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7/31/2019 Ifrs Slides Draft - Rev - Luca.2
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Dare James and Luca Mangione
Special Issues of International AccountingSummer Semester 2012
Master of Accounting & ControllingProf. Dr. Agnes Aschfalk-Evertz, WP, StB
IFRS 3 (Revised)
Business Combinations
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Table of contents
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The revised IFRS 3 resulted from a joint project withFASB. FASB issued a similar standard in December 2007
(SFAS 141(R)
The revisions resulted in a high degree of convergence between IFRSs and US GAAP
although some differences remain . Among the differences:the FASB requires (rather than permits) the full goodwill
method.
There are also differences in scope, the definition of control,including how fair values, contingencies, and employee
benefit obligations are measured.
The amendments are effective for annual periods beginningon or after 1 July 2009. Earlier application is permitted on or
after 30 June 2007
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Goodwill andnon-
controllinginterest .
IFRS 3 permit an entity to recognise 100% of thegoodwill of the acquired entity. This is known as the
'full goodwill method'
NCI is reported as part of consolidated equity
The 'full goodwill' option may be elected on atransaction-by-transaction basis.
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Illustration Full GW : P pays 800 to purchase 80%of shares of S. Fair value of S identifiable net assets is
600. The fair value of NCI is determine to be 185
If P elects to measure NCI as their proportionate interest in S
If P elects to use full GW method:then goodwill of 385 is recognised
(800+185-600).
the consolidatedfinancial statements will
show goodwill of 320(800+120-600)
The fair value of the 20% NCI inS will not necessarily be
proportionate to the price paid byP for its 80%, primarily due tocontrol premium or discount asexplained in paragraph B45 of
IFRS 3.
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Pre-existing relationships andreacquired rights .
If the acquirer and acquiree were partiesto a pre-existing relationship, this mustbe accounted for separately from thebusiness combination.
In most cases, this will lead to therecognition of a gain or loss for theamount of the consideration transferredto the seller
Step acquisition .
Resulting in attaining control triggers re-measurement at fair values of acquiredentitys net assets.
Any changes are recognised in P & L. Prior to this the investment is accounted
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Step Acquisition
Control
0% 50% 100%
Apply:IAS 39IAS 28
IAS 31
Loss of control disposal:
fair value residualholding
calculate gain or loss
Equitytransaction
:- No gainor no loss
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Sources:
http://www.iasplus.com
http://ec.europa.eu/internal_market/accounting/docs/consolidated/ifrs3_en.pdf
International Financial Reporting Standards (IFRS) Workbook and Guide
Wiley IFRS: Practical Implementation Guide and Workbook (WileyRegulatory Reporting), Epstein, Barry J./Abbas, Ali Mirza
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HWR Acquisition of FUQuiz
1 July
Shareholder approval received
14 Jun
e
Regulatory approval received
25Aug
ust
Cash paid out to FU accepting shareholders
30 July Acceptances received to date represent 50 % of FUsshares
20Marc
hPublic offer made for 100% of the equity share of FU, conditional on regulatoryapproval, shareholder approval and receiving acceptances representing 60 % of
FUs shares
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Business Combination A transaction or other event in which an acquirer obtains
control of one more businesses
ControlControl is the power to govern its financial and operating
policies of an entity so as to obtain the benefits from itsactivities [IFRS 3 Appendix A]
Objective IFRS 3 objective is to set out the accounting and disclosurerequirements for a business combination, to improve therelevance, reliability and comparability of information
presented in the financial statements
Application The first accounting period beginning on or after 1 July 2009,on or after 30 June 2007. Retrospective application to earlier business combinations is not allowed.
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