Video instructions and help with filling out and completing How Form 1094 B Entities

Instructions and Help about How Form 1094 B Entities

Welcome to our podcast on asu number 2015-16 simplifying the accounting for measurement period adjustments in this podcast we will compare the current US GAAP requirements to the amended guidance give you a quick reminder of what the measurement period is and describe the new required disclosures my name is Paul Fahad and joining me in this podcast is Casey miles we are both senior managers in KPMG's department of professional practice in new york thanks for the faz be released this asu in September 2015 as part of its simplification initiative as such the provision of the standard is expected to reduce cost and complexity for reporting entities while maintaining the usefulness of the information to users of the financial statements Paul maybe you could walk us through some of the ways the asu will impact measurement period adjustments sure Casey under current guidance if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs the acquirer reports in its financial statements provisional amounts for the items in which the accounting is incomplete then during the measurement period when your information is obtained about facts and circumstances that existed as of the acquisition date that if known would have affected the measurement of the amounts initially recognized the acquirer must retrospectively adjust the provisional amounts recognized at the acquisition date to reflect that information with the corresponding adjustment to good well the acquirer also must revise comparative information for prior periods presented in financial statements including making changes to income effects as a result of changes made to provisional amounts to simplify and reduce the accounting for adjustments made to provisional amounts recognized in a business combination the ASU requires the acquirer to recognize measurement period adjustments to provisional amounts and the reporting period in which the adjustments are determined the acquirer also would record in the same periods financial statements the effects on earnings of changes in depreciation amortization or other effects as a result of the change to the provisional amounts calculated as if the accounting had been completed at the acquisition date so let me make sure I understand once an entity records provisional amounts in a given year those amounts won't be revised in future periods that's correct the measurement period adjustments are calculated as if they were known at the acquisition date but they are recognized in the reporting period they are determined now that we've gone through how the amendments and this ASU affect the current guidance maybe you can remind us of some basics of measurement period adjustments KC sounds good Paul let me take a moment to level set and make sure that everyone is on the same page regarding measurement period adjustments as set forth in ASC 805 the measurement period is a reasonable time period after the acquisition date and during this time period an acquirer can adjust the provisional amounts which were recognized for a business combination if the information necessary to complete the accounting is not available for example entities may have to record provisional amounts related to a business combination if appraisals are required to determine the fair value of the tangible and intangible assets acquired and the appraisals aren't available by the time the financial statements are issued this scenario is fairly common when a business combination is consummated near the end of the acquirers reporting period it's also important to note that the measurement period ends as soon as the acquirer receives the necessary information or learns that more information is not obtainable in any case the measurement period can't continue for more than one year from the acquisition date great summary kc let's walk through a quick example of how a su 2015-16 impacts a company that needs to record a measurement period adjustment assume that Company C acquired target T on the first day of October Company C hires an independent valuation specialist in order to obtain an appraisal for the acquired PP&E company ceased financial statements are available to be issued on February 28 of the following year and the appraisal of raw PP&E is incomplete at that time company ceased preliminary estimate of the fair value of PPE is thirty thousand dollars and they recognized a provisional fair value of thirty thousand dollars in the December 31st financial statements the pbi knee has a useful life of five years so at December 31st Company C recognizes depreciation expense of $1,500 in six months on March 30 Company C receives the finalized appraisal estimating the fair value of PP NE at forty thousand dollars which is ten thousand dollars more than what it has recorded in its provisional amounts so Casey given that fact pattern what is the difference in the company early adopting the new ASU and accounting for it under the current requirements so now the company c has received the appraisal and it's near the end of march under current guidance they would go back and retrospectively adjust the december 31st financial statements they would do this by recording an increase to PP NE of ninety five hundred dollars which represents the ten-thousand-dollar increase to the fair value over the provisional amounts that were recorded less than five hundred dollars in depreciation that needs to be recognized for the last three months of the year they would increase depreciation in the income statement by five hundred dollars and reduce goodwill by ten thousand dollars since the pp and E had more value than initially estimated in the provisional amount under a su 2015-16 the December 31st financial statements are not retrospectively adjusted and Company C recognizes the adjustment in its March 31st financial statements in the same period that the appraisal was finalized as such they're going to recognize an increase to PP any of nine thousand dollars which represents the ten-thousand-dollar increase to the fair value over the provisional amounts recorded less depreciation of one