BUSINESS COMBINATION: FULL PFRS VS. 2015 PFRS FOR SMEs
(SMALL MEDIUM ENTITIES)
FULL PFRS
Acquisition Method
1. Identify the acquirer
2. Determining the acquisition date
3. Recognize identifiable asset, acquire,
liability and non-controlling interest
4. Recognize goodwill
Note:
Direct cost – expense (immaterial)
Indirect cost – expense
Stock cost – Share premium/ Retained
Earnings
Noncontrolling Interest Valuation
a. Fair value
b. Proportionate
Goodwill – PAS 36
Not amortized but subject for impairment
If the goodwill at the year-end is given, it
must be compared to the goodwill computed.
Any difference result to implied impairment.
PFRS FOR SMEs
Purchase Method
1. Identify the acquirer
2. Cost of business combination
a. Consideration transfer + direct
cost
3. Allocate the cost of your business
combination to the Fair value Net
Asset Acquired of acquiree
Note:
Direct cost – capitalize (material)
Indirect cost – expense
Stock cost – Share premium/ Retained
Earnings
Noncontrolling Interest Valuation
a. Proportionate
Goodwill
Amortized: useful/maximum life of 10 years
BUSINESS COMBINATION: FULL PFRS
What is business?
Integrated set of activities capable to conduct and manage to provide profit/ income in the
form of shares or dividends.
What are the element of IFRS 3?
Input, process, and output
What is the method to be used?
Acquisition Method – Fair value
What is the objective of business combination?
1. Identify the acquirer
2. Determining the acquisition date
3. Recognize identifiable asset, acquire, liability and non-controlling interest
4. Recognize goodwill
What is the exception in PFRS 3?
a. Formation of joint venture/joint arrangement – it questions your resource contribution or
the asset you acquired
b. Acquisition of group of assets that does not constitute a business
c. Business under common control
How do you identify business combinations?
Definition: Must obtain CONTROL of another entity
What is the forms of BusCom?
Net asset acquisition
a. Statutory merger – ABC Co. + DEF Co. = ABC or DEF Co.
b. Statutory Combination – ABC Co. + DEF Co. = GHI Co.
Stock Acquisition (parent -subsidiary)
a. exchange of ownership to have power or control
b. Acquirer own majority of outstanding share (more than 50%) for control to exist
Explain the changes after stock acquisition.
Parent
Acquirer
BusCom
a. Continue to exist and operate separate legal
entity
(ex. Jollibee bought mang inasal and still
they operate separately)
Subsidiary
Acquiree
b. Continue /maintain separate books and
unconsolidated FS
c. Need CONSOLIDATED FINANCIAL
REPORTS of the parent and its subsidiaries
at the end of accounting period
What is the nature of BusCom in stock acquisition?
Horizontal integration (similar/same business line)
Vertical Integration – different operation but is in successive stages or industry or process
integration
Conglomerate – unrelated business/ dissimilar nature/ product and services
What is measurement period? Why is it important?
Date to measure their acquisition -fair value of asset and liabilities and the measurement of
noncontrolling interest. Important to have correct data and adjust provisional amount of large
entity. It cannot exceed one year from acquisition date or finalization whichever comes first and
no adjustment are permitted after one year.
How do you compute goodwill?
Consideration
NCI
Prev. held interest in the
acquiree
Total
Less: FVNAA
GOODWILL (GAIN IN
PURCHASE
XXX
XXX
XXX
XXX
(XXX)
XXX