Accounting for Business Combination

Assignment 1

03-17-2022

Genevieve Vargas

Problem 1: True or False

1. False – because the two important elements in the definition of business combination under PFRS 3
are business and control not the combination.

2.False- because under PFRS 3 requires the use of the purchase method in accounting for business
combinations. The prescribed method is acquisition method. (Purchase method is applicable to PFRS for
SMEs)

3.False – because the entity that obtains control in a business combination is called acquirer not the
acquiree. The acquirer is the entity that obtains control of the acquiree. Acquiree is the business that the
acquirer obtains control.

4. True- according to what I read Sir the acquisition date in business combination is normally the Closing
date the acquisition date on which the acquirer legally transfers the consideration, acquires the assets,
and assumes the liabilities of the acquiree.

5. False- because the non controlling interests are measured at fair value or NCI’s proportionate share
in the acquiree’s net identifiable assets. Simply put, the acquirer measures any non-controlling interest
in the acquiree either at (1) fair value. NCI's proportionate share in the acquiree's net identifiable assets.

6. True- because if the controlling interest is 80% noncontrolling interest is 20%.

because the controlling interest is 80% well the noncontrolling interest is 20% it means that (100% -
80%) is equal to 20%. for example if the ABC company acquires 100% of interest in XYZ incorporation the
non-controlling interest is 0%. the noncontrolling interests or NCI is the equity in a subsidiary not
attributable, directly or indirectly to a parent. under PFRS 3 the non-controlling interest is called the
minority interest. that is why it is true that the controlling interest is 80% while the non-controlling
interest is 20%.

Non-controlling interest is the "equity in a subsidiary not attributable, directly or indirectly, to a parent".
Also called as minority interest.

7. False- recognized in profit or loss after reassessment. According to what I read, On acquisition date,
The acquirer recognizes the resulting of goodwill as an asset and gain on a bargain purchase as gain in
profit or loss. (page 12).

Simply, the acquirer recognizes a resulting gain on a bargain purchase as gain in profit or loss. Goodwill,
on the other hand, is recognized as an asset.

8. True an intangible I said that is unrecorded by the acquiree may nevertheless be recognized by the
acquirer in a business combination.
The acquirer may recognize an acquired intangible asset, such as a brand name, a patent or a customer
relationship, that the acquiree did not recognize as an asset in its financial statements because it has
developed the intangible asset internally and charged the related costs as expense.

Unidentifiable asset is different from intangible asset. The acquirer recognizes the identifiable intangible
assets acquired in a business combination they meet either the (a) separability criterion or (b)
contractual-legal criterion.

9. False - because a non-current asset acquired in a business combination that is classified as held for
sale is not measured at fair value. It means that fair value is less cost to sell.

Identifiable assets acquired and liabilities assumed are measured at their acquisition-date fair values.
They are classified at the acquisition date in accordance with other PFRS that are to be applied
subsequently. In the case of noncurrent asset, if held for sale, PFRS 5 is applicable which is fair value less
cost to sell.

10. True- it is true because if the consideration transferred in a business combination is deferred, to
consideration may be measured at present value

Restructuring provisions is often called as liquidation costs. Restructuring provisions are generally not
recognized as part of business combination unless the acquiree has an existing liability for restructuring.

Contingent consideration is the amount of consideration to be paid by an acquirer to the acquiree in a

business combination which is dependent on some future event; is recognized as either equity (not
adjusted) or a liability (at fair value).

PAS 12 (Income Taxes) prohibits the recognition of deferred tax liabilities arising from the initial
recognition of goodwill.

Problem 2:

1. False because the goodwill should be 20 only.

Solution:

Consideration transferred 100

Non-controlling interest in the acquire -

Previously held equity interest in the acquiree -___

Total 100

Fair value of net identifiable interest in the acquiree (200-120) (80)

Goodwill / (Gain on a bargain purchase) 20

 2. True

Solution:

Consideration transferred 100

Non-controlling interest in the acquiree [(200-120) x 10%] 8

Previously held equity interest in the acquiree -

Total 108

Less: Fair Value of net identifiable assets acquired [200-120] (80)

Goodwill / (Gain on a bargain purchase) 28

3. False

Solution:

Consideration transferred 100

Non-controlling interest in the acquiree [(200-120) x 10%] 10

Previously held equity interest in the acquiree -

Total 110

Less: Fair Value of net identifiable assets acquired [200-120] (80)

Goodwill / (Gain on a bargain purchase) 30

4. False because entity A incurred legal fees of 20 in negotiating in business combination. The
goodwill should be 20 not 40

Solution:

Consideration transferred 100

Non-controlling interest in the acquire -

Previously held equity interest in the acquiree -___

Total 100

Fair value of net identifiable interest in the acquiree [200-120] (80)__

Goodwill / (Gain on a bargain purchase) 20

*liquidation costs ( acquisition-related cost) are expensed, except for the stock issuance costs which are
deducted from share premium.
 5. True

Solution:

Consideration transferred 100

Non-controlling interest in the acquire -

Previously held equity interest in the acquiree -___

Total 100

Fair value of net identifiable interest in the acquiree [200-120] (80)_

Goodwill / (Gain on a bargain purchase) 20

*liquidation costs ( acquisition-related cost) are expensed,

6. False because the fair value of the differential is 5 which is intangible asset

Solution:

Consideration transferred 100

Non-controlling interest in the acquire -

Previously held equity interest in the acquiree -___

Total 100

Fair value of net identifiable interest in the acquiree [(200+5)-120] (85)_

Goodwill / (Gain on a bargain purchase) 15

7. True

Solution:

Consideration transferred 100

Non-controlling interest in the acquire -

Previously held equity interest in the acquiree -___

Total 100

Fair value of net identifiable interest in the acquiree [200-120] (110)_

Goodwill / (Gain on a bargain purchase) (10)

*Acquirer recognized Patent even if the acquiree already expensed the related costs

Page:30

8. True
Solution:

Consideration transferred 100

Non-controlling interest in the acquire -

Previously held equity interest in the acquiree -___

Total 100

Fair value of net identifiable interest in the acquiree [200-120] (50)_

Goodwill / (Gain on a bargain purchase) 50

* contingent liability is recognized even if it is improbable because it (a) represents a present obligation
and (b) has a fair value

Page:33

9. False

Solution:

Consideration transferred 100

Non-controlling interest in the acquire -

Previously held equity interest in the acquiree -___

Total 100

Fair value of net identifiable interest in the acquiree [200-120] (59)*

Goodwill / (Gain on a bargain purchase) (41)

Fair value of assets acquired [200+((200-150) x30%)] 215

Fair value of liabilities assumed [120+(120x30%)] (156)

Fair value of net identifiable assets 59

Asset fair value 200

Asset carrying amount (150)

Deductible Temporary Difference 50

Tax rate 30%

Deferred tax asset 15

Asset fair value 200

Fair value of asset acquired 215

*No difference from liability’s fair value and carrying amount.

10. True

Solution:

Consideration transferred 100

Non-controlling interest in the acquire -

Previously held equity interest in the acquiree -___

Total 100

Fair value of net identifiable interest in the acquiree [200-120] (105)_

Goodwill / (Gain on a bargain purchase) (5)

*trademarks, trade secret process, and mask works acquired a business combination

normally meet the contractual-legal criterion