The purchase method with the goodwill impairment can resolve the raised concerns and issues in the following ways:
- Firstly, the problem of yearly Amortization was over with the precedence of the Impairment over it, this would be conducted with an Impairment test annually which would analyze the fair value of the goodwill being reduced or not. If the test confirms that the fair value of the units have increased then no impairment will be reduced from the financial statements.
- The second important thing in the impairment testing of the Goodwill was that, it was accorded into the reporting units of the entity, which would be under the control of the management. In this way the Goodwill will be specific to units and not in general, this would create the identification of the impairment test items with respect to certain reporting units as described by the organization.
These factors resolves the concerns of POWELL as this would be helpful to the IT COMPANIES such as CISCO who would be able to base their Goodwill according to their reporting units or intangible assets. The areas will be identified and if the impairment has not occurred then this will not create an impact on the Income statement of the organization.
Price offered more than book value:
Cisco Company has contemplated to acquire another company at price more than the book value and pre- market value in order to take the full hold and control on the company. The company has been offering price more than the book value of Arrowpoint Company to ward off the competition and to close the deal.
The company might pay acquisition premium because of the future prediction that acquisition would most likelycreate synergy, also the created synergy would be greater as compared to the total acquiring cost.(Eccles, 2017)
The company might also offer higher price by keeping in mind following listed factors:
- Competition within an industry.
- Other bidder’s presence.
- Motivation of the seller and buyer.
Price offered more than pre-market value:
The stock of the company being targeted by Cisco Companyhas raised when the company has announced that it would acquire ArrowPoint Company sooner, the target stock price has raised due to the premium that the cisco company is ready to pay for the acquisition.
The purpose for the acquisition premium is that the shareholders of the target company whose approval regarding the takeover is essentialwould unlikely to make approval of the acquisition until and unless the price of the stock is beyond the prevailing market price.
If the bid of the takeover tends to be equates to the lower price of the stock as compared to the current price of the target company, the target company’s current owners would get less incentive in selling their shares to the acquiring company (Why Companies Overpay For Acquisitions, 2016)…………………..
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