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

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