Professional Documents
Culture Documents
Chapter 3: Group Reporting II: Application of The Acquisition Method Under IFRS 3
Chapter 3: Group Reporting II: Application of The Acquisition Method Under IFRS 3
Chapter 3
Group Reporting II:
Application of the
Acquisition Method
under IFRS 3
1
Copyright © 2016 by McGraw-Hill Education (Asia). All rights reserved.
Learning Objectives
Content
1. Introduction
Introduction
2. Overview of the Consolidation Process
3. Business Combinations
4. Determining the Amount of Consideration Transferred
5. Recognition and Measurement of Identifiable Assets, Liabilities
and Goodwill
6. Conclusion
1
Chapter 3
Introduction
Separate financial Consolidated financial
statements statements
(Legal entity) (Economic entity)
Governing rules and In accordance with
In accordance with IFRS 10
regulations corporate regulations
tương đồng với quy định của ct IFRS 10 allowed for exemptions
by a parent if it’s: A-->B-->C
A wholly owned or partially Trung gian B: miễn
owned subsidiary;
miễn trừ trình bày ko có Debt or equity instruments not ko được mua bán công khai
traded in public; (gd trên thị trường)
Possible exemptions
No exemption Did not file financial
for presentation ko cho mđ phát hành cc ra công chúng
statements for purpose of
issuing instruments to public; ủy ban chứng khoán ko yêu cầu
and
Ultimate parent produces
consolidated financial ct mẹ đã là ct cuối cùng trong qt lập bc lập rồi--> miễn
statements.
4
Content
1. Introduction
2. Overview of
Overview of the
the Consolidation
Consolidation Process
Process tổng quan
3. Business Combinations
4. Determining the Amount of Consideration Transferred
5. Recognition and Measurement of Identifiable Assets, Liabilities
and Goodwill
6. Conclusion
2
Chapter 3
Intra-group Transactions
Note: Without elimination the consolidated sales and cost of sales figures
will be overstated by $2 M.
3
Chapter 3
Content
1. Introduction
2. Overview of the Consolidation Process
3. The acquisition
Business method
Combinations HỢP NHẤT KINH DOANH
10
Business Combinations
1) bên mua đạt được Acquirer has • 3 main attributes of control (IFRS 10)
• Power over acquiree
sự kiểm soát
control of • Exposure or rights to variable returns of acquiree
• Ability to use power to affect acquiree’s returns.
business acquired
Business Combinations
Where an acquirer
obtains control of
Business
one or more
combinations
businesses (IFRS 3
App A)
4
Chapter 3
VD: A VD:B
Cash=100 Cash=20
NPThu=500 INv=300
HTK=200 AR=100
NPTra=250 AP=80
Share cap=550 Share cap=340
=> Net assets=550 => Net assets=340
Direct Acquisition of Net Assets of Acquired
Business W2-lợi thế thương mại:
VD 2.8
A+B=A: sáp nhập: thông qua mua ts thuần Ct A mua lại toàn ct B (A+B=A) với giá 1,120 triệu =tiền mặt, giá trị ts của cty B:
A
B Transfer net
assets Acquirer’s separate BV Công ty B FV
financial
Former owners of
statements will now Cash 200 200
the net assets of
include goodwill
acquired NPThu 400 400
and other net
businesses
assets of the TSCĐ (giá trị thuần) 400
Transfer acquired business 480
consideration NPTra 200 200
EX 2.9:
A mua laij 60% B với giá 2,400 tr; giá trị TS:
BV FV
TRẮC NGHIỆMMMMM
15
5
Chapter 3
A B
Acquirer Acquiree
BV FV
C
New legal
entity is
the
Net assets of acquirer are Net assets of acquiree, including
recognized at pre-
economic goodwill and identifiable net
combination carrying entity assets, are recognized at their
amounts acquisition date fair values
16
17
A--> B, B ks ngược A
18
6
Chapter 3
19
20
21
7
Chapter 3
Acquirer is the entity that: Acquirer is the entity: Acquirer is the entity:
• Transfers cash or other • Whose owners hold the • Whose owners have the
lựa chọn, chỉ định, đào thải
assets or incurs liabilities to largest relative voting rights ability to elect, appoint or
acquire another entity in a combined entity remove a majority of
directors
• Issues shares as • Whose owners hold the
consideration to acquire largest minority voting • Whose management is
shares of another entity interest in the combined dominant in the combined
entity (if no other entity has entity
• Pays a premium over the fair significant voting interest)
value of the equity interest • Who initiates the business chủ chốt
thặng dư • Which is larger in size combination
22
Company B
3. Company B has the power and ability (Legal subsidiary)
to affect the returns of the legal parent
after the share exchange
23
B ks ngược A
P
L=5L+20L
24
8
Chapter 3
Content
1. Introduction
2. Overview of the Consolidation Process
3. Business Combinations
4. Determining the
Determining theAmount
Amount of
of Consideration
Consideration Transferred
Transferred
5. Recognition and Measurement of Identifiable Assets, Liabilities
and Goodwill
6. Conclusion
25
26
27
9
Chapter 3
FV of acquirer’s
equity: $Z Acquiree
FV of equity issued is either:
• X/Y multiplied by $Z; or
• A/B multiplied by $C
28
Illustration 1:
Fair Value of Equity Issued
P Ltd acquires 100% of S Co. through an issue of 5,000,000 shares
to the owners of S Co.
P Ltd S Co
Number of existing shares 10,000,000 2,000,000
Number of new shares issued 5,000,000 –
Market price per share $2.00 –
Fair value of equity 30,000,000 9,000,000
29
Illustration 1:
Fair Value of Equity Issued
Situation 1: P Ltd’s market price is a reliable indicator
30
10
Chapter 3
– Fair value of the contingent consideration has to be estimated through determining the
present value of the probability-weighted outcome; if the contingent event leads to a
refund (For example, event A) the fair value of the refund (probability-weighted
outcome) is deducted from consideration transferred
điều chỉnh hồi tố
sửa sai
– Fair value of contingent consideration is adjusted retrospectively as a correction of
error if events after acquisition reveal information that was missed or misapplied as at
the acquisition date
31
Contingent Consideration
• Assuming 2 outcomes
o Expected value = (Probability of contingent event
32
33
11
Chapter 3
Acquisition-Related Costs
• All acquisition-related costs are expensed off tất cả chi phí liên quan đều đc ghi nhận trong kỳ
• Costs of issuing debt are recognized in accordance with IAS 39 or
IFRS 9 Chi phí phát hành cc nợ IAS 9
– As yield adjustment to the cost of borrowing and are amortized over the
tenure of the loan chi phí phần vay được phân bổ
– Journal entry for the payment of debt issuance cost
Dr Unamortized debt issuance costs
Cr Cash
CP ph cc VỐn
• Costs of issuing equity are recognized in accordance with IAS 32
– A reduction against equity Giảm VCSH
– Journal entry to record the payment of cost of issuing equity
Dr Equity
Cr Cash
34
Content
1. Introduction
2. Overview of the Consolidation Process
3. Business Combinations
4. Determining the Amount of Consideration Transferred
5.
5. Recognition and
Recognition and measurement
Measurement of
of identifiable
Identifiableassets,
Assets,liabilities
Liabilitiesand
goodwill Đo lường và ghi nhận ts, npt, lttm có thể xác nhận
and Goodwill được
6. Conclusion
35
Recognition Principle
theo phương thức mua
Business Combinations are accounted under the acquisition method
12
Chapter 3
Recognition Principle asset: nguồn lực kt do dn kiểm soát (control> sở hữu) thu được lợi ích kinh tế trong tương lai
thỏa mãn 2 điều kiện mà ko phải tăng vcsh
• Identifiable net assets (INA) must comply with two conditions to qualify for liability: giảm nguồn lực kt...
recognition:
– (1) INA must meet the definition of an asset or a liability
– (2) INA must be priced into the consideration transferred and must not be
separate unrelated transactions ko được là các gd ko liên quan riêng
• Concept of separate transactions: biệt
?? – As of the acquisition date, pre-existing relationships between acquirer and đã tồn tại 1 gd trước đây giữa bên mua và bên đc mua
acquiree comes to an end
• Rationale: Impossible to have contracts with oneself
– Effective termination of pre-existing relationship through a business
combination may give rise to a settlement gain or loss for the acquirer
giả địnhto have been priced into the fair
– The settlement gain or loss is presumed
value of consideration transferred by the acquirer gain/loss --> FV của giá phí hợp nhất
– Acquirer also recognizes “reacquired rights” as an intangible asset
• Rationale: It is deemed that the rights flowing from the pre-existing quyền mua lại=Intangible asset
contracts revert to the acquirer on the acquisition date
37
coi vi du sau
38
39
13
Chapter 3
Recognition Principle
ngày mua
At acquisition date:
Fair value • Fair value differential will lttm:ts ko nhận diện được, ko tách biệt được để bán
differential be recognized in the
consolidation worksheet
41
Amortised cost
Reclassified as held-to-
Classified as Available-
maturity according to
for-sale securities
acquirer’s group policy
FVTP/L
Under acquiree’s financial statements Under consolidated financial statements
14
Chapter 3
Intangible Assets
• IFRS 3 requires the acquirer to recognize the fair value of an acquiree’s
unrecognized identifiable asset (e.g. intangible asset) in the
consolidated financial statements
– Rationale: the acquisition event justifies recognition of intangible
assets
– Do not provide guidance on measurement of fair value of the
recognized intangible asset
43
Intangible Assets
44
Probable
outflow of
thu được likt trong tleconomic Reliably
measurable
resources
Present
constructive or
legal obligations
arising from past
events
45
phát sinh từ sư kiện đã xảy ra
15
Chapter 3
Indemnification Assets
• Contractual indemnity khoản bồi thường theo hđ
– Provided by the former owners of the acquiree to the acquirer to make
good any subsequent loss arising from contingency or an asset or a bên bị mua bồi thường cho bên mua do phát sinh 1 ngv nợ
liability
Non-controlling Interests
16
Chapter 3
Fair value method Proportionate share of identifiable hình thức tỷ lệ sở hữu của vốn csh hiện tại trong việc gn ts có thể nhận biết
p thức FV assets method
• Obtain a reliable measure of • Applies present ownership interests -tỷ lệ sh
fair value of NCI (e.g. quoted held by NCI to the recognized
price in active market) amounts of identifiable net assets to
giá niêm yết determine initial amount of NCI
• In absence of quoted price, use
valuation techniques to value • If NCI have potential ordinary shares, nếu có cp thường tiềm năng
NCI (e.g. peer companies’ they should be measured at fair value => FV
valuation or appropriate
assumptions)
sử dụng kỹ thuật đo lường giá trị của NCI
49
ex: dựa vào kỹ thuật đl của các ct cùng ngành
ko tỷ lệ với
• Fair value of NCI as at acquisition date would not be proportional to 80%-FV của CT=100=> 80
the fair value of consideration transferred by the acquirer to obtain (có thêm quyền ks)
control
– Rationale: The consideration transferred would include a control NCI: 20%=> ko phải 20=> có theer thấp hơn
premium
50
Goodwill
thăng dư/ lợi ích
• A premium that an acquirer pays to achieve synergies from business
combination
– Must be recognized separately as an asset
– Determined as a residual
• IFRS 3 allows 2 ways of determining goodwill:
Goodwill C1= Fair value of consideration transferred – Acquiree’s
+ recognized net
Fair value of non-controlling interests identifiable assets
C2 + measured in
Fair value of the acquirer’s previously accordance with
held interest in the acquiree IFRS 3
51
17
Chapter 3
Goodwill
Goodwill
Goodwill
• The “top-down approach” (Johnson and Petrone, 1998) results in
measurement errors in goodwill
Consideration transferred +
Overpayment for an
Fair value of non-controlling interests
acquisition or
overvaluation of
consideration
transferred
VD: Cty S mua 60% of total 3,000 cpt của Cty N (1/1/20x9)
Goodwill -giá phí hn=5,500=cash
-FV of NA of N=5,000
di từ bản chất của GW; ko sd trong IFRS (chỉ tham khảo) -giá thị trường=2.25$/cpt of N
Require: GW = 2 cách:
• In a “bottom-up” approach (Johnson and Petrone, 1998): a) PP GTHL:
b) PP TLTST:
Goodwill
GTHL TLTST
mẹ 5,500 5,500
giá phí hn
Internally-generated
Goodwill Fair value of synergies
(Combination goodwill)
(Core Goodwill) Lợi ích NCI 2.25$x0.4x3,000=2,700 5,000x0.4=2,000
18
Chapter 3
55
Illustration 1: Goodwill
Determine the acquirer's interest in the acquiree:
, ,
Percentage ownership (75%)
, ,
56
<
+ Fair value of
Fair value of non-controlling interests identifiable net
+
assets
Fair value of the acquirer’s previously
held interest in the acquiree 300
260
• In essence, a windfall gain to acquirer
• The acquirer must re-assess the fair value of identifiable net assets,
consideration transferred and non-controlling interests. If there is no
measurement error:
– The gain will be recognized immediately in the income statement
57
19
Chapter 3
• Events and circumstances arising after acquisition date does not lead to
measurement period adjustments
‒ Adjustments only allowed because of incorrect or incomplete information
available as at acquisition date but was missed or misapplied
60
20
Chapter 3
61
62
63
21
Chapter 3
64
65
Investment Entity
Subsidiary Joint
Subsidiary Subsidiary Associate
(Service Co) Ventures
66
22
Chapter 3
Joint
Subsidiary Subsidiary Associate
Ventures
67
Joint
Subsidiary Subsidiary Associate
Ventures
68
Appendix 2:
Settlement of Pre-Existing Relationships
• IASB recognizes that the acquirer and acquiree may have a pre-
existing relationship or other arrangement before negotiations for the
business combinations began
– Hence total consideration may comprise of two parts:
• Accounted for as
Amount paid in business combination
exchange for acquiree using acquisition method
of accounting
Total
consideration
Amount paid in • Accounted for separately
settlement for other from business
transactions combination transactions
69
23
Chapter 3
Appendix 2:
Settlement of Pre-Existing Relationships
• The following indicators enables one to determine if transaction is part of the
exchange for the acquiree or separate from the business combination
1. Reason for transaction
Understanding the intent and purpose of the transaction
2. Who initiated the transaction
The identity of the party who initiated the transaction may provide some
insights as to whether the transaction was carried out as part of the
exchange for the acquiree
3. Timing of the transaction
Transactions that occur before the negotiation are likely to provide little
or no benefit to the acquirer:
– Transaction that in effect settles pre-existing relationships between
acquirer and acquiree
– Transaction that remunerates employees or former owners of the
acquiree for future services
– Transaction that reimburses the acquiree or its former owners for
paying the acquirer’s acquisition costs
70
Appendix 2:
Settlement of Pre-Existing Relationships
• Accounting treatment for settlement of pre-existing relationship
Settlement of
pre-existing
relationship
Contractual Non-contractual
relationship relationship
Appendix 2:
Settlement of Pre-Existing Relationships
• Remunerating employees for future services
– It is important to analyze carefully the nature of these employee
compensation arrangements in order to apply the proper accounting
treatment
– Payment can be made to either
o Pre-combination employment services; or
Accounted for as part of the consideration transferred in the
business combination transaction
o Post-combination employment services; or
Payment is accounted for separately from business
combination transactions
o A combination of pre- and post-combination services
Amount paid will be allocated to payment for post combination
services and consideration transferred in exchange for the
acquiree
72
24
Chapter 3
Appendix 2:
Settlement of Pre-Existing Relationships
Employee
Compensation
Arrangements
Allocate to
Consideration remuneration Remuneration
transferred services first and services
rest to
consideration
transferred
Appendix 2:
Settlement of Pre-Existing Relationships
• Share based payment transactions
What should be done
In situations where the acquirer Acquirer should measure the liability
replaces the acquiree’s share-based or equity instrument relating to the
payment transactions with that of the replacement awards in accordance
acquirer with IFRS 2 Share-Based Payment
74
Appendix 2:
Settlement of Pre-Existing Relationships
• Transaction for payment of acquisition costs
– IFRS 3 requires the acquirer to account for acquisition-related costs as
expenses in the periods in which the costs are incurred and the
services, received
– With the exception of cost incurred to issue debt or equity securities
Rationale: Acquisition costs are neither part of the consideration
transferred in exchange for acquiree nor part of fair value of
identifiable net assets transferred by acquiree
– Acquirer is required to reimburse the acquiree or its former owners for
the payment of acquisition related expenses on behalf of the acquirer
has to be accounted for separately
75
25
Chapter 3
Conclusion
76
Conclusion
• Acquisition method
– Identify acquirer with reference to the control criteria of IFRS 10
– Recognize and measure identifiable net assets at fair value at acquisition
date
– Goodwill is a residual figure and is determined on a “top-down” approach
May include recognition and measurement errors and identifiable
elements
• Measurement period
– Acquirers are allowed a 12 month measurement period to correct and revise
the following on a retrospectively basis:
1. Provisional amounts of goodwill
2. Fair value of identifiable net assets
3. Fair value of Non-controlling interests
4. Fair value of previously held interests
77
26