Lecture 2 - Lecture 2 Business Combinations Investing in...

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1 Lecture 2 Business Combinations – Investing in Related Entities
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2 Lecture references AGCL Chapter 1 Corporations Act 2001; Foreign Acquisitions and Takeovers Act 1975 Trade Practices Act 1974 AASB 3 Business Combinations AASB 127 Consolidated and Separate Financial Statements
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3 Learning objectives To learn the fundamentals of accounting for controlling share investments. Know the terms and fundamental assumptions that are used in accounting for groups. Appreciate the general advantages that can be obtained when business is organised around a group structure. Know the meaning of control in relation to groups and the central role it plays in defining a group and its membership. Understand why separate financial reporting of a group is necessary. Understand that takeovers are subject to legal constraints
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4 1. Business combinations Acquisition of businesses is governed by AASB 3: Business Combinations A business combination is defined as: ‘a transaction or event in which an acquirer obtains control of one or more businesses. (AASB 3 Appendix A)
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5 Business combinations (cont.) The two main approaches to acquiring control of a business are to: 1 acquire directly from a vendor a collection of assets that constitutes a business The acquirer debits the assets acquired and credits the liabilities assumed (if any) and the consideration 2 acquire sufficient shares (indirect acquisition) to control the board of directors of a company that owns the business. The acquirer debits an Investment account and credits the consideration
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6 AASB 3 - Business Combinations Uses the term “acquirer” rather than “parent” Applies this acquisition method Identify the acquirer (the acquirer obtains control) Determine the acquisition date Measure and recognise the identifiable assets acquired, liabilties assumed and any non-controlling interest in the acquiree, and Recognising and measuring goodwill or a gain from a bargain purchase
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7 2. Share acquisitions Purchase some shares – trading investment But, acquisition of large number of shares may give the purchaser a significant influence or control over the acquiree’s company.
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8 Share Acquisitions (cont) Equity Accounting Investments providing investors with power to exert
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This note was uploaded on 11/18/2010 for the course ACCOUNTING 22754 taught by Professor Helen during the Three '10 term at University of Technology, Sydney.

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Lecture 2 - Lecture 2 Business Combinations Investing in...

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