The fair value of the lumber raw materials inventory is based on the price that a market participant would receive to sell the lumber in its principal (or most advantageous) market. The market approach typically does not require an adjustment for incremental tax benefits from a stepped-up or new tax basis. For example, using the following assumed alternative outcomes and related probability, the fair value of the arrangement would be calculated as follows. To measure the fair value of the NCI in Company B, Company A may initially apply the price-to-earnings multiple in the aggregate as follows: Entities will have to understand whether the consideration transferred for the 70% interest includes a control premium paid by the acquirer and whether that control premium would extend to the NCI when determining its fair value. Additional considerations would include the following: Regardless of the methodology used in valuing the defensive asset, it is important not to include value in a defensive asset that is already included in the value of another asset. However, the tax consequences do not change the amount owed by the reporting entity to the third party. The applied contributory asset charge may include both a return on and a return of component in certain circumstances taking into consideration the factors discussed in the prior paragraph. This represents an exit price. Certain tangible assets are measured using an income or market approach. The terminal value represents the present value in the last year of the projection period of all subsequent cash flows into perpetuity. Inventory acquired in a business combination can be in the form of finished goods, work in process, and/or raw materials. The acquirers rationale for the transaction, particularly as communicated in press releases, board minutes, and investment bankers analyses, The competitive nature of the bidding process; in a highly competitive bidding environment, an acquirer may pay for entity specific synergies, while if no other bidders are present, an acquirer may not have to pay for the value of all market participant synergies, The basis for the projections used to price the transaction, to gain an understanding of the synergies considered in determining the consideration transferred, Whether alternative PFI scenarios used to measure the purchase price might be available to assist in assessing the relative risk of the PFI, Whether market participants would consider and could achieve similar synergies, Whether the highest and best use for the asset(s) may differ between the acquirers intended use and use by market participants, Whether industry trends (i.e., consolidation, diversification) provide insights into market participant synergies, Type of product produced or service performed, Market segment to which the product or service is sold, Capital intensity (fixed assets and working capital), Potential outcomes for Company As financial results next year, Potential outcomes for Company As share price over the coming year, Correlation of the potential financial results with share prices, Potential outcomes for other market events that could impact the overall stock market, Selection of an appropriate discount rate that adequately reflects all of the risks not reflected in other assumptions (e.g., projection risk, share price return estimation risk, Company As credit risk), Discount rate, including reconciliation of the rate of return. 
Also, it may not be appropriate to include the total lost profit of a business in the value of one intangible asset if there are other intangible assets generating excess returns for the business. Refer to FV 6 for further details on the fair value measurement of financial liabilities. For example, debt or a performance obligation may mature simply by the passage of time (i.e., noncontingent) or may depend on other events (i.e., contingent) resulting in performance and other related risks. If the profit margin on the specific component of deferred revenue is known, it should be used if it is representative of a market participants normal profit margin on the specific obligation. The tax amortization benefit of the intangible asset should also be included in determining the value of the subject intangible asset. When adjusting the acquiree's carrying value of inventory to fair value, consideration is needed as to whether obsolescence has already been factored into the inventory or if any reduction to the carrying value of the inventory is needed to record it at fair value. See. The BEV analysis assists in evaluating the PFI, which serves as the basis for the underlying cash flows used to measure the fair value of certain acquired assets. The market and the cost approaches are rarely used to value reacquired rights. A backlog is the aggregate sale value of all received customer orders that have not yet been shipped. The discount rates selected for intangible assets in conjunction with the rates selected for other assets, including goodwill, results in a WARA of 12.1%, which approximates the comparable entity WACC and IRR of 11.5% and 12%, respectively. To measure the fair value of an intangible asset, its projected cash flows are isolated from the projected cash flows of the combined asset group over the intangible assets remaining economic life. The cost approach typically requires no adjustment for incremental tax benefits from a stepped-up or new tax basis. Entities will also need to exercise judgment when applying a probability assessment for each of the potential outcomes. The data for a single transaction may be derived from several sources. Some factors to consider when determining if opportunity cost should be applied include the following: If the additional opportunity cost included in the cost approach is based on the total enterprise cash flows, then the calculation would be similar to the approach in the with and without method. Since expected cash flows incorporate expectations of all possible outcomes, expected cash flows are not conditional on certain events. Company A purchases Company B by issuing 1 million common shares of Company A stock to Company Bs shareholders. The fair value of a deferred revenue liability typically reflects how much an acquirer has to pay a third party to assume the liability. Defining market participants Market participants for a given defensive asset may be different from those for the transaction as a whole. A reporting entitys determination of how a market participant would use an asset will have a direct impact on the initial value ascribed to each defensive asset. An intangible asset or liability may be recognized for contract terms that are favorable or unfavorable compared to current market transactions or related to identifiable economic benefits for contract terms that are at market. If the PFI is not adjusted, it may be necessary to only consider the IRR as a starting point for determining the discount rates for intangible assets. For example, the billing software acquired by the strategic buyer in Example FV 7-4 is not considered a defensive asset even if it is not intended to be used beyond the transition period. Indicates that the PFI may reflect market participant synergies and the consideration transferred equals the fair value of the acquiree. For example, the costs required to replace a customer relationship intangible asset will generally be less than the future value generated from those customer relationships. Company A used the guideline public company method to measure the fair value of the NCI. Functional obsolescence is observed in several different forms. Some accounting standards differentiate an obligation to deliver cash (i.e., a financial liability) from an obligation to deliver goods and services (i.e., a nonfinancial liability). The cash flows from the plant reflect only the economic benefits generated by the plant and its embedded license. How could the fair value of the liability be calculated based on the arrangement between Company A and Company B? This approach starts with the amount that an entity would receive in a transaction, less the cost of the selling effort (which has already been performed) including a profit margin on that selling effort. 
Company A and Company B agree that if revenues of Company B exceed$2500 in the year following the acquisition date, Company A will pay$50 to the former shareholders of Company B. These amounts are then probability weighted and discounted using an appropriate discount rate. The fair value of liability-classified contingent consideration will need to be updated each reporting period after the acquisition date. If in developing an assets replacement cost new, that replacement cost is less than its reproduction cost, this may also be indicative of a form of functional obsolescence. However, if a market participant would use it, the IPR&D must be measured at fair value. As a result, an assembled workforce is typically considered a contributory asset, even though it is not recognizedseparately from goodwill according to. Such assumptions may consider enhancements to other complementary assets, such as an existing brand, increased projected profit margins from reduced competition, or avoidance of margin erosion from a competitor using the brand that the entity has locked up. The acquirer estimates the following outcomes for Line 1, each of which is expected to be payable over the three-year warranty period. An entity electing the alternative in ASU 2014-18 must apply the accounting policy prospectively to qualifying The cash flows are based on different assumptions about the amount of expected service cost plus parts and labor related to a repair or replacement. Therefore, a relatively small change in the cap rate or market pricing multiple can have a significant impact on the total fair value produced by the BEV analysis. 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