NOTES IN BUSINESS COMBINATION by K E R W I N
BUSINESS COMBINATION
Surviving Entity
Carried out
through
Types
1. Merger
Asset
Acquisitio
n
Merger (A + B = A or B)
Stock
Acquisitio
n
Parent
Consolidation (A + B = C)
New Entity
Subsidiary
Set of FS
1 (Acquirer)
2. Consolidation 3 (Parent,
Subsidiary,
Consolidated)
Acquisition Method (PFRS 3)
1. Identify the acquirer
entity that obtains control
2. Determine the acquisition date
closing date
3. Recognize & measure Goodwill or Gain on Bargain
Purchase
Formula: (@Date of Acquisition)
Consideration Transferred (CT)
Prev. held equity interest in the acquiree
Non-Controlling Interest (NCI) in the acquiree
(FV of Net Identifiable Assets Acquired (NIAA))
Goodwill or Gain on Bargain Purchase
Balance Sheet
Income Statement
Note:
a a>b=
GW
b a<b=
GBP
Consideration Transferred
deferred @PV
Cash @FV, if
NCA @FV
Equity (Shares) @FV
Note: Includes those transferred to
Debt (Bonds) @PV
former owners/acquiree, excludes
Contingent Consideration
those remain in the combined entity
Probable
Measurable
Consideration Transferred excludes acquisition-related costs:
 Finder’s Fee
 Professional Fee
 General admin costs
 Costs of registering and issuing (separately deducted)
Bonds – Discounts/Premiums
Shares – APIC (SP)
Accounting for out-of-pocket costs:
Non-SME
SME
Direct Costs
Expensed
Capitalized
Indirect Costs
Expensed
Expensed
Cost to reg/issue APIC
APIC
Hierarchy:
1. APIC recognize upon issuance
2. Existing APIC
3. RE
Non-controlling Interest (NCI)
NCI is measured at:
1. Fair Value (must not be lower than PS)
2. Proportionate Share in acquiree’s NA
Non-SME
SME
Goodwill
FV/PS
PS
Gain on BP
FV/PS
FV/PS
Previously held equity interest
NOTES IN BUSINESS COMBINATION by K E R W I N


BC achieved in stages (step acquisition)
FV of previously held equity interest is included
Accounting procedures:
1. Remeasure @acquisition-date FV
2. Gain/Loss on remeasurement
Profit or Loss/OCI
Parent’s FS
Consolidated FS
Inv. In Subsidiary
GW & NCI
Fair Value of Net Identifiable Assets Acquired (FV-NIAA)
 FV of Assets – FV of Liabilities = FV-NIAA
 Exclude GW of the acquiree
 Measured @ acquisition-date FV
Restructuring Provisions
 a program that is planned and controlled by mngt. to
change scope and manner of business.
 Simply ignored in computing GW.
Specific
Recognitio
n
Principle
Operating
Lease
AcquiSsee
Favorable – Intag.
Asset
Unfavorable
- Liability
AcquiSsor
The net identifiable assets acquired in a business combination are
recognized when they meet the recognition criteria under the
Conceptual Framework and are measured at acquisition-date FV
in accordance with PFRS 3.
Exception to the
Exceptions to both
Exceptions to the
recognition
the recognition and
measurement
principle
measurement
principle
principle
Contingent Liabilities Income Taxes – DTA Reacquired Rights –
– recognized when
& DTL affect the
measured based on
they represent a
computation for GW. the remaining term
present obligation
Note: PAS 12
of the related
and measurable FV, prohibits recognition contract.
even if the outflow is of DTL from GW.
improbable.
Share-Based
Employee Benefits – Payment – PFRS 2
PAS 19
Held for Sale Assets
Indemnification
–
Assets – recognized Measured @FV less
and measured on
cost to sell
the same basis as
the indemnified item.
No Recognition
Intangible
Assets
Either
a. Separable
b. Arises from
Note: R&D automatically recognized
Contractual or other
General recognition and measurement principles: legal rights
Use acquiree’s FV equity
interest if more reliable
NOTES IN BUSINESS COMBINATION by K E R W I N
Share-for-share exchanges
Other Accounting
Procedures for
Business
Combinations
Achieved in Stages
“step acquisition”
Achieved without transfer
of consideration
The acquirer:
1.
Remeasures prev. held equity interest
@FV
2. Gain/Loss on remeasurement (P/L or
OCI)
a) Caused by treasury shares – instead of recognizing prev. held interest, the
acquisition-date FV of the acquirer’s interest is substituted for CT in solving
GW.
b) By contract alone – recognize as NCI for other parties’ interest (bisan pag
100% ang NCI sa acquiree)
Concept of Measurement Period (within 12 mos. From acquisition date)
 Use of provisional amounts for incomplete accounting
Consideration Transferred
NCI
Prev. held interest
FV - NIAA
 Retrospective adjustments for facts already existed as of the acquisition date but are known beyond accounting period.
 Adjustment to GW/Gain on Bargain Purchase
 Beyond 12-month information – PAS 8 (same treatment but with diff. disclosures)
Separate Transactions (excluded/deducted from consideration transferred)
For the acquirer’s benefit
Transaction initiated by the acquirer
Settlement of pre-existing relationship (i.e. reacquired rights)
Remuneration to employees or former owners for future services
Reimbursement for acquisition-related costs
Reacquired Rights (Contractual)
- Previously granted right/s to the acquiree that is reacquired by Business Combination
- Recognize as intangible asset
NOTES IN BUSINESS COMBINATION by K E R W I N
Settlement of pre-existing relationship
Contractual
Pre-existing
Relationship
Non-Contractual
i.
ii.
Recognize
settlement
gain/loss
Contractual
At the lower of (i) and (ii)
Favorable or Unfavorable amount
The settlement amount in the contract