goodwill may have been
impaired, an acquiring corporation should conduct impairment test
immediately. An acquiring corporation should not amortize the
goodwill. |
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Income
(loss) in the year of acquisition |
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The acquisition cost and the value assigned to
the respective assets acquired and liabilities assumed should be
determined as of the acquisition date. The income statement of an
acquiring company for the period in which a business combination
occurs should include income (loss) of the acquired company after
the date of acquisition. |
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This Statement also specifies disclosures about business
combinations. |
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Effective
date
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This revised Statement becomes effective for financial statements
for the fiscal year |
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beginning on and after January 1, 2006. Earlier adoption is not
allowed. |
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