INCREASE IN SHAREHOLDING

INCREASE IN SHAREHOLDING
• Investor may acquire its shareholding in an entity in stages over a
period of time.
• Acquiring interest in stages is referred to as piecemeal or step
acquisition.
• The non controlling interest (NCI) will be based on the non controlling
interest proportion of the equity of the subsidiary as at the end of the
year.
• Changed the status of the relationship between the investor and
investee.
• Could increase in the controlling interest and a corresponding
reduction in the NCI
INCREASE IN CONTROLLING
INTEREST
45%

15%

1JanX5 1JanX7
INCREASE IN CONTROLLING
INTEREST
25%

30%

1JanX5 1JanX7
INCREASE IN CONTROLLING
INTEREST
15%

75%

1JanX5 1JanX7
Piecemeal Acquisitions can happen
in 3 ways
Investors has control
Investor acquires
over the acquirees and
control through a
subsequently acquires
process of more than 1
more shares in the
acquisition
acquirees

Investors interest
increases without it
buying further shares
(deemed acquisitions)
 DEEMED ACQUISITIONS
• When issued share capital & • Eg: Subsidiary/associate
number of shares of the investee undertakes a share buyback.
reduced but shareholding of • Issued share capital will
investor remains unchanged. decrease.
• If the share buyback involves
• Therefore the investor’s other shareholders other than
percentage interest will the parent/investor and the
parent/investor retains all its
shareholding then its % of
interest will increase.
 DEEMED ACQUISITIONS
• Example : Share Buyback
• S : buyback from others and cancels 20% of its issued share capital

Before share by back After share by back

No. of share 10,000 unit 8,000 unit
No. of shares acquired 6,000 unit 6,000 unit
by parent/investor

% of control 60% 75%

 DEEMED ACQUISITIONS

• The deemed acquisition should be accounted for as an acquisition

and goodwill/bargain purchased is to be calculated separately for the
deemed purchase.
• The accounting treatment will depend on whether prior to the share
buyback the investor had a controlling interest or the investor
obtained control after the share buyback.
 Complications/Issues in
Piecemeal Acquisitions
Changes in the Computation and Accounting treatment of
relationship accounting the investment in the
between investor treatment of Financial Statements of
and investee GOODWILL the investor

1 2 3
 RELATIONSHIP BETWEEN
THE INVESTOR AND INVESTEE
• The relationship between investor and investee might change from no
relationship of a parent and subsidiary to a subsidiary

• There are 2 scenarios:

1) acquisition lead to the investee becoming a subsidiary
2) Investor acquires additional shares in the subsidiary

• The parent will prepare the CFS from the date of the business combination.
• Business combination arise when an acquirer obtain control over another
businesses (MFRS 3 Business Combinations)
 GOODWILL ON CONSOLIDATION
• Goodwill is ONLY recognized on a business combination.
• In a piecemeal acquisition, goodwill is recognized and measured ONLY
ONCE at the time of the business combination, which is the date the
investor acquires control.
SUB TO SUB
RECOGNITION AND MEASUREMENT OF
GOODWILL/BARGAIN PURCHASE
RM RM
CT X
Add: NCI X
------------
XXX
Less: FVNA of acquire @DOA
OSC X
Pre Reserves X (XXX)
------------- ------------
GOODWILL/BARGAIN PURCHASE XXX
 COMPUTATION OF GAIN OR LOSS ON 2ND
ACQUISITION
RM RM
CT (on 2nd acquisition) XX

Less: FVNA OF S on 2nd acquisition

OSC X
Pre reserves X
---------------
XX x HC% (XX)
-----------------
- GAIN
Gain or Loss on 2nd acquisition + LOSS XX
ASSOCIATE TO SUBSIDIARY
RECOGNITION AND MEASUREMENT OF
GOODWILL/BARGAIN PURCHASE
RM RM
CT X
Add: Fair value of previously acquired interest (@DOA) X
Add: NCI X
------------
XXX
Less: FVNA of acquire @DOA
OSC X
Pre Reserves X (XXX)
------------- ------------
GOODWILL/BARGAIN PURCHASE XXX
 CARRYING AMOUNT OF THE INVESTMENT
• Investment would be equity accounted and the carrying amount
would include a proportion of the post acquisition reserves of the
Associate.
• When the Associate becoming a Subsidiary, the share held before is
virtually sold and repurchased at the FV on date of acquisition.
• HC has to determine gain/loss on the disposal.
• The difference between the carrying amount of the earlier
acquisition and the fair value will be recognized in the profit or loss.
 COMPUTATION OF GAIN OR LOSS ON 2ND
ACQUISITION
RM RM
Fair value of previous interest / fair value on the XX
date of business combination

Less: Carrying amount of investment

Cost X
Share of post acquisition reserves X (XX)
--------------- -----------------
Gain or Loss to CSOPL XX

The shares held before the business combination is “virtually sold and repurchased” at the fair
value on the date of the business combination
 Case Goodwill Schedule-NCI Schedule-GRP Schedule-RP of CSOFP
column subsidiary
involved in
increase in
shareholding

Subsidiary to Insert Deduct NCI No change Need to divide Insert

Subsidiary calculation of reduction % of control to Gain/loss in
gain or loss of two period equity section
2nd acquisition (before and
Example
after finding after 2nd
increase from
goodwill acquisition)
60% to 75%
60%, 40%
75%, 25%
 Case Goodwill Schedule-NCI Schedule-GRP Schedule-RP of CSOFP
column subsidiary
involved in
increase in
shareholding

Associate Calculate As usual Include As usual, use As usual

Company (AC) goodwill upon changes in FV control % after
to Subsidiary second of previous 2nd acquisition
acquisition. investment by
Insert one line, ascertaining
Example
to show FV of gain or loss on
increase from
previous “disposal” of
30% to 70%
investment in interest in AC
AC (**), after (Proceeds-
CT. CV)(***).