Accounting for Business
Combination
Von Zerick M. Casero, CPA, CTT
Accountant in Public Practice
Balagot and Co. CPAs
Part-time Accounting Instructor
STI - Koronadal
General Class Rules
and Grading System
General Class Rules
1.
Proper Attire and Video Conferencing Etiquette
•
Dress appropriately
•
Find a well-lit and quiet space
•
Minimizing distractions in the background
•
Engaging with the camera and showing
respect during discussions
General Class Rules
2.
Attendance Policy
•
Online classes do not require mandatory
attendance
•
However, regular attendance is encouraged
and will be rewarded
General Class Rules
3.
Muting, Video, and Excusing Yourselves
•
Students must mute themselves upon
admission to the class
•
Students should keep their video on during
class
•
Leave a message in the chatbox when you
want to excuse yourselves
General Class Rules
4.
Respect and Politeness
•
Students must show respect and politeness to
professors and peers
General Class Rules
5.
Communication Channels
•
Students can communicate concerns, queries,
or clarifications via text or messenger
General Class Rules
6.
Lab Activities and Grades
•
A grade of INC will be given for missed lab
activities, lab reports, or project requirements.
General Class Rules
7.
Make-Up Exams and Excuses
•
Missed exams, recitations, quizzes, etc.,
without a valid excuse, receive a grade of
zero.
General Class Rules
8.
Make-Up Exams and Excuses
•
Missed exams, recitations, quizzes, etc.,
without a valid excuse, receive a grade of
zero.
•
Valid excuses allow for special exams and
quizzes
General Class Rules
9.
Submission of Requirements
•
Students should complete assigned exercises
and submit requirements by the agreed date.
Valid excuses allow for special exams and
quizzes
•
Google Classroom will be used as the
submission platform
General Class Rules
10. Preparing for Classes
•
Students should read assigned topics
before attending class
Grading System
Class Participation (Recitation, Quizzes, etc.)
10%
Task Performance (Long Quiz, Activities, Group Works, etc.)
50%
Major Examination (Midterm, Finals)
40%
TOTAL
100%
Accounting for Business
Combination
Learning Objectives
Assess whether a transaction is a business combination
Recognize acquired assets and liabilities and compute
goodwill or gain from bargain purchase under IFRS 3
Business Combination
IFRS 3
A transaction or other event in which an acquirer
obtains control of one or more businesses
Transactions sometimes referred to as 'true mergers'
or 'mergers of equals' are also business combinations
An entity's purchase of a controlling interest in
another unrelated operating entity is also a business
combination
Business
IFRS 3
An integrated set of activities and assets that is capable
of being conducted and managed for the purpose of
providing a return in the form of dividends, lower costs, or
other economic benefits directly to investors or other
owners, members, or participants.
Business
Input
Process
Output
Method of Accounting for Business
Combination
Acquisition Method
1. Identify the acquirer
2. Determine the acquisition date
3. Recognize and measure the identifiable net
assets
4. Recognize and measure goodwill or gain from
bargain purchase
Identifying the Acquirer
Acquirer – obtains control of the acquiree
Identifying the Acquirer
IFRS 10 – an investor controls and investee if and
only if all of the following exist:
1. Power over investee
2. Exposure or rights to variable returns
3. Ability to use its power over the investee
Identifying the Acquirer –
Power over Investee
Power arises from Rights
Voting
Appoint, reassign, or remove
Direct
Other rights
Identifying the Acquirer –
Power over Investee
Acquisition of Control (Legal Perspective)
Acquisition of Net Assets
Stock acquisition
Determine the Acquisition Date
The date :
When the investor obtains control of the acquiree
On which the acquirer legally transfers the
consideration, acquires the assets, and assumes
the liabilities of the acquiree.
Recognize and Measure the Identifiable
Net Assets and Non-Controlling Interest
Recognition Principle – asset and liabilities
Measurement Principle:
Identifiable net assets – Fair value
NCI – Fair value or proportionate share basis
Recognize Goodwill or Gain from Bargain
Purchase
Consideration Transferred
₱ XXX
Non-controlling Interest
XXX
Acquisition-date fair value of previously held equity
XXX
Less: Fair value of Net Identifiable Assets
Goodwill (Gain on bargain purchase)
XXX
(XXX)
XXX
Consideration Transferred
Assets transferred by the acquirer
Liabilities incurred by acquirer to former owners of
the acquiree
Equity interests issued by the acquirer
Contingent considerations (if any)
Cost and Expenses of Business
Combination
1. Directly Attributable Costs – Professional fees, legal
advisers, consultants
2. Indirect Acquisition Costs – General and administrative
expenses
3. Cost of Issuing Securities – Transaction costs such as
stamp duties, underwriter cost, brokerage fees.
Cost and Expenses of Business
Combination
1. Directly Attributable Costs – Expensed
2. Indirect Acquisition Costs – Expensed
3. Cost of Issuing Securities – Debit to Additional Paid-in
Capital/Share Premium
Sample Problem 1
 ABC Company’s board of directors decided to acquire the net assets of DEF Corporation
and GHI Company on January 1, 2021
ABC
DEF
GHI
Current Assets
1,375,000
390,000
260,000
Non-Current Assets
3,125,000
2,550,000
1,700,000
325,000
210,000
140,000
2,748,500
1,780,200
1,186,800
176,500
169,800
113,200
1,250,000
780,000
520,000
Liabilities
Ordinary share Capital
Share Premium
Retained Earnings
Sample Problem 1
ABC Company will issue 22,500 of its ordinary shares in exchange for the net assets of DEF and
11,200 ordinary shares in exchange for the net assets of GHI. The fair value of ABC shares is
P150.
The following are the fair values of DEF and GHI
DEF
Current Assets
Non-Current Assets
GHI
450,000
230,000
2,150,000
1,975,000
Sample Problem 1
The following are the expenses incurred during the acquisition
Legal Fees for the contract of business combination
8,000
Audit fee for SEC Registration of share issue
9,000
Accountant’s fee for pre-acquisition audit
10,000
Broker’s fee
4,000
Printing cost of shares certificates
5,000
Other direct acquisition costs
7,000
Internal secretarial, general, and allocated expenses
9,000
Documentary stamp tax on the new shares
2,000
Sample Problem 1
Requirements:
1. Record the acquisition of DEF and GHI and related transactions in the books of ABC
2. Prepare the Statement of Financial Position of ABC after the merger.
Sample Problem 1
Sample Problem 1
Sample Problem 1
Sample Problem 1
Sample Problem 1
End