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 noncontrolling 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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