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THE JUDGE WOULDN’T IGNORE THIS “ROUNDING ERROR”

June 2017 | Issue 86 Background Constellis Group,  Inc. is a private security firm.  In December 2013, the Company formed an Employee Stock Ownership Plan (“ESOP”), which purchased 100% of Constellis’s voting stock.  Wilmington Trust NA was named Trustee of the ESOP.  Less than a year after the ESOP was created, the ESOP sold all […] More...

NEW JERSEY COURT USES VALUATION DISCOUNT TO PUNISH “BAD BOY”

March 2017 | Issue 85 Introduction Richard and Steven Parker are brothers who ran a flower business in Scotch Plains, New Jersey.  Richard is the President of Parker Interior Plantscapes (“PIP”), which installs and services plants and flowers in commercial settings.  Steven is the President of Parker Wholesale Florists (“PWF”), which is a garden center.  […] More...

Dell Appraisal Spawns a Multitude of Valuation Approaches

February 2017 | Issue 84 Introduction A Delaware Chancery appraisal case involving computer company Dell Inc. gave rise to a multitude of valuation measurements.  It is instructive to see how the court sorted through them in coming up with its final appraisal conclusion.  The case is In re Appraisal of Dell Inc., 2016 Del. Ch. LEXIS […] More...

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Goodwill Impairment Valuations

Post-Transaction Valuation of Intangible Assets (Impairment Studies)
ASC 360, (formerly SFAS No. 144), Accounting for the Impairment or Disposal of Long-Lived Assets, applies to recognized long-lived assets (tangible or intangible) of an entity to be held and used or to be disposed of. ASC 360 does not apply to goodwill and other indefinite-lived intangibles.  Under ASC 360, an impairment loss will be recognized only if the carrying amount of a long-lived asset (asset group) is (i) not recoverable and (ii) exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group).  A long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  Complexities of a ASC 360 analysis include determination of the appropriate asset or asset group base and identification of a cash flow stream specific to the asset or asset group.

ASC 350, (formerly SFAS No. 142), Goodwill and Other Intangible Assets, addresses financial accounting and reporting for acquired goodwill and other intangible assets.  It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets acquired in a business combination should be accounted for after they have been initially recognized in the financial statements.

According to ASC 350, an identifiable intangible asset (not goodwill) that is not subject to amortization is to be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test for goodwill or an indefinite lived identifiable intangible asset consists of a comparison of the measurement date fair value of the intangible asset with its carrying amount. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.  Aside from goodwill, common examples of assets tested pursuant to this method include acquired trademarks and trade names which can be assigned indefinite lives as of the acquisition date.

The valuation professionals at Hempstead & Co. have extensive experience in dealing with the complex valuation issues related to goodwill impairment. We welcome the opportunity to be of service.