ACCOUNTING FOR BUSINESS COMBINATION DETERMINE THE ACQUISITION DATE

ABC The date:

 When the investor obtains control of the acquiree
1 ACCOUNTING FOR BUSINESS COMBINATION  On which the acquirer legally transfers the consideration, acquires
the assets, and assumes the liabilities of the acquiree.
Business Combination
IFRS 3 RECOGNIZE AND MEASURE THE IDENTIFIABLE NET ASSETS AND NON-
 A transaction or other event in which an acquirer obtains control of CONTROLLING INTERESTS
one or more business  Recognition Principle – asset and liabilities
 Transactions sometimes referred to as ‘true mergers’ or ‘mergers of  Measurement Principle:
equals’ are also business combinations o Identifiable net assets – Fair value
 An entity’s purchase of a controlling interest in another unrelated o NCI – Fair value or proportionate share basis
operating entity is also a business combination
 An integrated set of activities and assets that is capable of being Consideration Transferred
conducted and managed for the purpose of providing a return in the  Assets transferred by the acquirer
form of dividends, lower costs, or other economic benefits directly to  Liabilities incurred by acquirer to former owners of the acquiree
investors or other owners, members, or participants.  Equity interests issued by the acquirer
 Contingent considerations (if any)
Method of Accounting for Business Combination
Acquisition Methods Cost and Expenses of Business Combination
1. Identify the acquirer 1. Directly Attributtable Cost – Professional fees, legal advisers,
2. Determine the acquisition date consultants = EXPENSED
3. Recognize and measure the identifiable net assets 2. Indirect Acquisition Costs – General and administrative expenses =
4. Recognize and measure goodwill or gain from bargain purchase EXPENSED
3. Cost of Issuing Securities – Transaction costs such as stamp duties,
IDENTIFYING THE ACQUIRER underwriter cost, brokerage fees. = DEBIT TO ADDITIONAL PAID-IN
Acquirer – obtains control of the acquiree CAPITAL/SHARE PREMIUM
IFRS 10 – an investor control and investee if and only if all of the following
exist:
1. Power over the investee
2. Exposure or rights to variable returns
3. Ability to use its power over the investee

Acquisition of Control (Legal Perspective)

 Acquisition of Net Assets
 Stock acquisition
2 SUBSEQUENT MEASUREMENT AND ACCOUNTING  Contingent considerations included in the cost of combination shall
be measure at its present value.
Non-Controlling Interest (NCI)
 The amount of those non-controlling interest at the date of the Changes in Contingent Consideration
original combination calculated under revised PFRS 3  Within 1 year from the acquisition date = adjustments to the original
 The non-controlling’s share of changes in equity since the date of accounting and goodwill is affected.
combination  More than 1 year from the acquisition date = adjustments is included
in the profit or loss for the later period.
NCI Measurements
IFRS 3
 Fair Value
- Goodwill is allocated between the parent and the NCI
 Proportionate Share Basis
- Proportionate share of the net identifiable assets.
- Goodwill is assigned only to the parent company

Control Premium
 There are instances where the fair value of the NCI is already given
 If that is the case, then the FV of the NCI will be used
 Control Premium and discounts are also given sometimes
 Control Premium is the amount that a buyer is willing to pay over the
current market price of a publicly traded company.

Business Combination Achieved in Stages

 Step-acquisition – a business combination where it involves more
than one exchange transaction, or when there are successive share
purchases.

Fair Value of Previously Held Equity

 The acquirer shall measure its previously held equity interest in the
acquiree at its acquisition-date fair value and recognize the resulting
gain or loss, if any, in profit or loss.

Business Combination – Contingent Consideration

Contingent Consideration
 Are considerations that oblige the acquire to transfer additional
assets or equity interest to the acquiree.
3 CONSOLIDATION: DATE OF ACQUISITION
Procedures for Consolidation
Consolidation and Control  Combine like items of assets, liability, equity, income, expenses, and
Consolidation cash flows of the parent with those of its subsidiaries
The process of combining the assets, liabilities, earnings and cash  Eliminate the carrying amount of the parent’s investment in each
flows of a parent and its subsidiaries as if there were one economic entity subsidiary and the parent’s portion of the equity in each subsidiary
 Eliminate in full the intercompany assets, liabilities, equity, income,
Parent. An entity that controls one or more subsidiaries expenses, and cash flows relating to transactions between entities pf
Group. Consists of a parent and all of its subsidiaries the group

IFRS 10 Guidance and Control Parent Approach. The consolidates comprehensive income is equal to the
 Power over the investee total earnings for all the companies consolidated, less any share pf NCI in the
 Exposure, or rights, to variable returns income.
 Ability to use power over the investee – to affect the amount of the Entity Approach. The consolidate comprehensive income is equal to the total
investor’s returns earnings for all the companies consolidated. If the NCI share is deducted from
the consolidated comprehensive income, one will derive the income
IFRS 10 – Consolidated Financial Statements attributable to the parent.
Parents are required to present consolidates financial statements

EXEMPTIONS
 The parent is a wholly or partially owned subsidiary of another entitu
 Its debt and equity instruments are not traded in public
 Did not file, nor is in the process of filling its financial statements in
the SEC
 Ultimate or immediate parent produces consolidated financial
statements that are available for use

Consolidation Procedures
 Eliminate the Investment account on the Parent company’s Balance
Sheet against the stockholder’s equity accounts in the Balance Sheet
of the subsidiary
 The remaining assets and liabilities of the Parent and Subsidiary are
combined

4 CONSOLIDATION: SUBSEQUENT DATE

5 CONSOLIDATION: INTERCOMPANY TRANSACTIONS

Sale of Inventories

Sale at Cost
Elimination entries needed:
 “Eliminating entry” is needed to remove

 ale of Property, Plant, and Equipment