Financial Reporting Case 7.2
Case 7.2: Disney Acquisition of Marvel Entertainment
a. The most important business reason for this acquisition is probably that Disney has been looking for new sources of auxiliary revenue brought by Marvel Entertainment.
By acquiring more than 5,000 characters in Marvel’s library, including Iron Man, Spider-Man, X-Men, Captain America, and the Fantastic Four, the acquisition greatly expands Disney’s customers, making Disney more attractive to young adulthood and beyond. b. Goodwill=Fair value of acquisition-Marvel’s total equity =4,000,000,000-454,759,000=$3,545,241,000
c. The higher acquisition makes larger goodwill, that is to say, the premium paid by Disney increases goodwill.
Under the 100 percent acquisition, the 29 percent premium does not affect the computation of goodwill. The only thing that matters is the amount Disney paid to acquire Marvel Entertainment.
In a less than 100 percent acquisition, because of the 29 percent premium, the non-controlling shares are likely differ from the per share consideration given by Disney. The non-controlling interest is measured as the fair value given by Disney and the fair value of the non-controlling shares.
d. If Marvel is dissolved (a merger), Disney will record goodwill and Marvel’s assets and liabilities in its own financial records. Therefore, the consolidation process is unnecessary since there would be no records of Marvel to consolidate.
If Marvel continues to exist as a separate legal entity (an acquisition), Disney will then record the investment in Marvel in its own financial records. The investment account will be replaced by the goodwill and Marvel’s assets and liabilities during the consolidation process.
To note that the financial statements issued by Disney will be the same regardless of whether the business combination is a merger or an acquisition.
e. The nonmonetary asset “Inventories, net” is likely to have a fair value greater than its book value.
a. The most important business reason for this acquisition is probably that Disney has been looking for new sources of auxiliary revenue brought by Marvel Entertainment.
By acquiring more than 5,000 characters in Marvel’s library, including Iron Man, Spider-Man, X-Men, Captain America, and the Fantastic Four, the acquisition greatly expands Disney’s customers, making Disney more attractive to young adulthood and beyond. b. Goodwill=Fair value of acquisition-Marvel’s total equity =4,000,000,000-454,759,000=$3,545,241,000
c. The higher acquisition makes larger goodwill, that is to say, the premium paid by Disney increases goodwill.
Under the 100 percent acquisition, the 29 percent premium does not affect the computation of goodwill. The only thing that matters is the amount Disney paid to acquire Marvel Entertainment.
In a less than 100 percent acquisition, because of the 29 percent premium, the non-controlling shares are likely differ from the per share consideration given by Disney. The non-controlling interest is measured as the fair value given by Disney and the fair value of the non-controlling shares.
d. If Marvel is dissolved (a merger), Disney will record goodwill and Marvel’s assets and liabilities in its own financial records. Therefore, the consolidation process is unnecessary since there would be no records of Marvel to consolidate.
If Marvel continues to exist as a separate legal entity (an acquisition), Disney will then record the investment in Marvel in its own financial records. The investment account will be replaced by the goodwill and Marvel’s assets and liabilities during the consolidation process.
To note that the financial statements issued by Disney will be the same regardless of whether the business combination is a merger or an acquisition.
e. The nonmonetary asset “Inventories, net” is likely to have a fair value greater than its book value.