Introduction: Groups and

Consolidated Statements
 Chapter 1 in general dealt with groups and the element of
control in the constitution of a group of entities.
 The presentation of group statements by the parent and the
general principles governing group statements and
16 consolidated statements were considered.
 The next few slides will use examples to explain how the
information contained in the individual financial statements of
the companies in a group (Subsidiary & Parent) are
combined to present consolidated financial statements.

2020
17
IFRS 3
Business combinations
2021
 Introduction: Page 38

 The objective of IFRS 3 Business Combinations is to enhance

the relevance, reliability and comparability of information
reported by an entity regarding business combinations.
 IFRS 3 establishes important principles for how the parent
18 company recognises and measures the following:
 The assets acquired and liabilities assumed;
[Not applicable on this module]
 The non-controlling interests (NCI) in the acquiree/subsidiary;
 The Goodwill acquired in a business combination or the gain from
a bargain purchase.

2020
When the parent company
Note that in terms of the
acquires an interest in the
accounting equation net
subsidiary company, they
assets = equity: Assets –
are basically acquiring the
Liabilities = Equity.
subsidiary’s net assets.

19 Definitions: Goodwill & Gain from bargain

purchase, Page 38
2020
20 Definitions: Goodwill & Gain from
bargain purchase, Page 38
Goodwill
If the parent pays more than > the net asset value
acquired in the subsidiary, the excess amount (premium)

Gain from bargain purchase

However, if the parent pays less < than the net asset value
acquired in the subsidiary, the deficit amount (discount)

2020
 The acquisition method, Page
44
 IFRS 3.4 - Once the parent company acquires a subsidiary, it
shall account for a business combination by applying the
“acquisition method”.
 Now you may ask: what is the difference between the
21 acquisition method and the consolidation procedures?
 The acquisition method is a part of the consolidation procedures
that need to be performed.
 So when you prepare your consolidated financial statements, you
must start with the correct application of the acquisition method
and only then continue with the consolidation procedures (basic
consolidation procedures (3 steps) discussed in chapter-1 slides).

2020
 The acquisition method, Page
44
This method requires four steps to be executed:
1. Identifying the acquirer/investor/parent;
2. Determining the acquisition date;
22 3. Recognising and measuring any non-controlling interests in
the acquire/subsidiary and [This step only becomes relevant
if the parent company owns less than < 100% of the
subsidiary company i.e. partially-owned and not wholly-
owned];
4. Recognising and measuring goodwill or a gain from a
bargain purchase.

2020
The acquisition method, recognising and measuring goodwill or
a gain from a bargain purchase, Page 47

23

2020
 The acquisition method, recognising and
measuring goodwill or a gain from a bargain
purchase, Page 48
Example 2.6: Goodwill if NCI is measured at their proportionate
share of the acquiree’s identifiable net assets.
On 1 January 20.19, P Ltd acquired a 75% interest in S Ltd. From
that date P Ltd had control over S Ltd. The fair value of the
24 consideration was R1,4 million. The fair value of the identifiable
net assets of S Ltd amounted to R1,65 million at the acquisition
date. The non-controlling interests are measured at their
proportionate share of the acquiree’s identifiable net assets at
the acquisition date. Ignore any tax consequences.
Required: Calculate if there is goodwill or gain from bargain
purchase at the date of acquisition?

2020
The
25
acquisition method, recognising and
measuring goodwill or a gain from a bargain
purchase, Page 48
Example 2.6, Solution: Goodwill if NCI is measured at their proportionate share of the
acquiree’s identifiable net assets.

Take note of the following:

1. The formula to calculate goodwill/gain
2. NCI measured at proportionate share, the calculation is NCI % x net assets (25% x 1
650 000) of the subsidiary at the acquisition date.
2020
The acquisition method, recognising and measuring 26
goodwill or a gain from a bargain purchase, Page 48

Example 2.7: Goodwill if NCI is measured at Fair value.

On 1 January 20.19, P Ltd acquired a 75% interest in S
Ltd. From that date P Ltd had control over S Ltd. The fair
value of the consideration was R1,4 million. The fair value
of the identifiable net assets of S Ltd amounted to R1,65
million at the acquisition date. The non-controlling
interests are measured at fair value of R430 000 at the
acquisition date. Ignore any tax consequences.
Required: Calculate if there is goodwill or gain from
bargain purchase at the date of acquisition?

2020
The
27 acquisition method, recognising and measuring goodwill
or a gain from a bargain purchase, Page 48

Example 2.7, Solution: Goodwill if NCI is measured at Fair value.

Take note of the following:

1. The formula to calculate Goodwill/Gain
2. NCI measured at fair value, the calculation = Fair Value given.

2020
 The acquisition method, recognising and
measuring goodwill or a gain from a bargain
purchase, Page 49
Example 2.8: Gain from a bargain purchase if NCI is measured at
their proportionate share of the acquiree’s identifiable net
assets.
On 1 January 20.19, P Ltd acquired a 75% interest in S Ltd. From
28
that date P Ltd had control over S Ltd. The fair value of the
consideration was R1,1 million. The fair value of the identifiable
net assets of S Ltd amounted to R1,6 million at the acquisition
date. The non-controlling interests are measured at their
proportionate share of the acquiree’s identifiable net assets at
the acquisition date. Ignore any tax consequences.
Required: Calculate if there is goodwill or gain from bargain at
the date of acquisition?

2020
The acquisition method, recognising and
measuring goodwill or a gain from a bargain
purchase, Page 49
Example 2.8, Solution: Gain from a bargain purchase if NCI is measured at their
proportionate share of the acquiree’s identifiable net assets.

Take note of the following:

1. The formula to calculate Goodwill/Gain
2. NCI measured at proportionate share, the calculation is NCI % x net assets (25% x 1 600
000) of the subsidiary at the acquisition date.
2020
 Homework:

 GS1-1
 GS1-2
 GS2-1
 GS2-2
 GS2-3
 GS2-4

30 2020