Byrd & Chen’s
Canadian Advanced
Accounting:
Second International
Convergence Edition
Coverage of key advanced financial accounting topics
— with an analysis of the impact of the transition
from Canadian GAAP to IFRS
entity. The key factor is that each could be operated as a single, viable, business entity.
referred to as 3-3.
“true mergers”
or “mergers
of equals”
areofalso
business
combinations
as is relevant in that the
The question
of whether
a group
assets
constitutes
a business
thatTo
term
is used
in this Section.
Legal Avenues
Combination
accounting
procedures for a business combination can be significantly different than those
usedconcept
for a simple
of term
assets.
Specifically,
no goodwill
can you
be recognized
when there
3-2. The economic
that acquisition
underlies the
“business
combination”
is that
have
is an acquisition
of assets
that doentities
not constitute
Because
the importance of this
two or more independent
and viable
economic
that area business.
joined together
foroffuture
difference,
1582
provides
a The
definition
ofeconomic
acombinations
business:entities
referred
to asas“true
mergers”
orSection
“mergers
of equals”
are
also
business
as can be
operations
a single
economic
or business
entity.
original
60
Chapter 3
that
term is used
in this
Section.
corporations,
unincorporated
entities,
or evenAabusiness
separable
of aset
larger
economic
Paragraph
1582.02A(d)
is anportion
integrated
of activities
and assets that is
Legal Avenues
To Combination
entity. The key factorcapable
is that each
could
be operated
as a single,
business
entity.
of being
conducted
and managed
forviable,
the purpose
of providing
a return in the
3-2. The economic concept
that underlies
the term “business
combination”
is that you
have
referred
to as “true
mergers”
orconstitutes
“mergers
also business
combinations
as future
form
of
dividends,
lower
costs,
orof equals”
other
economic
benefits
directly
to investors or
3-3.
question of
whether
a economic
group
of
assets
business
is relevant
in
that the
two or
moreThe
independent
and
viable
entities
that
are aare
joined
together
for
that term is used in this Section.
other
members
or participants.
accounting
procedures
for owners,
aor
business
combination
be significantly
than
operations
as a single
economic
business
entity.
Thecan
original
economic different
entities can
bethose
3-2. The economic concept that underlies the term “business combination” is that you have
or more
viableno
economic
entities that
joined
together for
future
used for a unincorporated
simple acquisition
oftwoassets.
Specifically,
goodwill
canare
when there
corporations,
entities,
orindependent
even aandseparable
portion
ofbe
arecognized
larger
economic
operations as a single economic or business entity. The original economic entities can be
Specific
is an
acquisition
that corporations,
do notbe
constitute
business.
Because
of
importance
entity.
The
key factorof
is assets
that each
could
operatedaentities,
as aorsingle,
viable,
business
entity. of this
unincorporated
even a separable
portion
ofthe
a larger
economic
Examples
entity. The key factor is that each could be operated as a single, viable, business entity.
Handbook References
difference, Section 1582 provides
a definition of a business:
3-3. Section
Theof
question
of whether
a
group
of
assets
constitutes
a
business
is
relevant
in
thatthat
the
3-3. The question ofCovered
whether a By
group
assets
constitutes
a
business
is
relevant
in
the
1582
accounting procedures for a business combination can be significantly different than those
accounting
procedures
for a Examples
business
combination
can
be significantly
than
those
Paragraph
1582.02A(d)
A for
business
is anofcombination
integrated
set
of activities
and
assets
that is the scope of Section
used
aof
simple
acquisition
assets. Specifically,
no transactions
goodwill
candifferent
be recognized
there
3-4.
business
thatwhen
are
within
is an acquisition of assets that do not constitute a business. Because of the importance of this
used for acapable
simple acquisition
of assets.
Specifically,
can be
recognized
when there
of being
conducted
and
managedno
forgoodwill
the purpose
of providing
a return
in the
1582
include
the
following:
difference,
Section 1582 provides a definition of a business:
is an acquisition
assets thatlower
do notcosts,
constitute
a business.
ofof directly
the importance
form of of
dividends,
or1582.02A(d)
other
economic
benefits
to investors
or
Paragraph
A business isBecause
an integrated
set
activities
and assets
that is of this
acquires
all
of
the
net
assets
of
a
second
corporation
for cash and the
• A corporation
capable of being conducted and managed for the purpose of providing a return in the
difference,
Section
1582
providesora participants.
definition of a business:
other
owners,
members
form of dividends, lower costs, or other economic benefits directly to investors or
activities ofother
the
corporation
meet the definition of a business.
owners,
members or participants.
Paragraph 1582.02A(d)
A businessissues
is an integrated
set owners
of activities
assets that is business in return for
shares to the
of anand
unincorporated
• A corporation
Examples
Examples
capable
of being conducted
and
managed
for
the purpose of providing a return in the
all of their
net By
assets
and
Covered
Section
1582these net assets meet the definition of a business.
form
of dividends,
lower
costs,
other
benefits
directly
tothe
investors
3-4.orExamples
of economic
business
transactions
that are within
scope
Covered
By Section
1582
• A corporation
issues
newcombination
shares
as
consideration
for
all ofofSection
theoroutstanding shares of a
1582 include the following:
61
other
members
or participants.
second
corporation
and
the activities
of the
corporation
the definition of a Business Combinations
3-4. owners,
Examples
of business
combination
transactions
that are
within
the scopemeet
of Section
• A corporation acquires all of the net assets of a second corporation for cash and the
Legal Avenues To Combination
of the corporation meet the definition of a business.
business. • activities
1582 include the following:
A corporation issues shares to the owners of an unincorporated business in return for
all of their net is
assets
and these net
assets
meet theshares
definition of
business.
• A new corporation
formed
and
issues
toadesire
thetoowners
of twoofseparate
unincorExamples
retain
thea name
the netissues
assets
of aas consideration
second corporation
forshares
cash
andof one
the the enterprises, the ability to access the capital markets in a
• A corporation acquires all •of
A corporation
new shares
for all of the outstanding
of
Business Combinations
particular
simply
various contractual arrangements that one or both of the enterporated
businesses
in return
for all
ofcorporation
the netmeet
assets
ofmanner,
the
two
enterprises.
second corporation
and the activities
of the
the
definition
of a or
Covered
By Section
1582
activities
of the corporation
meet
the
definition
of
a
business.
prises
have
with
suppliers,
employees,
or
customers.
business.
Legal Avenues To Combination
• A new corporation
is
formed
and
issues
shares
to
the
owners
of
two
separate
unincor3-7.
This
is
an
important
issue
for
accountants
as
the
legal
form
used
can,
in
some
circum3-4. Examples
of
business
combination
transactions
that
are
within
the
scope
of
Section
• A corporation issues shares to the owners of an unincorporated business in return for
porated businesses in return for all of the net assets of the two enterprises.
stances, obscure the actual economic substance of a transaction. An outstanding example of
The
Scope
Extensive
1582examples
include
following:
type of situation would be transactions that are referred to as reverse acquisitions.
all of the
their
netExcluded
assets and From
these net
assets
meetOf
theSection
definition1582
of athisbusiness.
desire
to retain
the name
of one of the enterprises, the ability to access the capital markets in a
Excluded
From
The Scope Of
Section 1582
3-5.
Section
1582
specifically
excludes
certain
transactions
from
These
are
listed
Example Ofshares
Reverse its
Acquisition
Company
X, with
100,000
shares
outstanding
,
provide clarification
• A corporation issues new shares
as1582
consideration
all
of thefrom
outstanding
ofscope.
a particular
manner,
or simply
various
contractual
arrangements that one or both of the enter3-5. Section
specifically excludes for
certain
transactions
its scope. These are
issues 400,000
of its shares to the shareholders of Company Y in return for all of the
all of the
net
assets
of
a
second
corporation
for
cash
andlisted
the
• A corporation acquires
in
Paragraph
1582.02
as
follows:
in Paragraph 1582.02 as follows:
prises have with suppliers, employees, or customers.
shares
of that Company.
From
a legal perspective, Company X is the parent company,
andactivities
guidance
second
corporation
and
the
activities
of
the
corporation
meet
the
definition
of
a
of the corporation meet
the
definition
of a business.
• The
formation
of a joint venture.
because it is holding 100 percent of 3-7.
the shares
of
Company
Y.
Correspondingly,
from
a
This is an important issue for accountants as the legal form used can, in some circumbusiness.
perspective,
subsidiary.
However,
an economic
of
The formation
of a joint
• The acquisition
of a groupventure.
of assets that do not constitute a business. Inlegal
situation, Company Y is thestances,
obscure
thefrom
actual
economicpoint
substance
of a transaction. An outstanding example of
to the
owners
of
an unincorporated
business inthis
return
for
• A corporation issues •shares
the former
shareholders of Company Y now own a controlling interest in
the assets acquired will be accounted for separately. If their cost doesview,
not equal
the
this
type
of situation would be transactions that are referred to as reverse acquisitions.
• A new corporation
is
formed
and
issues
shares
to
the
owners
of
two
separate
unincor•
The
acquisition
of
a
group
of
assets
that
do
not
constitute
a
business.
In
this
situation,
Company
X.
This
means
that,
in
actual
fact,
the subsidiary, Company Y has acquired
sum
of
their
fair
values,
the
consideration
paid
will
be
allocated
to
the
individual
all of their net assets and these net
assets
meet
the
definition
of
a
business.
the parent, Company X.
assets
proportion
to their
fair assets
value (a so-called
basket
purchase).
Example
Of the
Reverse Acquisition Company X, with 100,000 shares outstanding ,
porated businesses
return
forin all
ofofwill
the
net
ofcommon
the
two
enterprises.
thein
assets
acquired
be
accounted
for
separately.
If iftheir
cost does not
equal
•as
A combination
businessesfor
that all
are under
control. For example,
oneof a
• A corporation issues new
shares
consideration
of the
outstanding
issues
400,000substance,
of its shares
to the shareholders
of Company Y in return for all of the
3-8. shares
As an accountant’s
mandate is to focus
on economic
the accountant
must
subsidiary
Company Athe
were consideration
to acquire the assets of paid
a different
subsidiary allocated
of
sumthe
of activities
their
fair ofvalues,
to legal
thestructures
individual
bewill
able to be
look through the complex
sometimesFrom
used a
tolegal
effectperspective,
busishares
ofthat
thatare
Company.
Company X is the parent company,
second corporation and
the corporation
meet
definition
Company A,of
the transaction
would not be considered
to bethe
a business
combination. of a
ness combinations. This is necessary in order
to base
accounting
procedures
on
the shares
real
because
it
is
holding
100
percent
of
the
of
Company
Y. Correspondingly, from a
Excluded From The
Scope
Of Section
1582
assets
in proportion
to their
fair organizations.
value (a so-called
basket
purchase).
• A combination
between
not-for-profit
In addition, Section
1582 does
events that have occurred. To accomplish this
goal,
accountants Company
must have some
knowledge
business.
legal
perspective,
Y is the
subsidiary. However, from an economic point of
not apply to the acquisition of a profit oriented organization by a not-for-profit orgaof
the
various
legal
forms
that
are
used.
As
a
result,
we
will
illustrate
the
basic
legal
forms
that
•
A
combination
of
businesses
that
are
under
common
control.
For
example,
if
one
3-5.
Section
1582
specifically
excludes
certain
transactions
from
its
scope.
These
are
listed
view,
the
former
shareholders
of
Company
Y
now
own
a controlling interest in
nization.
These
transactions
are
dealt
with
under
CICA
Handbook
Section
4450.
• A new corporation is formed and issues shares to the owners of two separate
unincorcan be used
to effect a business combination.
“Reporting Controlled And Related Entities By Not-For-Profit Organizations.
Company X. This
that, in actual fact, the subsidiary, Company Y has acquired
of of
Company
A were
to acquire
the3-9.assets
of a this
different
subsidiary
of means
in Paragraph
1582.02
as follows:
Note, however,
is an extremely
complex
area,Company
particularly
porated
businesses
in subsidiary
return
for all
the net assets
of the
two enterprises.
the parent,
X.when consideration is
given to tax
full discussion combination.
of legal forms for business combinations goes beyond the
Company
A, the
transaction
would not be considered
tofactors.
be a Abusiness
Legal
Avenues
To Combination
3-8. As an accountant’s mandate is to focus on economic substance, the accountant must
scope of this text.
• The formation of a joint venture.
• A combination
between
not-for-profit
organizations.
In
addition,
Section
1582
be able
to lookdoes
through the complex legal structures that are sometimes used to effect busiThe Problem
Excluded
The of
Scope
1582
• TheFrom
acquisition
a groupOf
of Section
assets
do not
constitute
business.
thisofsituation,
ness combinations. This is necessary in order to base accounting procedures on the real
Example
3-6.
In readingthat
the preceding
section,
it is likely that a
you
recognized
thatIn
a variety
legal
not applyforms
to can
the
acquisition
of a profit
oriented
organization
byof alegal
not-for-profit
orgabecertain
used to for
combine
the operations from
ofIftwo
independent
business
entities.
Thelisted
have example
occurred.
accomplish
this goal, accountants must have some knowledge
3-10.
Our
discussion
form events
will usethat
a simple
to To
illustrate
the various
3-5. Section
1582acquired
specifically
transactions
its
scope.
These
are
the assets
willexcludes
bechoice
accounted
separately.
their
cost
does
not
equal
the
among these
forms involves a are
great many
issues,
including
tax
considerations,
the
possible
alternatives.
of the various4450.
legal forms that are used. As a result, we will illustrate the basic legal forms that
nization. These
transactions
dealt
with
under
CICA
Handbook
Section
in Paragraph
as follows:
sum 1582.02
of their fair
values, the consideration paid will be allocated to
the individual
used
to effect
business
Example The AlphaOrganizations.
Company andcan
the be
Beta
Company
have,a for
a varietycombination.
of reasons,
“Reporting Controlled And Related Entities By Not-For-Profit
transaction
continue
their complex area, particularly when consideration is
assets in proportion to their fair value (a so-called basket purchase).decided to come together in a business
3-9. combination
Note, however,
this and
is an
extremely
• The formation of a joint venture.
operations as a single economic entity. The date of the combination transaction is
given to tax factors. A full discussion of legal forms for business combinations goes beyond the
• A combination of businesses that are under common control. ForDecember
example,
one
31, 2009ifand,
on that date the Balance Sheets of the two companies are as
scope
of
this
text.
• The acquisition of a group of assets that do not constitute a business. In this
situation,
follows:
subsidiary of Company A were to acquire the assets of a different
subsidiary of
the assets acquired will be accounted for separately. If their cost does not equal the
Alpha And Beta Companies
Example
Company A, the transaction would not be considered to be a business combination.
Balance
Sheets
sum of their fair values,
the consideration paid will be allocated to the individual
As At December
31, discussion
2009
The
Problem
3-10. Our
of legal form will use a simple example to illustrate the various
• A combination between not-for-profit organizations. In addition, Section 1582 does
possible alternatives.
Alpha
Beta
assets in proportion
to
their
fair
value
(a
so-called
basket
purchase).
3-6.acquisition
In reading
preceding
section,
it is likely
you
recognized
that
a
variety
of legal $ 35,000
not apply to the
of athe
profit
oriented
organization
by athat
not-for-profit
orgaCurrent
Assets
Example$153,000
The Alpha Company
and the Beta Company have, for a variety of reasons,
• A combination
of
businesses
that
are
under
common
control.
For
example,
if
one
Problem
Explanations
Non-Current
Assets
82,000
85,000
forms
can
be
used
to
combine
the
operations
of
two
independent
business
entities.
The
decided to come together in a business combination transaction and continue their
nization. These transactions are dealt with under CICA Handbook Section 4450.
subsidiary
of
Company
A
were
to
acquire
the
assets
of
a
different
subsidiary
Total
Assets of
$235,000
$120,000
operations
as
a
single
economic
entity. The date of the combination transaction is
choice
among
these
forms
involves
a
great
many
issues,
including
tax
considerations,
the
examineControlled
common
“Reporting
Andissues
Related Entities By Not-For-Profit Organizations.
December 31, 2009 and, on that date the Balance Sheets of the two companies are as
Company A, the transaction would not be considered to be a business combination.
Liabilities
$ 42,000
follows:$ 65,000
Commondoes
Stock:
• A combination between not-for-profit organizations. In addition, Section 1582
Alpha
(5,000 Shares Issued And Outstanding)
95,000
N/AAnd Beta Companies
not apply to the acquisition of a profit oriented organization by a not-for-profit
orga(10,000
Shares Issued And Outstanding)
N/A
53,000
Balance Sheets
Retained Earnings
75,000
25,000
As
At December 31, 2009
nization. These transactions are dealt with under CICA Handbook Section 4450.
Total Equities
$235,000
$120,000
The
Problem
Alpha
Beta
“Reporting Controlled And Related Entities By Not-For-Profit Organizations.
Current
Assets
$153,000
$ 35,000
3-11.
In order
to simplify of
the use
of this Balance
Sheet information
in the examples which
3-6. In reading the preceding section, it is likely that you recognized
that
a variety
legal
follow, we will assume that all of the identifiableNon-Current
assets and liabilities
Assetsof the two Companies
82,000
85,000
forms can be used to combine the operations of two independent have
business
entities.
Thecarrying values.
fair values that
are equal to their
In addition, we will assume that the
Total Assets
$235,000
$120,000
shares of the two Companies are trading at their book values. This would be $34.00 per share
choice among these forms involves a great many issues, including tax
considerations, the
60
Conversion Coverage
that Walks You Through
the Transition to IFRS
Extensive, Up-To-Date Coverage
With the gradual convergence of International Financial Reporting
Standards (IFRSs) into Canadian GAAP, and their adoption on
January 1, 2011, it’s now more important than ever to stay informed
and up-to-date on the changes that affect financial reporting in
Canada. Byrd & Chen’s Canadian Advanced Accounting: Second
International Convergence Edition provides the coverage you
need to stay current on key advanced financial accounting topics
— including the impact of the transition from Canadian GAAP to IFRS.
Coverage of the Transition to IFRS
Written by leading financial writers Clarence Byrd and Ida Chen, Byrd & Chen’s
Canadian Advanced Accounting: Second International Convergence Edition
provides up-to-date and accurate coverage of the conversion process and the
expected changes it will require. Packed with over 600 pages of comprehensive
guidance, this practical reference source will give you the background you need
to prepare for the incorporation of International Financial Reporting Standards
into Canadian GAAP, including:
•
A discussion of the changes that are expected to occur during the
convergence period, including coverage of current IFRSs as well as
anticipated changes as a result of revisions that are currently underway.
•
Detailed coverage of the new CICA Handbook Section 1582, “Business
Combinations”, Section 1601, “Consolidated Financial Statements”, and
Section 1602, “Non-Controlling Interests”.
•
Accounting for not-for-profit organizations based on the
current Sections 4400 through 4470 of the CICA Handbook.
Chapter 3
Legal Avenues To Combination
Legal Avenues To Combination
Legal Avenues To Combination
The Problem
3-6. In reading the preceding section, it is likely that you recognized that a variety of legal
forms can be used to combine the operations of two independent business entities. The
choice among these forms involves a great many issues,
includingSheet
tax considerations,
Balance
Examplesthe
$ 42,000
Total Equities
$120,000
$235,000
N/A
53,000
25,000
3-11. In order to simplify the use of this Balance Sheet information in the examples which
follow, we will assume that all of the identifiable assets and liabilities of the two Companies
have fair values that are equal to their carrying values. In addition, we will assume that the
shares of the two Companies are trading at their book values. This would be $34.00 per share
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•
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Liabilities
$ 65,000
Common Stock:
(5,000 Shares Issued And Outstanding)
95,000
(10,000 Shares Issued And Outstanding)
N/A
Retained Earnings
75,000
Byrd & Chen’s
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Second International
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Investments In Equity Securities
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Business Combinations
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Consolidated Balance Sheet At Acquisition
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Consolidation Subsequent To Acquisition
•
Advanced Topics In Consolidations
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Interests In Joint Ventures
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Translation Of Foreign Currency Transactions
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03/09
PRODUCT
QST #1010544323 TQ 0001 SS
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Yes, I would like to order
Byrd & Chen’s Canadian Advanced Accounting:
Second International Convergence Edition!
ORDER FORM
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which is available starting at 10 copies.
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