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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Wally Mastroly who wrote (12566)	3/1/2001 1:23:02 PM
From: Boca_PETE	Read Replies (1) \| Respond to of 42834

Wally M; RE: "FASB change in process affecting M&A's" Yes. A previous FASB proposal that had been scheduled to be issued during first quarter 2001 was significantly changed. Both the original and revised proposals ban accounting for mergers by simply adding together the historical book values of the merging companies (know as "pooling-of-interests" accounting). That leaves "Purchase Accounting" for mergers as the only available option. With "purchase accounting", the acquired company is recorded at the "fair value" of shares given to buy the acquired company (usually market value of the shares). The difference between the market value of the shares given and the book value of the company acquired is called "Goodwill" which is set up on the balance sheet of the combined company. Here is were FASB revised their proposal. - The original proposal required charging "Goodwill" against future earnings over a maximum of 20 years (current rules permit a 40 year write-off of Goodwill). - The revised proposal likely to be enacted mid year 2001 abandons systematic charge off of Goodwill to earnings. It adopts a so called "Impairment Approach" similar to the current requirement to write down assets to fair value when certain conditions of permanent impairment are met for that asset. This is a positive development for high tech companies that make lots of company acquisitions with their stock (which had been way over valued as of last Spring). Under the revised proposal, these company's future earnings won't be penalized by arbitrary write-offs of Goodwill from these acquisitions. The new rule will affect mergers announced after the rule becomes effective mid 2001. That's the scoop - hopefully expressed in a way most can understand it. P