11- Associates & FV
An entity over which the investor has significant influence
Significant influence
Power to participate in the financial or operating policy decisions of the investee
Could be shown by:
Representation on board of directors
Participation of policy making process
Material transaction between investee and entity
Interchange of management personnel
Provision of essential technical information
Presumption
Significant influence exists if the entity has 20% or more of the voting power of the investee, unless can be shown otherwise
Significant influence does not exist if less than 20%, unless can be shown otherwise
Equity method
Investment in associate is accounted for
Consolidated SOPLOCI
Consolidated SOFP
Should take into account its share of the profits and OCI of the associate whether or not the associate distribute the earnings as dividends
NCA: Investment in associate
Intragroup transactions
Intragroup transactions and balances are not eliminated
However. the investor's share of unrealised profits or losses on transfer of assets that do not constitute a business is eliminated
Goodwill
Measured using FV
Consideration transferred and net assets on acquisition
Balance could be
Positive
Negative
Included within the intangible NCA
Recognised as a gain in P/L
Before recognition in the P/L, the calculations need to be reassessed to ensure they are accurate , then any remaining negative goodwill should be recognised in the P/L & also recorded in the group retained earnings
Measurement period
If initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs
Provisional figures should be used
Consideration transferred
Assets acquired
Liabilities consumed
Adjustments to the provisional figures may be made up to a point where the entity receives all the necessary information or learns that it is unobtainable
Corresponding adjustment to goodwill
The measurement period cannot exceed one year from the acquisition date
Thereafter, goodwill is adjusted only for the correction of errors
FV of consideration transferred
Calculated as the acquisition date fair values of
The assets transferred by the acquirer
Liabilities incurred by the acquirer (to former owners of the acquiree)
Equity interests issued by the acquirer
Specifically
Deferred consideration
Contingent consideration (to be settled in cash or shares)
Discounted to present value to measure its FV
At acquisition
Subsequent
FV
Change is due to additional info obtained that affects the position at the DOA, goodwill should be remeasured (within the measurement period)
Change is due to any other change
For example, meeting earning targets
Consideration is equity instrument- not remeasured
Consideration is cash - remeasured to FV with gains or losses through P/L
Consideration is a financial instrument - account for under IFRS 9
Costs involved in the transaction are charged to P/L
Costs to issue debt or equity instruments are treated in accordance with IFRS 9/IAS32. So, are deducted from the financial liability or equity
FV of the identifiable assets acquired and liabilities assumed
Measured at their acquisition date FV except in limited, stated cases
To be recognised, the assets and liabilities
Meet the def. of assets and liabilities in the revised CF
Be part of what the acquirer and the acquiree in the business combination rather than the result of separate transactions
This includes intangible assets that may not be recognised in the separate FS
IFRS 13 FV Measurement provides extensive guidance on how the FV of assets and liabilities should be established.
Exceptions
Contingent liabilities
Deferred tax and liabilities
Employee benefit assets/liabilities
Indemnification assets (amounts recoverable relating to a contingent liability)
Reacquired rights for example a licence granted to a subs before it became a subs)
Share based payment
Assets held for sale
Can be recognised providing
It is a present obligation
FV can be measured reliably
This is a departure from IAS 37 where contingent liabilities are only disclosed rather than recognised
Same as the valuation of contingent liabilities indemnified less an allowance for any uncollectable amounts
FV is based on the remaining term, ignoring the likelihood of renewal
Replacement scheme
If post combination service is included
then the portion of replacement scheme attributable to the pre-combination service is equal to