Under IFRS 3, although the two companies are being amalgamated, the transaction still
represents a business combination for which an acquirer must be identified.
the acquirer, it is important to examine the number of shares of the new entity held by
each company’s shareholders.
After Prong issues 60,000 new common shares, Prong's
previous shareholders will hold 54% (70,000/130,000) of the total outstanding shares
and Horn's previous shareholders will hold 46% (60,000/130,000) of the total
outstanding shares. Prong is therefore the acquirer.
Purchase price (60,000
Fair value of Horn
Plant and equipment
** Patent registration costs belonged to Prong and would therefore not be re-valued as
part of the transaction since Prong is the acquirer.
The transaction is essentially
accounted for as a purchase of assets.
The assets of Horn are recognized at fair value
and the excess over the fair value of shares issued represents goodwill.
Statement of Financial Position
September 1, Year 5
Plant and equipment (430,000 + 280,000)
Other assets (41,000 + 20,000)
Current assets (135,000 + 170,000)