BUSINESS COMBINATION Its Provisional Amount must be obtained from those
facts and circumstances EXISTING on acquisition date.
Otherwise, CHANGE IN VALUE within or beyond the
IFRS 3 defines Business Combination as “Acquirer
measurement period shall reflect to PROFIT or LOSS,
(parent) obtains CONTROL over the acquire
thus, NO EFFECT to GW (GBP)
(subsidiary)”
Use ACQUISITION METHOD ONLY
IF ASSET IF EQUITY
Steps to consider under acquisition method:
On Acquisition Date On Acquisition Date
1. Identify the ACQUIRER
- recognize CONTINGENT - Contingent Liability is
2. Determine the ACQUISITION DATE
LIABILITY (FIN. LIAB.) NOT RECOGNIZED
3. Determine the CONSIDERATION
whether probable or
4. Recognize & measure the identiable assets
possible
acquired, liabilities assumed, any NCI in the
acquire
5. Recognize & measure any resulting Goodwill or Change in value WITHIN Change in value WITHIN
Gain on Bargain Purchase on business the measurement the measurement
combination period: period:
- adjust GW (GBP) - DOES NOT affect GW
FV of consideration & net assets acquired shall be
(GBP)
measured at their ACQUISITION DATE FAIR VALUES
Change in value BEYOND - record only additional
Such fair values are subject to ONE (1) – YR
the measurement shares issuance. Thus,
MEASUREMENT PERIOD from Acquisition Date.
period: original amount NOT
Changes in Values within that period are called
- adjust contingent remeasured
MEASUREMENT PERIOD ADJUSTMENTS affecting GW
consideration to profit or Entry: APIC xxx
(GBP). Thus, generally, shall be accounted for
loss SC xxx
RETROSPECTIVELY.
BASIC FORMULA NOTE 2 NON CONTROLLING INTEREST (NCI)
FV of Consideration Given Up xxx note 1 - arises in <100% interest acquisition but >50% interest of
(+) Non-Controlling Interest (NCI) xxx note 2 Sub’s Ordinary Shares (partially owned Subsidiary)
(+) FV of Previously Held Interest xxx note 3
Initial Carrying Amount xxx INITIAL MEASUREMENT OF NCI
(-) FV of Net Assets Acquired (xxx) note 4 FV of Net Assets Acquired xxx
Goodwill (Gain on Barg. Purc.) xxx note 5 (x) NCI % %
Proportionate Share of NCI xxx OR;
Additional Notes FV of Consideration (EXCL. control premium) xxx (see note)
Asset Acquisition (a) Merger: A + B = A or B (x) NCI % / Acquired % %
(b) Consolidation: A + B = C Implied Fair Value of NCI (unless given) xxx
Stock Acquisition (a) wholly owned (100%) NOTE: FV of Consideration INCLUDES the following (IN
(b) partially owned (<100% but > CASE OF STEP ACQUISITION)
50%) (a) FV of consideration for NEWLY ACQUIRED INTEREST
(b) FV of Previously Held Interest
NOTE 1 FAIR VALUE OF CONSIDERATION
PS on FVNAA > FV of NCI Prop Share of NCI
1. Cash or Other Non-Cash Assets automatically
DECREASES CONSO ASSET on Acquisition Date
Consolidation Fair Value of NCI OR;
FV of NCI > PS on FVNAA
Journal Entry: Investment in Subsidiary xx Prop Share of NCI
Cash/Other Assets xx (whichever is
appropriate)
2. Equity Interest
INCREASES CONSO EQUITY on Acquisition Date Excess PS on FVNAA FV OF NCI
Consolidation Goodwill Partial Total/full
Journal Entry: Investment in Subsidiary xx Gain on BP Partial Partial
Share Capital xx
Share Premium xx If PARTIAL – affects CNI to PARENT (CONSO RE) only
If TOTAL – affects BOTH CNI to PARENT (CONSO RE) and
3. Contingent Consideration NCINI (NCINAS)
At FAIR VALUE or if not measured reliably, at PRESENT
VALUE NOTE: NCI is presented SEPARATELY in CONSO EQUITY on
Acquisition Date Consolidation
NOTE 3 PREVIOUSLY HELD INTEREST NOTE 6 SPECIAL NOTES TO REMEMBER
- Part of Total Consideration/Initial CA of Investment in ACQ DATE COSTS SME NON-SME
Subsidiary in case of ACHIEVED IN STAGES ACQUISITION DIRECT COSTS Capitalized Expensed (PL)
(STEP ACQUISITION) INDIRECT COSTS Expensed (PL) Expensed (PL)
- These costs are assumed paid in cash, thus, DECREASES
FV of Previous Investment * xxx CONSO ASSETS at Acquisition Date Consolidation
(-) CA of Previous Investment ** (xxx)
Gain or Loss on Remeasurement xxx STOCK ISSUANCE COSTS (in case equity interest is part of
consideration)
* (Sub FV of NA at the time Control is achieved X Previous 1. Debit to SHARE PREMIUM FROM ORIGINAL
Interest (%) Held = FV of Previous Investment) ISSUANCE
** CA as of the date control is achieved 2. Credit/Debit to SIC ACCOUNT (contra equity
account of the ff:)
Entry: Investment in Subsidiary @ FV xxx a. Other SP – Other issuance
Loss on Remeasurement xxx b. Retained Earnings
Previous Investment@ CA xxx Listing Fee – Expensed as Incurred (Profit or Loss)
Gain on Remeasurement xxx
NOTE: GL on Remeasurement is presented in PROFIT or
LOSS. Thus, this AFFECTS CONSO EQUITY on Acquisition
Date Consolidation
NOTE 4 FAIR VALUE OF NET ASSETS ACQUIRED
* Generally, at acquisition date, Sub’s Identiable Assets
acquired and Liabilities assumed by the parent shall be
adjusted to their ACQUISITION DATE FAIR VALUES
* Exception: NCA Held for Sale of Sub shall be measured at
the LOWER of Book Value & FV – COD
* GOODWILL OF SUBSIDIARY shall be REDUCED TO ZERO
(0)
NOTE 5 GOODWILL (GAIN ON BARGAIN PURCHASE)
* In case of ASSET ACQUISITION, GW (GBP) shall be
recognized at acquisition date since consolidation is
AUTOMATIC
* In case of STOCK ACQUISITON, GW (GBP) shall be
recognized upon CONSOLIDATION ONLY
GOODWILL
- shall be presented as NON CURRENT ASSET @ Balance
Sheet
- INCREASES CONSO ASSETS at Acquisition Date
SME Amortized over 10 years (max)
NONSME Not amortized but subject to impairment
test at least annually
GAIN ON BARGAIN PURCHASE
- shall be presented as part of PROFIT OR LOSS @ Income
Statement
- at Acquisition Date Consolidation, this AFFECTS CONSO
RE thus, CONSO EQUITY
FLOW: PL – IE SUMMARY – CONSO RE – CONSO EQUITY
