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BUSINESS COMBINATION MODULE 5, STEP 3, STEP 1, STEP 2, STEP 4, ACQUISITION…
BUSINESS COMBINATION MODULE 5
IFRS 3
TRANSACTION OR AN EVENT
ACQUIRER
2 TYPES OF ACQUISITION
DIRECT
ACQUIRER BUYS
ASSETS & LIABILITIES
OF THE ACQUIRIES
ACQUIREE
STOPS
OPERATING AS A SEPERATE LEGAL ENTITY AFTER ACQUISITION
THEY BOTH BECOME 1
DR ASSETS ( ACQUIREE)
DR GOODWILL
CR LIABILITIES
CR CASH /BANK ( CONSIDERATION)
INDIRECT
ACQUIRER BUYS
SHARES
OF THE ACQUIRIES
INVESTOR OR INVESTEE RELATIONSHIP
OR
PARENT / SUBSIDIARY RELATIONSHOP
ACQUIREE OPERATES AS A SEPERATE LEGAL ENTITY AFTER ACQUISITION
OBTAINS CONTROL OVER
1 OR MORE BUSINESS
STEP 3
CALCULATE FV OF THE NET IDENTIFIABLE ASSETS OF THE ACQUIREE
NET IDENTIFIABLE ASSETS = ASSTES - LIABILITIES =
INTANGIBLE ASSETS
PURCHASED - YES
SATISFY ANY 1 CRITERIA
SEPARABILITY CRITERIA
SEPARATE THE INTANGIBLE ASSETS FROM THE BUSINESS
SELL
EXCHANGE
LICENSE
RENT
CONTRACTUAL / LEGAL CRITERIA
SHOULD BE ABLE TO CONTROL THE ASSETS VIA CONTRACTUAL /LEGAL RIGHTS
INTERNALLY GENERATED - NO
DONT TAKE GOODWILL INTO CALCULATION -CANNOT BE SEPRATELY IDENTIFIED NOT AN INTANGIBLE ASSET
IDENTIFIABLE NON MONETARY ASSET WITHOUT PHYSICAL SUBSTANCE
CONTINGENT LIABILITES
NOTES
YES ONLY IN IFRS 3 / BIZ COMBINATION
FV
OF CONTNGENT LIABILITY
CAN BE RELIABLY
MEASURED THEN INCLUDE IN NET ASSET CALCULATION
DEFERRED TAX ASSET
CONTINGENT ASSET
NO
EXAM
REVALUATION - YES
UPWARD - DTL
A-L - EQUITY SECTION OF THE ACQUIREE
NCI ( IF ANY)
MEASURE
FV METHOD
SHARES OF NCI PARTIES * FV OF SHARES
FULL GOODWILL
REPORT PARENTS & NCI GOODWILL IN GROUP B/S
PERCENTAGE METHOD
NCI PERCENTAGE * FV OF THE NET IDENTIFIABLE ASSETS OF THE ACQUIREE
PARTIAL GOOWDILL
ONLY REPORT PARENTS GOODWILL
STEP 1
IDENTIFY THE ACQUIRER
ACQUIRER - CONTROLS THE ACQUIREE
CONTROL ( 3 CRITERIA)
POWER OVER THE ACQUIREE
VOTING RIGHTS
ACQUIRER HAS
> 50 % VOTING RIGHTS
IN THE ACQUIREE
VITING RIGHTS IN NOT EQUAL TO SHARE CAPITAL
EXCEPTION
LESS THAN 50 % BUT CAN CONTROL
SCENARIO 2
45 % OWNERSHIP - A
55% - MANY DIFFERENT SHAREHOLDERS WHO ARE GEAOGRAPHICALLY DISPERSED , THUS CANT COME TO ANNUAL GENERAL MEETING
THUS A , HAS THE POWER TO CONTROL
SCENARIO 1 -
CONTRACTUAL AGREEMENT BY MULTIPLE COMPANIESTO COMBINE AND CONTROL THE SUBSIDIARIES
50% BUT CANNOT CONTROL
SCENARIO 3
A > 50 % VOTING RIGHTS IN B
BUT IS UNABLE TO CONTROL
1 more item...
CONTRATUAL RIGHTS
RIGHTS TO APPOINT / REMOVE THE KEY MANAGEMENT PERSONNEL OF THE ACQUIREE
RIGHTS TO VARIABLE RETURNS
EXAMPLES
DIVIDENDS
PERFORMANCE FEES
CHANGES IN THE VALUE OF THE INVESTMNET
ACQUIRER SHOULD BE IN THE POSITION TO
MAX / MIN RETURNS
FROM THE ACQUIREE
ACQUIRER HAS THE ABILITY ( CANNOT STOP RETURNS)
CAN
TO MIN THE NEGATIVE RETURN
TO MAX THE POSITIVE RETURN
CANNOT
STOP THE RETURNS
MANAGING
DIRECTLY
APPOINT AGENT
DIFFERENCE BETWEEN PRINICPAL AND AGENT
PRINCIPAL / ACQUIRER / INVESTOR
FULL AUTHORITY
TAKES THE FULL RISK
REMUNERATION / FEE - RIGHT TO VARIABLE RETURN
AGENT
ACTS ON THE PRINCIALS INSTRUCTIONS
NO RISK
REMUNERATION / FEE - FIXED
SG Q 5.11
POWER TO DIRECT RELEVANT ACTIVITES OF THE ACQUIREE
DETERMINES THE RETURNS OF THE ACQUIREE
ACTIVITES
FINANCIAL
OPERATIONAL
STEP 2
DETERMINE THE ACQUISITION DATE
DATE WHEN ACQUIRER OBTAINS CONTROL OVER ACQUIREE
SG EG 5.1
STEP 4
CALCULATE THE GOODWILL / GAIN FROM BARGAIN PURCHASE
Consideration transferred
plus non-controlling interest
plus any interest previously held by the parent in the subsidiary
less FV identifiable assets acquired and liabilities assumed.
CONSIDERATION TRANSFERRED
plus non-controlling interest
plus any interest previously held by the parent in the subsidiary
>
FV identifiable assets acquired and liabilities assumed
GOODWILL
LESS THAN - GAIN ON BARGAIN URCHASE
SHOULD NOT TAKE BUSINESS ACQUISITION COST INTO ACCOUNT
LEGAL FEES
VALUATION FEES
CONTRACTUAL FEE
SHARE ISSUE COST
GOODWILL
ADJUSTING ENTRY
GROUPS B/S
GAIN ON BARGAIN PURCHASE
GROUPS P/L
ACQUIRER CAN BUY SHARES/VOTING RIGHTS ( CONSIDERATION)
CASH
EQUITY SHARES
ASSETS
ACQUIRE THE LIABILTIES
ACQUISITION METHOD