Alice O. Perry
ACC 401/ Advance Accounting
Professor: Robert Neely
November 30, 2012
Microsoft acquired Skype, the leading Internet communications company, for $8.5 billion in cash from the investor group led by Silver Lake on May 10, 2011. The acquisition has increased the accessibility of real-time video and voice communications, bringing benefits to both consumers and enterprise users and generating significant new business and revenue opportunities. The combination has extended Skype’s world-class brand and the reach of its networked platform, while enhancing Microsoft’s existing portfolio of real-time communications products and services (Ballmer, 2011).
Analyze the accounting requirements for the business combination and discuss challenges in preparing the financial statements for the consolidation of subsidiaries on the date of acquisition. On October 13, 2011, Microsoft acquired all of the issued and outstanding shares of Skype Global S.á r.l. ("Skype"), which is a leading global provider of software applications and related Internet communications products based in Luxembourg, for $8.6 billion, primarily in cash. The major classes of assets and liabilities to which we allocated the purchase price were goodwill of $7.1 billion, identifiable intangible assets of $1.6 billion, and unearned revenue of $222 million. The goodwill recognized in connection with the acquisition is primarily attributable to our expectation of extending Skype's brand and the reach of its networked platform, while enhancing Microsoft's existing portfolio of real-time communications products and services. Microsoft assigned the goodwill to the following segments: $4.2 billion to Entertainment and Devices Division, $2.8 billion to Microsoft Business Division, and $54 million to Online Services Division. Skype was consolidated into our results of operations starting October 13, 2011, the acquisition date. Following are the details of the purchase price allocated to the intangible assets acquired: (In millions) Weighted Average Life| | WeightedAverage Life| Marketing-related (trade names) $1,249 15 years| $ 1,249| 15 years| Technology-based 275 5 years| 275| 5 years| Customer-related 114 5 years| 114| 5 years| Contract-based 10 4 years| 10| 4 years| Total $ 1,648 13 years| $ 1,648| 13 years|
During fiscal year 2012, we completed an additional four acquisitions for total consideration of $87 million, substantially all of which was paid in cash. During fiscal year 2011, Microsoft acquired three entities for total consideration of $75 million, substantially all of which was paid in cash. During fiscal year 2010, Microsoft acquired five entities for total consideration of $267 million, substantially all of which was paid in cash. During fiscal year 2010, we also sold three entities for total consideration of $600 million, including Razorfish in the second quarter of fiscal year 2010. These entities have been included in or removed from their consolidated results of operations since their acquisition or sale dates, respectively (Business Combinaitons, 2010). Evaluate the amount of...