RECOGNITION AND MEASUREMENT

Business Combination (PFRS 3)

- Acquirer obtains control of one or more businesses

Modes of carrying out BC

1. Asset Acquisition - acquirer purchases the assets and assumes the liabilities of the acquiree
in exchange for cash or other non-cash consideration
 Merger – A + B = A or B
 Consolidation – A + B = C
2. Stock Acquisition – acquirer obtains control over the acquiree by acquiring a majority
ownership interest in the voting rights of the acquiree
 Acquirer – parent
 Acquiree – subsidiary

Acquisition Method – method used in BC

1. Identify the acquirer
2. Determine acquisition date
3. Recognizing and measuring goodwill:

Or
Cost of Investment xxx
Fair Value of Net Assets (xxx)
Goodwill xxx
 TOTAL PARENT (%) NCI (%)
COI xxx3 xxx2 xxx1
FVNA (xxx) (xxx) (xxx)
Goodwill (BP gain) xxx xxx xxx4
NOTE:
1
– the acquisition-date value of NCI using the valuation hierarchy
2
– the consideration given by the parent to obtain control over the subsidiary
3
– the total of (1) and (2)
4
– this should never be negative, otherwise the valuation rule is violated

Cost of Investment (COI) – consideration given by the acquirer to the acquiree to effect the BC. The sum
of the ff. items @ Fair Value:
- Cash consideration
- Nonmonetary assets given as considerations
- Equity instruments issued as considerations
- Liabilities assumed
- Contingent consideration payable
- Share-based payments
- Non-controlling interest
- Previously-held interest

Non-Controlling interest (NCI) – equity in a subsidiary not attributable, directly, to a parent

Hierarchy:
1. Explicit FV
2. Assumed FV
3. Proportionate share in subsidiary’s FVNA

Sample Prob