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    Accounting For Business Combinations

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    Dan Moretto
    The document discusses accounting for business combinations according to PFRS 3. It outlines the 7 steps of the acquisition method: 1) identifying a business combination, 2) identifying the acquirer, 3) determining the acquisition date, 4) recognizing and measuring identifiable assets and liabilities, 5) recognizing and measuring non-controlling interests, 6) determining the consideration transferred, and 7) recognizing and measuring goodwill or gain from a bargain purchase. Formulas for consideration transferred and goodwill are also provided, as well as guidance on acquisition-related costs.

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    Accounting For Business Combinations

    Uploaded by

    Dan Moretto
    30 views13 pages
    The document discusses accounting for business combinations according to PFRS 3. It outlines the 7 steps of the acquisition method: 1) identifying a business combination, 2) identifying the acquirer, 3) determining the acquisition date, 4) recognizing and measuring identifiable assets and liabilities, 5) recognizing and measuring non-controlling interests, 6) determining the consideration transferred, and 7) recognizing and measuring goodwill or gain from a bargain purchase. Formulas for consideration transferred and goodwill are also provided, as well as guidance on acquisition-related costs.

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    The document discusses accounting for business combinations according to PFRS 3. It outlines the 7 steps of the acquisition method: 1) identifying a business combination, 2) identifying the acquirer, 3) determining the acquisition date, 4) recognizing and measuring identifiable assets and liabilities, 5) recognizing and measuring non-controlling interests, 6) determining the consideration transferred, and 7) recognizing and measuring goodwill or gain from a bargain purchase. Formulas for consideration transferred and goodwill are also provided, as well as guidance on acquisition-related costs.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    30 views13 pages

    Accounting For Business Combinations

    Uploaded by

    Dan Moretto
    The document discusses accounting for business combinations according to PFRS 3. It outlines the 7 steps of the acquisition method: 1) identifying a business combination, 2) identifying the acquirer, 3) determining the acquisition date, 4) recognizing and measuring identifiable assets and liabilities, 5) recognizing and measuring non-controlling interests, 6) determining the consideration transferred, and 7) recognizing and measuring goodwill or gain from a bargain purchase. Formulas for consideration transferred and goodwill are also provided, as well as guidance on acquisition-related costs.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 13

    ACCOUNTING FOR

    BUSINESS
    COMBINATIONS
    PFRS 3 Business Combinations

    ◦ PFRS 3 establishes the accounting and reporting requirements (known as ‘the acquisition
    method’) for the acquirer in a business combination.
    Acquisition method
    ◦ STEP 1:
     Identifying a business combination

    Many transactions or other events involving the purchase of another entity or groups of assets require
    further analysis to determine whether: (a) what was acquired constitutes a business; (b) control, as defined
    by PFRS 10, has been obtained and (c) the combination is within the scope of PFRS 3.
    Acquisition method
    ◦ STEP 2:
     Identifying the acquirer  

    PFRS 3 requires an in-substance approach to identify the party that obtained control (i.e. the acquirer).
    This approach looks beyond the legal form of the transaction and considers the rights of the combining
    entities and their former owners.
    Acquisition method
    ◦ STEP 3:
     Determining the acquisition date

    The acquisition date is the date the acquirer obtains control of the acquiree, usually the specified
    closing or completion date of the business combination.
    Acquisition method
    ◦ STEP 4:
     Recognizing and measuring identifiable assets acquired and liabilities assumed

    The most complex and time-consuming step which requires the acquirer to:
    1. recognize identifiable assets acquired and liabilities assumed at the acquisition date, including some
    intangible assets that may not have been previously recognized in the acquiree’s financial statements;
    2. measure identifiable assets acquired and liabilities assumed at fair value, with a few exceptions;
    3. determine the applicability of some specific recognition and measurement provisions; and,
    4. classify or designate the assets acquired and liabilities assumed.
    Acquisition method
    ◦ STEP 5:
     Recognizing and measuring any non-controlling interest (NCI)

    The acquirer has a choice to measure present ownership-type NCI at either fair value or the
    proportionate interest in the acquiree’s recognized identifiable net assets.  The measurement of NCI
    affects the amount of goodwill that can be recognized and it can also impact post-combination reported
    results.
    Acquisition method
    ◦ STEP 6:
     Determining the consideration transferred

    Consideration transferred can include cash and other assets transferred, liabilities incurred, and equity
    interests issued by the acquirer.  Some considerations may be deferred or be contingent on future events. In
    addition, consideration transferred in exchange for the acquired business may be different from the
    contractual purchase price if the overall transaction includes elements that are not part of the business
    combination exchange.
    Acquisition method
    ◦ STEP 7:
     Recognizing and measuring goodwill or a gain from a bargain purchase

    Goodwill or gain from a bargain purchase is measured as a residual amount.


    Identifying the acquirer
    It is the entity that transfers the cash
    The entity that issues its equity interests
    Has the largest portion of the voting rights
    Has the ability to appoint or remove a majority of the members of the governing body of the combined
    entity
    Dominates the management of the combined entity
    Pays a premium over the pre-combination fair value of the equity interests of the other combining entity.
    Recognizing and measuring goodwill
    Formula
    Consideration transferred Pxx
    Non-controlling interest (NCI) in the acquire xx
    Previously held equity interest in the acquire xx
    Total Pxx
    Less: Fair value of net identifiable assets acquired (xx)
    Goodwill/ Gain on a bargain purchase Pxx
    Acquisition-related costs
    Acquisition related costs are expensed when incurred except for costs to issue debt securities and equity
    securities.
    Bond issue costs are deducted from the carrying amount of the bonds payable.
    Costs to issue equity securities are deducted from share premium, if insufficient from retained earnings.
    Sample problem

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