# Benefit future benefits must be measurable 3 non

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benefit future benefits must be measurable 3.) Non-Controlling Interest If the acquiring company gains control but not 100% of shares Include Non-Controlling Interest in Equity on SFP two possible methods 1 – Goodwill measured at fair value determine the portion that belongs to NCI 2 – Goodwill is measured as proportionate share of new assets of target company if company owns 90% of shares, will show NCI as 10% of net asset value 4 | P a g e Example (page 172) Suppose that during the due diligence investigation completed prior to the acquisition of Namsoil, it also determined that the following intangible assets form part of the target company: Patent Rights R40 Manufacturing Licenses R15 these all form part of intangible assets capitalise Software Costs R35 Research and Development Costs R85 this is an expense and so is not capitalised *Cannot include R&D costs because the assets benefits are not yet certain or measureable. Intangible Assets = 40 + 15 + 35 = R90 Fair Value of Net Assets = Value of Tangible Assets + Value of Intangible Assets – Value of Liabilities = 90 + 675 – 385 = R380 Example (page 174) Suppose that in the previous example, Sassoil only obtained 80% of the shares in Namsoil. Based on the analysis of Namsoil’s current financial performance, the financial manager of Sassoil considers the fair value of the non-controlling interest to amount to R50. Based on the proportional policy, the non-controlling interest will be valued at 20% of the net assets of the acquired company. In this example, the non-controlling interest recognised in the statement of financial position will therefore amount to: Non-Controlling Interest = NCI % x fair value of net assets = 20% x 380 = R76

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Step 4: Recognition and Measurement of Goodwill - Must determine how much goodwill must be recognised through business combination - Difference between transaction value and fair value of net assets required = goodwill - If don’t acquire 100% of shares must also consider the NCI - Must deduct the NCI value from the net asset value when calculating goodwill - If company pays less for the transaction than the fair value of net assets = negative goodwill amount - This amount is recorded as a gain with bargain purchase in the statement of comprehensive income Summary of Calculations: 5 | P a g e Example (page 174) Suppose that Sassoil Ltd decides to pay R560 for the acquisition of 80% of the shares in Namsoil Ltd. The calculation of the goodwill amount is then as follows: Goodwill = Transaction value – (fair value of net assets – non-controlling interest) = 560 – (380 – 76) = R256 If Sassoil decides to pay R560 for Namsoil, they will recognise a goodwill value of R256 in their SFP. Patent regte / Patent rights R40 Vervaardigingslisensies / R15 Manufacturing licenses Sagteware / Software costs R35 Navorsings- en ontwikkelingskoste / R&D costs R85
Specific Issues in Acquisition Accounting 1. Research and Development Costs - According to IAS 38 – all R&D costs should be expensed in the Statement of Comprehensive Income 6 | P a g e Putting it all together… In order to finance the transaction, ordinary shares to the value of R560 were issued. The consolidated statement of financial position appears as follows: Sassoil Before Acquisition Items Combine SFP PPE at cost 710 - Accumulated Depreciation (400) PPE at Carrying Value 310 275 585 Manufacturing Licenses 200 15 215 Patent Rights 40 40

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• Fall '19
• Balance Sheet, Generally Accepted Accounting Principles, Acquiring Company

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