Topic%208%20Business%20Combination%20and%20Impairement_4pages

Topic%208%20Business%20Combination%20and%20Impairement_4pages

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1 ACCT 2542 – Corporate Financial Reporting and Analysis Lecture Topic 8 Business Combination and Impairment of Assets Presented by: Dr Sarowar Hossain Consolidation Accounting: Principles Getting Started Readings Picker et al, Chapter 12 & 13 2 Other References AASB 3 – Business Combinations AASB 136 – Impairment of Assets Consolidation Accounting: Principles Getting Started Objectives To understand the notion of business combinations and the purchase method of accounting 3 To understand the notion of control as it applies to the parent/subsidiary situation To understand the notions of goodwill and excess and the accounting treatment of both on acquisition To be introduced to accounting Impairments Consolidation Accounting: Principles AASB 3 Business Combinations (AASB 3) “ ….bringing together of separate entities or businesses into one reporting entity” 4 “The results of nearly all business combinations is that one entity, the acquirer , obtains control of one or more other businesses, the acquiree “ ….the purchase …. .may be effected by the issue of equity instruments, the transfer of cash, cash equivalents, of other assets, or a combination thereof”
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2 The nature of a business combination AASB 3 defines a business combination as: ‘the bringing together of separate entities or businesses into one reporting entity’ A ‘business’ is not just a group of assets, rather, it is an entity able to produce output 5 The nature of a business combination General forms of business combination are as follows (assuming the existence of two companies – A Ltd and B Ltd): ALtdacquires all assets and liabilities of B Ltd 1. A Ltd acquires all assets and liabilities of B Ltd B Ltd continues as a company, holding shares in A Ltd 2. A Ltd acquires all assets and liabilities of B Ltd B Ltd liquidates 3. C Ltd is formed to acquire all assets and liabilities of A Ltd and B Ltd A Ltd and B Ltd liquidate 4. A Ltd acquires a group of net assets of B Ltd, the group of net assets constituting a business, such as a division, branch or segment, of B Ltd. B Ltd continues to operate as a company. Refer to figure 12.2 of text for key steps involved under each of the above scenarios 6 Accounting for business combinations: Basic principles AASB 3 prescribes the acquisition method in accounting for a business combination. The key steps in this method are: 1. Identify an acquirer 2. Determine the acquisition date 3. Recognise and measure the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; and 4. Recognise and measure goodwill or a gain from bargain purchase. 7 Accounting for business combinations: Identifying the acquirer The business combination is viewed from the perspective of the acquirer The acquirer is the entity that obtains control of the acquiree In most cases this step is straight forward. In other cases judgement may be required > e.g. where two
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This note was uploaded on 09/14/2011 for the course ACCT 1001 taught by Professor John during the Spring '11 term at Renmin University of China.

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Topic%208%20Business%20Combination%20and%20Impairement_4pages

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