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    10 IFRS 3 Business Combination

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    DM Buenconsejo
    This document discusses business combinations under IFRS 3. It defines a business combination as when an acquirer obtains control of one or more businesses. There are two main types of acquisitions: asset acquisitions and stock acquisitions. IFRS 3 only allows the purchase method of accounting for business combinations. The four main steps in the purchase method are: identifying the acquirer, determining the acquisition date, determining the consideration given, and recognizing/measuring assets acquired and liabilities assumed. Acquisition-related costs are also discussed.

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    10 IFRS 3 Business Combination

    Uploaded by

    DM Buenconsejo
    150 views2 pages
    This document discusses business combinations under IFRS 3. It defines a business combination as when an acquirer obtains control of one or more businesses. There are two main types of acquisitions: asset acquisitions and stock acquisitions. IFRS 3 only allows the purchase method of accounting for business combinations. The four main steps in the purchase method are: identifying the acquirer, determining the acquisition date, determining the consideration given, and recognizing/measuring assets acquired and liabilities assumed. Acquisition-related costs are also discussed.

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    This document discusses business combinations under IFRS 3. It defines a business combination as when an acquirer obtains control of one or more businesses. There are two main types of acquisitions: asset acquisitions and stock acquisitions. IFRS 3 only allows the purchase method of accounting for business combinations. The four main steps in the purchase method are: identifying the acquirer, determining the acquisition date, determining the consideration given, and recognizing/measuring assets acquired and liabilities assumed. Acquisition-related costs are also discussed.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    150 views2 pages

    10 IFRS 3 Business Combination

    Uploaded by

    DM Buenconsejo
    This document discusses business combinations under IFRS 3. It defines a business combination as when an acquirer obtains control of one or more businesses. There are two main types of acquisitions: asset acquisitions and stock acquisitions. IFRS 3 only allows the purchase method of accounting for business combinations. The four main steps in the purchase method are: identifying the acquirer, determining the acquisition date, determining the consideration given, and recognizing/measuring assets acquired and liabilities assumed. Acquisition-related costs are also discussed.

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    of 2

    Business Combination

    IFRS 3- Business combination as a transaction or other event in which an acquirer obtains controls of one
    or more business (acquire).
     Acquirer- Buyer (Parent).
     Acquiree- Seller/Business acquired (Subsidiary).

    Types of acquisition
    1. Acquisition of asset- Acquired all companies asset as well as liabilities and the transaction is
    referred to as an “acquisition of net asset”.
    a. Statutory Consolidation- combining two or more existing business into one new legal
    entity.
    b. Statutory Merger- absorption of one or more existing entities that continues as the sole
    surviving legal entities.
    2. Stock acquisition- acquiring controlling interest “more than 50%” on another company’s voting
    stock.
    *However for external financial reporting purpose, the company will usually combine their
    individual Financial Statement into a single set of consolidated statement.

    Methods of business combination


    1. Purchase method- assets and liabilities are usually recorded in fair value.
    2. Pooling of interest- assets and liabilities are acquired in book value.
    *IFRS 3 eliminated pool of interest method.

    Four steps in purchased method


    1. Identify acquirer
    2. Determine acquisition date
    *IFRS 3- the date on which the acquirer obtains control of the acquiree is critical in fair
    value recognition.
    3. Determination of consideration given (price paid)
    4. Recognized and measure the identifiable asset s acquired, the liabilities assumed and any non-
    controlling interests (formerly called minority interest) in the acquiree. Any resulting goodwill or
    gain from a bargain purchased should be recognized.

    Acquisition related costs


    1. Brokers fee, accounting, legal, and other professional fee.
    2. Stock issuance cost including SEC registration fee, documentary stamp tax, and newspaper
    publication fees treated as deduction from Additional Paid-in Capital. If APIC is zero it will be
    deducted to Retained Earnings.

    Price paid Fair value


    >
    New goodwill (SFP)

    <
    Bargain purchase (IS)

    Valuation of Identifiable Assets and Liabilities


    General Rule: Assets and Liabilities acquired are recorded at their individually determined values.
    Except: Where active market exist, if no active market, independent appraisal, discounted cash flow
    analysis, and other types of analysis are used to estimate fair values.
    *Measurement period is up to one year is allowed.
    ** A note to financial statements would explain the use of temporary values.
    ***Any change in values is adjusted retroactively to the date of acquisition.

    Page 1 of 2 AFAR
    Recording Changes in Contingent Consideration
    If it is equity, the original amount is not remeasured. If the additional consideration is cash or
    other asserts paid or owed, the change amount is recognized in profit or loss.

    Sample Problems
    Accounts Receivable P120,000 Current Liabilities P50,000
    Inventories P140,000 Common Stocks P200,000
    Property Plant and Equipment P 300,000 Retained Earnings P250,000

    Books of Acquirer

    Accounts receivable 120,000


    Inventories 140,000
    Property, plant and equipment 300,000
    Current liabilities 50,000
    Income from acquisition 5,000
    Cash 505,000
    To record acquisition of net assets of Small.

    Computation of Income from Acquisition:


    Acquisition cost (P500,000 + P5,000) P505,000
    Less: Fair value of net identifiable assets acquired:
    Accounts receivable P120,000
    Inventories 140,000
    Property, plant and equipment 300,000
    Current liabilities ( 50,000) 510,000
    Income from acquisition P( 5,000)

    Books of Acquiree

    Cash 500,000
    Current liabilities 50,000
    Accounts receivable 120,000
    Inventories 100,000
    Property, plant and equipment 280,000
    Retained earnings 50,000
    To record sale of net assets to Acquirer.

    Common stock 200,000


    Retained earnings 300,000
    Cash 500,000
    To record liquidation of the corporation.

    Page 2 of 2 AFAR

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