8 how is the consideration transferred calculated

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8. How is the consideration transferred calculated? AASB 3 para 37 states that the consideration transferred shall be - measured at fair value, determined at acquisition date, and - calculated as the sum of the fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer, and the equity interests issued by the acquirer. 9. If an acquiree liquidates, what are the key accounts raised by the acquiree and what accounts are transferred to these accounts? LIQUIDATION ACCOUNT Assets taken over Contra assets Liabilities arising during the Liabilities assumed liquidation process Reserves Liquidation expenses Consideration received
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Balance to Shareholders Distribution SHAREHOLDERS’ EQUITY ACCOUNT Consideration paid to shareholders Share capital Balance Liquidation Account 10. How is a gain on bargain purchase accounted for? AASB 3 para 34 specifies the measurement of the gain. Para 36 requires an acquirer to: reassess the identification and measurement of the identifiable assets acquired and liabilities assumed, and measurement of the consideration transferred. This review is to ensure that the measurements are appropriate. Para 34 requires an acquirer, subsequent to para 36 procedures, recognise any remaining gain on bargain purchase immediately in profit or loss. 11. Why is it important to identify an acquirer in a business combination? Consider the example in para B18 in Appendix B to AASB 3. Assume A Ltd and B Ltd combine together by creating C Ltd which acquires all the shares in A Ltd and B Ltd and issues its own shares in exchange. As noted in para B18, C Ltd is not necessarily the acquirer. What differences occur if either A Ltd or B Ltd is identified as the acquirer? 2 effects: (i) the consideration transferred is based on what the acquirer gives up; and (ii) the acquiree’s net assets are measured at fair value. In relation to point (ii), if A Ltd is the acquirer then in the consolidated financial statements B Ltd’s net assets are adjusted to fair value while A Ltd’s net assets are at the carrying amounts in A Ltd. If B Ltd is the acquirer, A Ltd’s net assets are adjusted to fair value while B Ltd’s net assets are at the carrying amounts in B Ltd.
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1- Explain the purpose of the pre-acquisition entries in the preparation of consolidated financial statements. The purpose of the pre-acquisition entry is to: - prevent double counting of the assets of the economic entity - prevent double counting of the equity of the economic entity - recognise any gain on bargain purchase A simple example such as that below could be used to illustrate these points: A Ltd has acquired all the issued shares of B Ltd. The balance sheets of both companies immediately after acquisition are as follows: Share capital $200 Share capital $100 Reserves 100 Reserves 50 300 150 Shares in B Ltd 150 -- Cash 150 Cash 150 300 150 The balance of the “Shares in B Ltd” account can be changed to introduce goodwill/ gain on bargain purchase amounts.
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