(ii)Combination goodwill: relates to the extra benefits accruing because of the synergy createdby the acquirer and the acquiree combining together eg if the raw materials available to theacquiree are of particular use to the acquirer. These benefits could affect the recordedearnings of the acquirer or the acquiree [or both] depending on the nature of the benefits.5.What recognition criteria are applied to assets and liabilities acquired in a businesscombination?See pages 354-5 of the text.Para 10 of AASB 3 states that the identifiable assets acquired and liabilities assumed shall berecognised separately from goodwill.Because the assets and liabilities are measured at fair value, the assets and liabilities arerecognised regardless of the degree of probability of inflow/outflow of economic benefits. Thefair value reflects expectations in its measurement.The assets and liabilities recognised must meet the definitions of assets and liabilities in theFramework. [Para 11]The assets and liabilities recognised must also be part of the exchange transaction rather thanresulting from separate transactions [para 12].6.How is an acquirer identified?Para 6: For each business combination, one of the combining entities shall be identified as theacquirer.Appendix A: The acquirer is the entity that obtains controlof the acquiree.Appendix A: Control is the power to govern the financial and operating policies of the acquireeso as to obtain benefits from its activities.
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Determination of the acquirer requires judgement. Paragraphs B13-B18 of AASB 3 providesindicators/guidelines to assist in this judgement:-form of consideration: did one entity transfer cash or other assets for the shares of theother? [para B14]; did one entity issue its own equity interests in exchange foranother entity’s equity interests? [para B15] Was there a premium paid by one of theentities? [para B16(e)]-subsequent management: which entity’s management subsequently controls thebusiness combination? What are the relative voting rights after the businesscombination? [para B15(a)] What is the composition of the senior management ofthe combined entity? [para B15(d)]-large minority voting interest: The acquirer normally holds the largest minority votinginterest in the combined entity. [para B15(b)]-predator or target: which entity initiated the combination? [B17].-relative size of the businesses: is the fair value of one entity significantly greater thananother? [para B16]]. Large entities normally takeover small entities;7.Explain the key steps in the acquisition method.AASB 3 para 5:1.identify the acquirer2.determine the acquisition date3.recognise and measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree4.recognise and measure goodwill or a gain from a bargain purchase.
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