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 fair trade conditions, or the transaction price at which no related party can buy or sell an asset under fair trade conditions. Under the purchase method, the purchasing 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, asset appraisal institutions usually evaluate the net assets of the acquired enterprises.

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 discounted at the current actual interest rate according to the amount expected to be recovered in the future, and determined by subtracting the expected bad debt loss and recovery cost; (3) The inventory of finished products and commodities shall be determined according to the estimated selling price minus liquidation expenses and reasonable profits; (4) The product inventory shall be determined according to the estimated product price after completion minus the costs, liquidation expenses and reasonable profits that will occur upon completion; (5) Raw materials are determined according to the current replacement cost; (6) Fixed assets should be treated differently: the fixed assets that can 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 fixed assets that will be sold or held for a period of time (but not used) before sale, they can be priced according to the net realizable value; Fixed assets sold after temporary use for a period of time shall be valued at net realizable value after depreciation is confirmed during future use; (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) Natural resources, long-term investments and other assets that cannot be listed and traded shall be 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; (10) Contingencies and contractual obligations, such as payments caused by unfavorable lease agreements, constraints of contracts on enterprises, and upcoming expenses for clearing fixed assets, shall be fully estimated, and the estimated payment amount shall be valued at the present value discounted at the current actual interest rate.

As long as the identifiable assets and liabilities are merged, it is necessary to determine their fair values, such as the R&D 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 constitutes the basis for determining the effective 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 increase or decrease 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 during the benefit period of the asset, so fair value is one of the important basis 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 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 new accounting standards and its influence;

1. Fair value measurement of investment real estate and its influence

The investment real estate stipulated in Accounting Standards for Business Enterprises No.3-Investment Real Estate refers to the real estate held by an enterprise to earn rent or capital appreciation, which can be measured and sold separately, including leased buildings and land use rights that are leased or held and ready to be transferred after appreciation. This criterion provides two alternative measurement modes for enterprise investment real estate: cost mode and fair value mode. Under the cost model, 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, enterprises 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, which will affect the profit of the enterprise through "gains and losses from changes in fair value" instead of being accrued separately. Affected by this, in the context of 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 used as enterprise inventory accounting, and their pricing basis is still based on the cost model, which is not affected by the appreciation of fair value. Even if such enterprises sell 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 fair value exceeding the book cost can only be adjusted at the beginning of the year, which will not affect the profits of that year. Therefore, there is no theoretical basis to predict the large-scale performance growth of the real estate industry in 2007 because of the changes in the new accounting standards. Of course, if the real estate market maintains a bull market during or after 2007, 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 Enterprises No.22-Recognition and Measurement of Financial Instruments, financial instruments measured at fair value mainly include trading financial assets and financial liabilities such as stocks, bonds and funds purchased from the secondary market for the purpose of making full use of idle funds and earning price difference. Another example is that the enterprise has no derivatives used as effective hedging tools, 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 in order 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 market value, and its changes are directly included in the current profit and loss. This also means that if the enterprise can better grasp the market situation and trends, its performance will increase with the increase of "fair value change profit and loss"; 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 good news but not worrying", 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 use the fair value measurement attribute to varying degrees. In addition to the above analysis, there are other transactions or events such as non-monetary assets exchange, debt restructuring, and enterprise merger under different 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, the assets exchanged and exchanged by fair value measurement are essentially to confirm the "sale" and "purchase" of non-monetary assets of enterprises, and the difference between the fair value and book value of "sold" assets is the income realized by enterprises. 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 not under the same control, the difference between the fair value of assets paid by the buyer and the book value of liabilities incurred or undertaken by the buyer shall be included in the current profits and losses of the enterprise. Adopting the fair value measurement model in these transactions overcomes the defect of underestimating the asset value of enterprises because of adopting the cost valuation model, thus reflecting 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 tax deferred benefits to the participants in the merger and integration. The new accounting standards give enterprises more 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 the 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 the new accounting standards with international accounting standards, and the depth and breadth of its influence are still unpredictable.

However, the first thing to be clear is that "fair value" only affects accounting information and does not affect the actual operation of the company. From the perspective of DCF valuation, the impact on the company's value is limited. In addition, the New Accounting Standard No.3-Investment Real Estate clearly stipulates that its scope of regulating investment real estate is: "1. Leased land use right; 2. Land use rights held and ready to be transferred after appreciation; 3. Leased buildings ",therefore, real estate companies and commercial retail companies are less affected by the changes in the new standard, and most of their properties are not applicable to this standard. The "revaluation" of these two industries, especially the retail industry, embodies the concept of "net realizable value" to a greater extent, and its stimulating effect 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.20-Business Combination. In the merger of enterprises not under the same control, the business entity has undergone major changes, and the records of the assets and liabilities of the acquired party are reflected by "fair value", which does not affect the principles of consistency and comparability. Income tax is not controversial, because it is impossible to realize "current income" in the process of M&A transaction, and even if it is realized, its amount is limited. "Fair value" is a necessary method in business combination. The merger premium paid by the main merger company is divided into two parts: 1) assets and liabilities are accounted for at "fair value", and 2) the part of the consideration paid that exceeds "fair value" is recorded as "goodwill". Therefore, it is reasonable to predict that the depreciation base of the future assets of the merged company will exceed the simple sum of the merged enterprises.

The change of the new standard in business combination is also reflected in: 1) not recording "negative goodwill" (or "merger spread"), paying the part whose consideration is lower than "fair value" and increasing "current income". Although this rarely happens, it is enough to attract attention: in the past, enterprises only brought non-recurring income through the disposal 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 future years. This provision actually gives enterprises great flexibility: if you are concerned about the current income index, you can ignore it; If we pay attention to cash flow, we can accelerate the impairment to get income tax deferred.

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 for the company. In the past, "investment real estate" was basically accounted for in the purchase or construction cost, and depreciated every year, so its net book value was obviously lower than its fair value. Once an enterprise changes its recording method, it will have a great impact on the current profit. 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 general enterprises will not choose this method, unless major shareholders want to issue additional shares or cash out, and the main goal is to raise the stock price.

2. The obligation to pay income tax when real estate is sold is in line with international practice, but China's tax system is difficult to support. If an enterprise chooses "fair value" for bookkeeping, it will not incur the current tax obligation, but the impairment in future years will reduce the current income and be beneficial to tax avoidance. If the tax law so stipulates, enterprises will have a high enthusiasm for choosing "fair value".

3. Allow enterprises to divide into several years. However, the behavior of enterprises is different and it is difficult to match. In addition, when investing in real estate transactions, there will be other taxes and fees such as land value-added tax, which is difficult for enterprises to predict 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 revenue as much as possible and reduce cash outflow. Companies that control accounting information in a speculative way regardless of long-term business value should arouse investors' vigilance.