fair value is also called fair market price and fair price. The price determined by buyers and sellers who are familiar with the situation under the condition of fair trade, or the transaction price at which an asset can be bought and sold by unrelated parties under the condition of fair trade. Under the purchase method, the purchase enterprise needs to use fair value information to record the merger business. The determination of fair value depends on the professional judgment of accountants. In practice, the assets appraisal institution usually evaluates the net assets of the merged enterprise.
the fair value of the net assets of the merged enterprise can be determined as follows: (1) the securities are determined according to the current net realizable value (see "net realizable value"); (2) Accounts receivable and notes receivable are determined according to the amount expected to be collected in the future, discounted at the current actual interest rate, minus the estimated bad debt loss and collection cost; (3) The inventory of finished products and commodities shall be determined according to the estimated selling price minus the liquidation expenses and reasonable profits; (4) In the product inventory, it shall be determined according to the estimated product price after completion minus the costs, liquidation expenses and reasonable profits to be incurred at the time of completion; (5) Raw materials are determined according to the current replacement cost; (6) Fixed assets should be treated according to different situations: the fixed assets that can still be used should be priced according to the current replacement cost of fixed assets with similar production capacity, unless it is expected that the use of these assets will produce lower value to the purchasing enterprise in the future; For the fixed assets that will be sold or held for a period of time (but not used) before being sold, they can be priced according to the net realizable value; For fixed assets that are temporarily used for a period of time and then sold, after confirming the depreciation in the future use period, they are priced at the net realizable value; (7) The identifiable intangible assets such as patent right, trademark right, lease right and land use right are valued according to the assessed value, and the goodwill is determined according to the difference between the investment cost of the purchasing enterprise and the confirmed fair value; (8) Other assets, such as natural resources and long-term investments that cannot be listed and traded, are determined according to the assessed value; (9) Liabilities such as accounts payable, notes payable and long-term loans are determined according to the amount to be paid in the future and the amount discounted at the current interest rate; (1) Contingencies and contractual obligations, such as the payment caused by unfavorable lease agreement, the contract's constraint on enterprises, and the upcoming fixed assets liquidation expenses, should be fully estimated and valued at the present value discounted at the actual interest rate at that time according to the expected amount of payment.
as long as an identifiable asset and liability is merged, it is necessary to determine its fair value, such as the research and development cost of the enterprise, the cost of action plan, the cost of developing a formula, and so on.
the significance of determining the fair value of the net assets of the merged enterprise (1) as the base price of the merged enterprise, it forms the basis for determining the effectiveness price of both parties to the property right transaction; (2) The difference between the fair value of net assets and the book value of net assets is the appreciation or depreciation of the net assets of the merged enterprise; The difference between the investment cost of the purchasing enterprise and the fair value of the net assets of the merged enterprise is goodwill or negative goodwill (see "goodwill and negative goodwill"); Under the full equity method, the above difference must be amortized within the benefit period of the asset, so fair value is one of the important bases for determining the value of goodwill (see "equity method"). Although it is recorded at book value under the equity combination method, fair value still has special significance to it, that is, fair value is still used as the basis for determining the number of shares payable in exchange for net assets, so as to make the transaction more reasonable.
the measurement of fair value in the new accounting standards and its impact:
1. the measurement of fair value of investment real estate and its impact
the investment real estate regulated in the accounting standards for enterprises No.3-investment real estate refers to the real estate that can be measured and sold separately and held by enterprises to earn rent or increase capital, including rented buildings, land use rights that have been rented or held and are ready to be transferred after increasing value. This criterion provides two optional measurement modes for investment real estate of enterprises: cost mode and fair value mode. Under the cost model, the investment real estate is depreciated or amortized according to the standards of fixed assets and intangible assets, and the impairment test is carried out at the end of the period, and the corresponding impairment reserve is accrued; If there is conclusive evidence that its fair value can be obtained continuously and reliably, the enterprise can adopt the fair value measurement model. The depreciation, impairment or amortization value of investment real estate measured by fair value is directly reflected in the change of fair value, and it will affect the profit of the enterprise through the "gain and loss of fair value change", instead of being separately accrued. Affected by this, in the context of the current rising real estate prices, commercial and real estate enterprises with buildings for rent or land use rights to be appreciated will be positively affected. However, the houses and buildings for sale owned by real estate development enterprises are accounted for as the inventory of enterprises, and their valuation basis still adopts the cost model, which is not affected by the appreciation of fair value. Even if such enterprises sell their houses and buildings for rent in order to apply the fair value measurement model, in the first year of the implementation of the standards, the part whose fair value exceeds the book cost can only adjust the shareholders' equity at the beginning, and will not affect the profits of that year. Therefore, there is no theoretical basis for predicting that the real estate industry will see a large-scale performance increase in 27 due to changes in the new accounting standards. Of course, if the real estate market remains bullish during or after 27, the benefits brought by the new accounting standards will gradually emerge.
2. Fair value measurement of financial instruments and its impact
According to the Accounting Standards for Business Enterprises No.22-Recognition and Measurement of Financial Instruments, financial instruments measured at fair value mainly include transactional financial assets and financial liabilities, such as stocks, bonds and funds purchased by enterprises from the secondary market for the purpose of making full use of idle funds and earning price differences; Another example is that enterprises are not used as derivatives of effective hedging instruments, such as forward contracts, futures contracts, swaps and options. In addition, enterprises can directly designate certain financial assets or financial liabilities to be measured at fair value based on the needs of risk management or to eliminate the inconsistency in accounting recognition and measurement of financial assets or financial liabilities. The reported value of these financial instruments classified as fair value measurement is the market value, and its changes are directly included in the current profit and loss. This also means that if an enterprise can better grasp the market conditions and trends, its performance will increase with the increase of "fair value change gains and losses"; On the contrary, if an enterprise's investment strategy is inconsistent with the market situation, its current profit will be damaged. Therefore, the measurement attribute of fair value can be regarded as a "double-edged sword", which is quite different from the old criterion of "reporting only worries but not good news", so that the reported value of financial instruments is often underestimated.
3. Fair value measurement of other businesses and its impact
According to incomplete statistics, in the new accounting standards system, at least 17 of the 38 specific standards that have been promulgated at present have used the fair value measurement attribute to varying degrees, and besides the two items analyzed above, there are also transactions or events such as non-monetary asset exchange, debt restructuring and enterprise merger under non-common control. The reason why the new accounting standards adopt the fair value measurement model for these transactions or events is mainly due to the principle that substance is more important than form. For example, for the exchange of non-monetary assets between enterprises with commercial essence, adopting fair value to measure the assets exchanged and exchanged is essentially to confirm the "sale" and "purchase" of non-monetary assets of enterprises, and the difference between the fair price and book price of "sold" assets is the income realized by enterprises. However, similar businesses can only be priced at book cost under the old accounting standards, and the difference between fair value and book value cannot be recognized as enterprise profits and losses; Similarly, if the fair value of non-monetary assets used by an enterprise to pay off debts in debt restructuring is higher than its book value, the higher part, together with the debt exemption obtained, can increase the current profit; In a business combination that is not under common control, the difference between the fair value of assets paid by the buyer and the book value of liabilities incurred or assumed by the buyer is reflected in the current profit and loss of the enterprise. The adoption of fair value measurement mode in these transactions overcomes the defect of underestimating the asset value of enterprises due to the adoption of cost valuation mode, so as to reflect the asset value and operating performance of enterprises more truly.
the new accounting standard "fair value" records the assets and liabilities of the merged company according to "fair value", which will bring the benefits of tax deferral to the participants in the merger and integration. The new accounting standard gives enterprises greater flexibility in dealing with the "goodwill" generated in the merger. This is in line with international practice and is structurally beneficial to the active M&A industry.
With the alternation of old and new accounting standards, the concept of "fair value" may be the most concerned in the capital market, which is also the biggest change in the integration of new accounting standards with international accounting standards, and the depth and breadth of its influence are still difficult to predict.
however, first of all, it is clear that "fair value" only affects accounting information, not the actual operation of the company, and from the perspective of DCF valuation, its impact on the company's value is limited. In addition, "New Accounting Standard No.3-Investment Real Estate" clarifies that the scope of its standardized investment real estate is: "1. The right to use the leased land; 2. Land use rights that are held and ready to be transferred after appreciation; 3. Leased buildings ",therefore, real estate companies and commercial retail companies are little affected by the changes of the new standards, and most of their properties are not applicable to this standard." Value revaluation "in these two industries, especially the retail industry, reflects the concept of" net realizable value "to a greater extent, and its stimulation should be attributed more to mergers and acquisitions than to changes in accounting standards.
The influence of "fair value" on accounting information is mainly reflected in two new standards-Accounting Standards for Business Enterprises No.3-Investment Real Estate and Accounting Standards for Business Enterprises No.2-Business Combination. In the merger of enterprises not under the same controller, major changes have taken place in the business entity, and the records of the assets and liabilities of the acquired party are reflected in "fair value", which does not affect the principle of consistency and comparability. There is no great controversy on income tax, because it is unlikely to realize "current income" in the process of M&A transactions, and even if it is realized, its amount is limited. In business combination, "fair value" is a necessary method. The merger premium paid by the main and merged companies is divided into two parts: 1) assets and liabilities are accounted for according to "fair value", and 2) the part where the consideration exceeds "fair value" is recorded as "goodwill". Therefore, it is reasonable to predict that the depreciation base of the future assets of the main and merged companies will exceed the simple sum of the merged enterprises, thus producing the effect of deferred income tax.
The changes of the new standards in business combination are also reflected in the following aspects: 1) Not recording "negative goodwill" (or "merger spread"), but paying the part whose consideration is lower than "fair value" and increasing "current income". Although this situation rarely happens, it is enough to attract attention: In the past, enterprises only brought non-recurring income by disposing of assets or equity; In the future, the merger of enterprises not under the same controller may also bring current income to the main and merging parties; 2) "Goodwill" is no longer amortized year by year, but is tested for impairment every year. Once the impairment loss is confirmed, it cannot be reversed in subsequent years. This regulation actually gives enterprises great flexibility: if you pay attention to the current income index, you can leave it alone; If we pay attention to cash flow, we can accelerate the impairment to obtain income tax deferral.
However, it is controversial to record "investment real estate" with "fair value". At present, it is impossible to accurately predict the company's reaction because "fair value" has the freedom to choose or not to choose. In the past, the "investment real estate" was basically accounted for in the cost of acquisition or construction, and depreciated every year, so its net book value was significantly lower than its fair value. Once the enterprise changed its recording method, it would have a great impact on the current profits. However, how to deal with the income tax obligation of this part of profits? The following ways can be discussed:
1. The income tax obligation is in the current period. It is estimated that ordinary enterprises will not choose this method unless the major shareholders want to issue additional shares or cash out, with the main goal of raising the stock price.
2. The income tax obligation arises when the property is sold, which is in line with international practice, but the tax system in China is difficult to support. If an enterprise chooses "fair value" for bookkeeping, it will not generate the current tax obligation, but the impairment in the following years will reduce the current income, which is beneficial to tax avoidance. If the tax law is so agreed, the enterprise will have a high enthusiasm for choosing "fair value".
3. Allow enterprises to share in a few years. However, the behavior of enterprises is different, and it is difficult to match. In addition, when investing in real estate transactions, other taxes and fees such as land value-added tax are also generated, so it is difficult for enterprises to estimate in advance, and the comparability of subsequent years will be affected, but the enthusiasm of enterprises to choose new standards will be higher. From the perspective of shareholder value, the best way for enterprises is to obtain tax deferred benefits as much as possible and reduce cash outflow. Those companies that control accounting information in a speculative manner regardless of long-term operating value should arouse investors' vigilance.