Chapter 2 BUSINESS COMBINATIONS (Part 2)

  Learning Objectives
• Account for business combinations (a) accomplished
through share-for-share exchanges, (b) achieved in stages,
and (c) achieved without transfer of consideration.
• Explain the “measurement period” in relation to business
combinations.
• Distinguish what is part of a business combination and
what is part of a “separate transaction.”
• Account for settlement of pre-existing relationship
between an acquirer and an acquiree.
ACCOUNTING FOR BUSINESS
COMBINATIONS (Advanced
Accounting 2) - (by: MILLAN)
Share-for-share exchanges

• The consideration transferred in a business combination

accomplished through a mere exchange of equity
interests between the acquirer and the acquiree (or its
former owners) is measured at the acquisition-date
fair value of the acquiree’s or acquirer’s equity
interests, whichever is more reliably determinable.

ACCOUNTING FOR BUSINESS

COMBINATIONS (Advanced
Accounting 2) - (by: MILLAN)
Business combination achieved in stages
• A business combination achieved in stages occurs when an investor
acquires additional shares from an investee which it had
previously held equity interest and the additional shares purchased
results to the investor obtaining control over the investee.
• Accounting for a business combination achieved in stages :
1. Remeasure the previously held equity interest in the acquiree at its
acquisition-date fair value; and
2. Recognize the gain or loss on the remeasurement in:
• Profit or loss – if the previously held equity interest was
classified as FVPL, Investment in Associate, or Investment in
Joint Venture.
• Other comprehensive income – if the previously held
equity interest was classified as FVOCI.
ACCOUNTING FOR BUSINESS
COMBINATIONS (Advanced
Accounting 2) - (by: MILLAN)
Business combination achieved without transfer of consideration

• In a business combination in which no consideration is

transferred, the acquirer substitutes the acquisition-date fair
value of its interest in the acquiree for the acquisition-date fair value
of the consideration transferred to measure goodwill or a gain on a
bargain purchase.

ACCOUNTING FOR BUSINESS

COMBINATIONS (Advanced
Accounting 2) - (by: MILLAN)
 Measurement period

• If the initial accounting for a business combination is incomplete by the

end of the reporting period in which the combination occurs, the acquirer
shall report in its financial statements provisional amounts for the
items for which the accounting is incomplete.

• If new information is obtained during the measurement period which

provides evidence of facts and circumstances that existed as of the
acquisition date that, if known, would have affected the measurement of the
amounts recognized as of that date, the acquirer shall retrospectively
adjust the provisional amounts recognized at the acquisition date.
 
• The measurement period shall not exceed one year from the acquisition
date. ACCOUNTING FOR BUSINESS
COMBINATIONS (Advanced
Accounting 2) - (by: MILLAN)
Determining what is part of the business combination transaction

• A transaction that is arranged primarily for the benefit of

the acquirer or the combined entity rather than primarily
for the benefit of the acquiree or its former owners
before the combination is likely to be a separate
transaction. Thus, the portion of the transaction price
is excluded from the consideration transferred
when applying the acquisition method.

ACCOUNTING FOR BUSINESS

COMBINATIONS (Advanced
Accounting 2) - (by: MILLAN)
REACQUIRED RIGHTS

• A right that an acquirer has previously granted to the acquiree that

is reacquired as a result of a business combination is recognized as
an intangible asset separately from goodwill.

ACCOUNTING FOR BUSINESS

COMBINATIONS (Advanced
Accounting 2) - (by: MILLAN)
SETTLEMENT OF PRE-EXISTING RELATIONSHIP

1. CONTRACTUAL
2. NON-CONTRACTUAL

ACCOUNTING FOR BUSINESS

COMBINATIONS (Advanced
Accounting 2) - (by: MILLAN)
 END
ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by:
MILLAN)