Assignment No. 1
IFRS 3 - Business Combination
1. What is the purchase or acquisition method?
- Acquisition method is used when one company acquires another.
2. What are the steps in acquisition method
1. Identifying the acquirer;
2. Determining the acquisition date; and
3. Recognizing and measuring goodwill. This requires recognizing and measuring the
following:
a. Consideration transferred
b. Non-controlling interest in the acquiree
c. Previously held equity interest in the acquiree
d. Identifiable assets acquired and liabilities assumed on the business combination.
3. What are the acquisition cost?
- The costs include finder’s fees; advisory, legal, accounting, valuation, and other professional
consulting fees; general administrative costs, including the costs of maintaining an internal
acquisitions department; and costs of registering and issuing debt and equity securities.
4. What are stock issuance costs?
- The stock issuance costs such as SEC registration fees, documentary stamp tax, and newspaper
publication fees are treated as a deduction from additional paid in capital from previous share
issuance.
5. What are the components of total consideration?
a. Cash
b. Non-cash assets
c. Equity instruments e.g.., shares, options, warrants
d. A business or a subsidiary of the acquirer
e. Contingent consideration
6. How to compute for the total assets, total liabilities, and total stockholders equity
- Total Assets: Fair value of identifiable assets acquired
- Total Liabilities: Fair value of assumed liabilities.
- Total Equity: Assets minus Liabilities
7. What is a contingent consideration?
- The consideration the acquirer transfers in exchange for the acquiree includes any asset or
liability resulting from a contingent consideration arrangement.
8. Importance of determining the acquisition happen
- The acquisition date is critical because it is the date used to establish the fair value of the
company acquired, and it is usually the date that fair values are established for the accounts of the
acquired company.
9. How to compute goodwill and
gain on acquisition or bargain?
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Consideration transferred
Non-controlling interest in the acquiree (NCI)
Previously held equity interest in the acquiree
Total
Less: Fair value of net identifiable assets acquired
Goodwill / (Gain on a bargain purchase)
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1. CONTROL PREMIUM
- A control premium is an amount
that a buyer is sometimes willing to
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pay over the current market price of a publicly traded company in order to acquire a controlling
share in that company.
An extra consideration is that the buyer of the shares is ready to pay over and above the shares'
market price to obtain a majority stake in the company.
Power over the investee (Power)
exposure, or rights, to variable returns from its involvement with the investee (Returns)
the bility to use its power over the investee to effect the amount of the investor’s returns (Link
between power and returns)
Asset Acquisition
- the company whose assets were acquired is dissolved
- in the books of the acquirer is recorded automatically
- there is no non controlling interest
Stock Acquisition
- the acquired company (subsidiary) remains as a sepparate legal entity with its own financial
statements.
- if there is a less than 100% in stock acquisition then there is still a non controlling interest.
2. NON CONTROLLING INTEREST MEASUREMENT
- either at fair value or the NCI's proportionate share in the acquiree's net identifiable assets.
fair value- any goodwill that arises at the time of acquisition is allocated between the parent and the NCI
NCI proportionate- any goodwill that arises at the time of acquisition is assigned only to the parent
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an entity has free choice between the two option
the option to value NCI at fair value will be used throughout (unless stated)
3. FOR BUSINESS ACHIEVING STAGES HOW TO COMPUTE PREVIOUSLY HELD
INTEREST
Achieved in stages is called “step acquisition”
- Remeasures the previously held equity interest in the acquiree at acquisition-date fair value.
4. ELIMINATION ENTRIES
- IN journal entry, it does not alter the individual statements of the parent and the subsidiary
companies.
- Elimination entries appears only on the consolidation working papers, they are not recorded on
the books of either the parent or subsidiary company.
- It is only part of working paper
Common Stock- subsidiary.
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APIC.
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Retained Earnings.
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Investment in (subsidiary).
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