An acquirer usuall y incurs acquisition related costs

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Intermediate Algebra: Connecting Concepts through Applications
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Chapter 6 / Exercise 23
Intermediate Algebra: Connecting Concepts through Applications
Clark
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An acquirer usuall y incurs acquisition - related costs to effect a business combination . These costs, such as p rofessional fees paid to accountants, legal advisers, valuers and other consultants are not treated as part of the purchase consideration (as permitted by the previ ous version of IFRS 3), but are expensed immediately (IFRS 3.53).
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Intermediate Algebra: Connecting Concepts through Applications
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Chapter 6 / Exercise 23
Intermediate Algebra: Connecting Concepts through Applications
Clark
Expert Verified
Identifying and valuing intangibles under IFRS 3 72 © 2008 Grant Thornton International Ltd. All rights reserved. The acquirer might have held a previous investment in the acquiree before obtaining control. Such acquisitions are commonly known as 'step acquisitions' or 'combinations achieved in stage s'. This previous interest might have been a financial asset within the scope of IAS 39 Financial Instruments: Recognition and Measurement or an investment in an associate in accordance with IAS 28 Investments in Associates . IFRS 3 treats previously held investments as part of what the acquirer has exchanged for its controlling interest in the acquiree. It follows that the previous investment is remeasured at fair value and added to the purchase consideration. Any gain or loss arising on remeasurement o f the previous investment is recognised in profit or loss (IFRS 3.42). This includes any amount previously recognised directly in equity (other comprehensive income) relating to an investment classed as available for sale in accordance with IAS 39 that is recycled through the income statement on de - recognition. Calculation of goodwill or a gain from a bargain purchase Where purchase consideration is transferred to the seller of the business, goodwill or less frequently a gain from a bargain purchase is calculated as a residual by adding/subtracting each of the following components (IFRS 3.32 ): Component Acquisition date fair value* of the purchase consideration + Acquisition date value* of any non - controlling interest (NCI) + Acquisition date fair value of any interest in the acquiree held by the acquirer prior to the combination - Acquisition date fair value* of all acquired assets separately recognised + Acquisition date fair value* of all liabilities assumed and separately recognised = Goodw ill (+) or Bargain Purchase Gain ( -) * Fair value unless exceptions under IFRS 3 apply. If the residual is positive, then goodwill is recognised and subsequently accounted for in accordance with IFRS 3 and IAS 36 Impairment of Assets . Generally, this req uires an allocation of goodwill to cash generating units and impairment testing at least annually. On some occasions, such as in compulsory sales transactions, the residual may also be negative and therefore indicative of a bargain purchase. Where the residual is negative, a full reassessment is generally necessary to ensure that all assets and liabilities are recognised and all elements listed above are measured in accordance with IFRS 3. The combined entity should only recognise a bargain purchase gain after a full review of the purchase price allocation has been carried out (IFRS 3.34 - 36).

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