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ABC Notes Summary Accounting

This document discusses business combinations and the acquisition method under accounting standards. It defines a business combination as when an acquirer obtains control of one or more businesses. Business combinations can be classified based on structure, industry relation, and accounting method used. The acquisition method follows a 5-step process: 1) Identify the acquirer, 2) Determine the acquisition date, 3) Measure consideration transferred, 4) Recognize assets acquired and liabilities assumed, and 5) Recognize goodwill or gain on bargain purchase. Consideration involves measuring cash, assets, equity and debt at fair value. Identifiable assets and liabilities are recognized at fair value, including non-controlling interests. Any excess of consideration over

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28 views3 pages

ABC Notes Summary Accounting

This document discusses business combinations and the acquisition method under accounting standards. It defines a business combination as when an acquirer obtains control of one or more businesses. Business combinations can be classified based on structure, industry relation, and accounting method used. The acquisition method follows a 5-step process: 1) Identify the acquirer, 2) Determine the acquisition date, 3) Measure consideration transferred, 4) Recognize assets acquired and liabilities assumed, and 5) Recognize goodwill or gain on bargain purchase. Consideration involves measuring cash, assets, equity and debt at fair value. Identifiable assets and liabilities are recognized at fair value, including non-controlling interests. Any excess of consideration over

Uploaded by

Sabel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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BUSINESS COMBINATION

- Transaction or event which an acquirer obtains control of one or more businesses.

PURPOSE OF BUSINESS

 Provide good or services


 Generate investment income
 Other income from ordinary activities

CLASSIFICATIONS

I. As to Structure
1. Horizontal Integration- same industry
2. Vertical Integration- same industry, different levels
3. Conglomerate Combination- unrelated industries
4. Circular Combination- with diversification
II. As to method used
1. Net Asset Acquisition (100% acquisition)
a) Statutory Merger- A+B=A or B
b) Statutory Consolidation- A+B=C
2. Stock Acquisition (100% or less acquisition)
 Companies not dissolved
 Parent- subsidiary
 CONTROL: preferred stock= NO CONTROL
Common stock= % owned (rebuttable)

III. As to accounting method used


Classification Ownership Control Standard

Investment in Security Less than 20% No influence PFRS 9

Investment in Associate 20% to 50% Significant influence PFRS 28

Investment in subsidiary More than 50% Control PFRS 3

1. Pooling of interest- NOW STRICTLY PROHIBITED


2. Purchase Method
3. Acquisition Method

ACQUISITION METHOD (5-STEP MODEL)


1) Identify the acquirer
2) Determine acquisition date
3) Recognize and determine consideration transferred
4) Recognize and measure identifiable assets and liability. (Including NCI)
5) Recognize and measure goodwill or bargain purchase.
STEP 1- IDENTIFY THE ACQUIRER
 ACQUIRER- entity that obtains control over acquiree
 ELEMENTS OF CONTROL: (P-E-R-A)
- Power over investee
- Exposure, or Rights, to variable returns
- Ability to use power over investee to affect returns
 OTHER INDICATORS:
- Entity with significantly greater FV
- entity paying consideration
- entity that dominates selection of management of the other
STEP 2- DETERMINE ACQUISITION DATE
 ACQUISITION DATE- date when control is obtained
STEP 3- DETERMINE CONSIDERATION TRANSFERRED
 Cash Face Value
 Deferred payments Present Value
 Non-monetary Assets Fair Value
 Equity instruments Fair Value
 Debt instruments Present Value
 Contingent Consideration Fair Value
CONTINGENT CONSIDERATION (max 1 yr. Remeasurement)
 Date of acquisition (FV)
- Equity: credit Share Premium- CC
- Cash: credit Estimated liability- CC
 Subsequent to date acquisition
- Equity: NOT remeasured
- Cash: 1 yr. Or less- charge to GW/ GBP
More than 1 year- charge to P/L

STEP 4- RECOGNIZE IDENTIFIABLE ASSETS, LIAB, NCI


RECOGNITION:
- A&L must meet the definition requirements of Conceptual Framework at acquisition date
- conditions may result in recognizing some A&L that acquiree had not previously recognized
-GOODWILL OF ACQUIREE- NOT part of FVINA
MEASUREMENT:
- Fair value at acquisition date
- NCI:
1. FV of NCI- if not given, compute implied FV
Implied FV=(P. Price/ Control Int.) x NCI%
2. Proportionate Share of NA @FV (floor test)
NA @FV x NCI%
STEP 5- GOODWILL OR GAIN FROM BARGAIN PURCHASE

Consideration Transferred P xx
Previously held equity interrest (FV) xx
NCI (for Stock Acquisition ONLY) xx
FVINA (FV Assets- FV Liabilities) (xx)
Goodwill/ (Gain from Bargain Purchase) xx

Previously Held Equity Interest


- remeasured at FV at acquisition date
- Gain/Loss on re-measurement:
- FA @FVPL ---- P/L
- FA @ OCI ----- R/E
FS Presentation of GW/ GBP:
 Net Asset Acquisition--- recognized immediately in FS
 Stock Acquisition---- only appears in CONSO FS
Consideration Given>FVNA = Goodwill (Bal. Sheet)
Consideration Given<FVNA = Gain (Inc. Statement)

* Unidentifiable Asset- Goodwill : Gain on Acquisition= 0

ACQUISITION RELATED COSTS

ACQU.- RELATED PURCHASE METHOD ACQUISITION METHOD


COST

Applicability PFRS for SME Full PFRS

DACs Capitalized  Net Asset: Expensed


 Stock:
- Separate: Capitalized
- Conso: Expensed

IDACs Expensed Expensed

Stock Insurance Priority: Priority:


Costs (SIC) 1 SP- Insurance 1 SP- Insurance
2 SP- previous issue 2 SP- previous issue
3 R/E 3 R/E

Debt/ Bond IC Deduct to PV/FV of debt Deduct to PV/FV of debt

NCI Partial Only Partial or Full

Goodwill Amortized (presumed 10 yrs) Subject to impairment


Subject to IMpairment

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