Excluded from the scope are: combinations of entities under common control (which are on the IASB’s agenda), acquisitions of assets that do not constitute a business, My doubt is that how it can be unfavorable since the acquirer got the asset at lower price compared to market value. I need your help to understand whether IFRS 3 is applicable for Investment in Associate transaction. The objective of IFRS 3 Business Combinations is to improve the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects. The entity is required to apply the ‘Acquisition Method’ to account for each business combination, which includes the following: 1. Group retained earnings in 2014 = 970 000 + (115 000 – 90 000)*100% – 25%*140 000 = 960 000. Head office: Columbus Building, 7 Westferry Circus, Canary Wharf, London E14 4HD, UK. And if you ever visit Sarajevo in the near future, I would be happy to show you around. Yes, this is in deed a strange situation, but in real life, I know a few companies which were acquired by the investors only for their land (everything else was destroyed during the war, and companies in deed had huge debt), and forward 10 years from then, the new owners built shopping malls on that land The only actual value of those companies was the location of their land… Anyway, I also realised that business combinations of entities under common controls fall out of scope of IFRS 3, therefore, there will be no goodwill in my example because these are related parties… Thank you once again for your response. These 2 questions were among many questions but I got stuck only with these 2 questions. More particularly, IFRS 3 Business Combination focuses on how the acquirer: Recognizes and measures the identifiable assets acquired, the liabilities assumed and any non-controlling interest (NCI)in the acquiree. When two companies merge together and create just 1 company, the acquirer is usually the bigger one – with larger fair value. S. Hi Silva, I assume that this is not IFRS 3, because it is between entities under common control and not even business combination, but capital contribution. If a parent acquires a subsidiary but the consideration consists of Cash plus an issue of shares at later date. Thank you for the great effort, you are absolutely amazing.The video was very helpful. In this case, FV of previous equity interest = fair value of 20% holding in B that was owned before the acquisition of further 35%. IFRS 3 permits 2 methods of measuring non-controlling interest: Selection of method for measuring non-controlling interest directly impacts the amount of goodwill recognized, as you can see in the illustrative example below Step 4. : Company A is having investment in two companies; Company B and Company C. If company C Transfers all assets and liabilities to company B, and Company B have not paid any amount, it has just adjusted to the account of Company A. If A’s existing interest in 90% (with control) and it acquires NCI of 10% at a huge price just to make it 100% holding, Will FV of previously held interest of 90% still be re-measured?? 25%), the acquisition’s transaction is a business combination”. Should I also take the pre-acquisition OCI in the such calculation? Many thanks I’ll try to put something up. Thank you for your efforts (Very good summary of IFRS 3 and IFRS 10). it really looks like the homework questions. 1) Goodwill on acquisition = 430 000 – 200 000 – 90 000 = 140 000 Thank You for explanation. it all depends on whether by increasing the percentage from 25% to 35% meant the acquisition of control or not. If there is a mid-year acquisition; Pre Post Apr07 31 Dec 07 31 March 08 (Acquisition) If subsidiary profit for the year ends 2008 is $ 12000, then pre acquisition profit = $ 9000 (good will) Post acquisition profit = $ 3000 (group profit) Pre-acquisition profit (reserve) is included in goodwill calculation. it won’t show up in parent’s individual financial statement? One of the most significant is the determination of what a business is under the revised standard. • Holding Ltd is quoted with share market value of $2. In this case, you continue with equity method. Thanks. Thank you very much for clarification S. Dear Silvia What would be the journal entries in ‘A’ at acquisition date? You can revise the example on consolidating special purpose entity here – ownership of shares was 0%, but 100% control – as a result, there was a huge NCI (100%). In fact the story behind these 2 questions that,I was preparing for the Certifrs and was collecting questions from every where. Sometimes, it is not so clear. I have a question, what is the principle if there is a mother company, baby a where there is a goodwill and baby b where is a gain from a bargain purchase? By using our website, you agree to the use of our cookies. I guess even if we assume that Co A and Co B are not Parent/Subsidiary but sister companies within same group, then still we would apply the rationale that one of the companies should correct its error before doing the merger. IFRS 3 does not say how to measure fair value, as this is covered in IFRS 13. 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