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Chapter 10

Discussions:
Review Question 2
Importance of identifying the acquisition date

Additional question:
Question 10.15 (A, C & D only)

MC & T/F practice questions

Acquisition date is the date on which the acquirer obtains control of the acquiree.

Important because on this date: the fair values of the identifiable assets acquired and liabilities assumed are measured. the fair value of the consideration transferred is measured the goodwill or gain on bargain purchase is calculated.

Step 1 Acquisition Analysis - Tailor Ltd - Flathead Ltd

Tailor Ltd is to acquire all assets, except cash & Shares in listed companies.

Fair value of identifiable assets acquired (FVIAL) Accounts receivable Inventory Land and buildings Plant and equipment $21 26 80 105 $232 300 000 000 000 300
Trial B FV FV

Trial B

Consideration transferred:
In exchange,
A.

the Shareholders of Flathead Ltd are to receive shares

1. for every three Flathead Ltd shares held, one Tailor Ltd share, worth $2.50 each. [150000*1/3=50000shares] 50 000 * $2.50 = $125,000 2. Shares in Listed Companies 15,000 FV $140,000

Consideration transferred (CT): [=A+B] A. Shareholders (slide 4) $140,000 B. Cash is paid to Creditors of Flathead Ltd Accounts payable $49,100 FV Mortgage loan 30,000 Trial B Annual leave 29,700 FV $108,800 Liquidation costs 8,700 $117,500 Less cash held (Trial B) (5,200) $112,300 payable Consideration transferred (CT) $252,300 Goodwill = CT FVIAL [>0, if <0= Gain on bargain purchase] Goodwill =$252,300- $232,300 = $20,000

Loss Dr 1,000 Shares in listed companies Cr 1,000


(Re-measurement FV as part of consideration transferred in a business combination see $16,000 to $15,000 last 3 rd Para p.508)

Accounts receivable Dr 21,300 Inventory Dr 26,000 Land and buildings Dr 80,000 Plant and equipment Dr 105,000 Goodwill Dr 20,000 Payable to Flathead Ltd Cr 112,300 Shares in listed companies Cr 15,000 Share capital Cr 125,000 (Acquisition of Flathead Ltds assets)

Payable to Flathead Ltd Dr 112,300 Cash Cr 112,300 (Payment of consideration) Acquisition-related expenses Dr 7,600 Cash Cr 7,600
(Payment of acquisition-related costs, see2nd para Text p.508)

Share capital Cash

Dr Cr

950 950

(Payment of share issue costs, see 2nd line in3rdpara Text p.508)

Consideration transferred:
Shareholders of Octopus Ltd receive shares
A.

1. for every two Octopus Ltd shares held, one Tailor Ltd share, worth $2.50 each and [60 000*1/2=30 000 shares] 30 000 * $2.50 = $75,000
2. Cash $1.50 30 000 * $1.50 = $45,000 $120,000

Shares in Octopus Ltd Dr 120 000 Share capital Cr 75 000 Cash Cr 45 000 (Acquisition of shares in Octopus Ltd)

1.

AASB 3 prohibits the recognition of internally generated goodwill so the figure recorded in the books of Flathead Ltd does not represent the total goodwill of the company at acquisition date.
Goodwill cannot be separated from the company and sold separately so no fair value is available. The only way goodwill can be measured is to compare the total value of the company against the fair values of its identifiable net assets, any surplus is deemed to represent the value of the net unidentifiable assets or goodwill.

2.

Cash Dr Dividend revenue Cr

1,500 1,500

(Dividend cheque received from Octopus Ltd)

All dividends are treated as revenue by the acquirer regardless out of which equity the dividend is paid.