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Business Combinations (Phase II)

Date recorded:

Measurement date for equity securities issued in a business combination. At yesterday's joint meeting with FASB, an informal combined vote of members of the two Boards showed a slight preference for acquisition date rather than agreement date. Today, IASB voted to support acquisition date (the date that control passes) in the interest of convergence with FASB.

Measurement of employee benefit obligations in connection with an acquisition. IASB agreed to prepare a memorandum to FASB setting out the IASB's reasoning for not remeasuring such obligations.

Assets held for disposal. While IASB has not yet discussed measurement of assets acquired in a business combination that are intended for disposal, IASB staff noted that the measurement approach in IAS 36 differs from the approach in FASB Statement 144 principally in that anticipated disposal costs would be deducted under SFAS 144 but not necessarily under IAS 36. The Board concluded that convergence on this issue should be considered as part of the Convergence Project rather than as part of the Business Combinations (Phase II) Project.

Constructive obligations. These are addressed in IAS 37 but not specifically in FASB Standards (though it is addressed in the FASB Concepts Standards). Members of the IASB Board generally agreed that recognition in an IASB Standard on Business Combinations should be consistent with IAS 37. They suggested that IASB encourage FASB to consider guidance that would be consistent with IAS 37.

Income taxes - net operating loss carryforward. Recognition of a NOL carryforward at the time of a business combination is different under IASB and FASB Standards. This difference can only be addressed as part of a project on accounting for income taxes.

Items whose fair value might be affected by a business combination. The Board discussed whether the fair value of a liability assumed in a business combination should reflect the acquirer's credit rating or the acquiree's credit rating. The Board concluded that, in general, the fair values of all assets and liabilities of the acquiree can be affected by the market's knowledge of a pending business combination. Therefore, in some circumstances depending on observed market adjustments of fair values, the acquirer's credit rating will be reflected in the fair value of an acquired liability.

Inventory. Items of inventory should be measured using a market-based assumption model that incorporates an observable disposition price and market-based calculations of the estimated costs to complete the inventory, including an estimated profit margin and costs to sell.

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