Consolidation notes 2019.pdf - SUNRISE PROFESSIONAL...

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SUNRISE PROFESSIONAL INSTITUTE 2.1 FINANCIAL REPORTING TEL: 0543-476-192/0501481177 CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING FOR SUBSIDIARY IFRS 3 (2008) seeks to enhance the relevance, reliability and comparability of information provided about business combinations (e.g. acquisitions and mergers) and their effects. It sets out the principles on the recognition and measurement of acquired assets and liabilities, the determination of goodwill and the necessary disclosures. Key definitions Business combination: A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as 'true mergers' or 'mergers of equals' are also business combinations as that term is used in [IFRS 3] Business: An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants Acquisition date: The date on which the acquirer obtains control of the acquiree Acquirer: The entity that obtains control of the acquire Acquiree: The business or businesses that the acquirer obtains control of in a business combination If one company owns more than 50% of the ordinary shares of another company: This will usua lly give the first company ‘control’ of the second company The first company (the parent company, P) has enough voting power to appoint all the directors of the second company (the subsidiary company, S) P is, in effect, able to manage S as if it were merely a department of P, rather than a separate entity In strict legal terms P and S remain distinct, but in economic substance they can be regarded as a single unit (a ‘group’). Consideration: A company may obtain control by payment of consideration to the subsidiary in the following forms: 1. Cash 2. Share Exchange 3. Contingent/deferred payment Contingent consideration is the amount of consideration to be paid by an acquirer to the acquiree in a business combination which is dependent on some future event such as financial performance of the acquiree. It is recognized as either equity or liability. Deferred payment is also consideration paid in the future by the acquirer to the acquiree but it is not dependent on any future event. Goodwill Goodwill is measured as the difference between: the aggregate of (i) the value of the consideration transferred (cash, share exchange and contingent/deferred payment), (ii) the amount of any non-controlling interest (NCI fair value and the acquisition) and iii) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. That is Net asset + contingent liability (if any) This can be written in simplified equation form as follows:
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SUNRISE PROFESSIONAL INSTITUTE 2.1 FINANCIAL REPORTING TEL: 0543-476-192/0501481177 Goodwill = Consideration transferred + Amount of non-controlling interests - Net assets recognized Principles of consolidated financial statements
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  • Spring '16
  • Financial Reporting

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