Introduction a transaction or other event in which an acquirer obtains control of one or more businesses Acquirer and acquiree remain separate legal entities Acquisition method of accounting
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The acquisition method
Identifying the acquirer
Determining the acquisition date Recognising and measuring the fair values of net assets acquired and any non-controlling interest in the acquiree Recognising and measuring goodwill or a gain from a bargain purchase
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Identifying the acquirer An acquirer in a business combination is the entity that obtains control of the acquiree The party that has control over the operating and financial policies of the acquiree. Control - refer to MFRS 10 Previously, the party that acquires > 50% of the other entitys voting shares is presumed to have control
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Determining the acquisition date
The date the acquirer obtains control of the
acquiree is generally the date on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree i.e the closing date
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Recognizing and measuring.acquiree Acquirer to recognize separately from goodwill only the identifiable assets, liabilities and non-controlling interests in the acquiree that existed at the acquisition date A & L must meet the definition of assets and liabilities A & L those agreed by acquirer and acquiree May include identifiable assets not recognized by acquiree previously such as brand name Non-controlling interests (NCI) at either proportionate share of fair value of acquirees identifiable net assets or fair value of shares held by NCI A & L measured at their fair values on the date of acquisition
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Recognising and measuring goodwill or a gain from a bargain purchase The acquirer shall recognise goodwill as of the date of acquisition measured as the excess of (a) over (b) below: (a) the aggregate of (i) consideration transferred which generally requires acquisition date fair value (ii) the amount of any non-controlling interest in the acquiree measured at either based on fair value of shares or proportionate share of net assets (iii) in a business combination achieved in stages, the acquisition date fair value of the acquirers previously held equity interest in the acquiree (b) the acquisition date fair value of net identifiable assets acquired NAMG Sem 1 2017/18 7 Consideration transferred (cost of business combination) May comprise of: Assets given (e.g. cash or property transferred) Equity instruments issued (e.g. shares) Debentures
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Goodwill/gain on bargain purchase If (a) > (b) the difference is termed goodwill and tested for impairment If (b) > (a) the difference is termed a gain on bargain purchase and taken to income statement on acquisition date gain attributed to the acquirer
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Gain on bargain purchase Gain on bargain purchase can only be recognized after : Reassessing and Review the procedures used to measure the amounts in (a) and (b)