BARDEEN ELECTRIC: FASB ASC AND IFRS RESEARCH CASE

On October 18, 2017, Armstrong Auto Corporation ("Armstrong")announced its plan to acquire 80 percent of the outstanding 500,000shares of Bardeen Electric Corporation’s ("Bardeen") common stockin a business combination following regulatory approval. Armstrongwill account for the transaction in accordance with ASC 805,“Business Combinations.”

On December 1, 2017, Armstrong purchased an 80 percentcontrolling interest in Bardeen’s outstanding voting shares. Onthis date, Armstrong paid $40 million in cash and issued onemillion shares of Armstrong common stock to the sellingshareholders of Bardeen. Armstrong’s share price was $26 on theannouncement date and $24 on the acquisition date.

Bardeen’s remaining 100,000 shares of common stock had beenpurchased for $3,000,000 by a small number of original investors.These shares have never been actively traded. Using other valuationtechniques (comparable firms, discounted cash flow analysis, etc.),Armstrong estimated the fair value of Bardeen’s noncontrollingshares at $16,500,000.

The parties agreed that Armstrong would issue to the sellingshareholders an additional one million shares contingent upon theachievement of certain performance goals during the first 24 monthsfollowing the acquisition. The acquisition-date fair value of thecontingent stock issue was estimated at $8 million.

Bardeen has a research and development (R&D) projectunderway to develop a superconductive electrical/magneticapplication. Total costs incurred to date on the project equal$4,400,000. However, Armstrong estimates that the technology has afair value of $11 million. Armstrong considers this R&D asin-process because it has not yet reached technological feasibilityand additional R&D is needed to bring the project tocompletion. No assets have been recorded in Bardeen’s financialrecords for the R&D costs to date.

Bardeen’s other assets and liabilities (at fair values) includethe following:

Cash	$?425,000
Accounts receivable	788,000
Land	3,487,000
Building	16,300,000
Machinery	39,000,000
Patents	7,000,000
Accounts payable	(1,500,000)

Page 210Neither the receivables nor payables involveArmstrong.

Answer the following questions citing relevant support from theASC and IFRS.

1. What is the total consideration transferred by Armstrong toacquire its 80 percent controlling interest in Bardeen?

2. What values should Armstrong assign to identifiable intangibleassets as part of the acquisition accounting?

3. What is the acquisition-date value assigned to the 20 percentnoncontrolling interest? What are the potential noncontrollinginterest valuation alternatives available under IFRS?

4. Under U.S. GAAP, what amount should Armstrong recognize asgoodwill from the Bardeen acquisition? What alternative goodwillvaluations are allowed under IFRS?