Professional Documents
Culture Documents
Business Combinations
Business Combinations
Accounting for
business combinations
and consolidated
financial statements
Joint World Bank and IFRS Foundation train the
trainers workshop hosted by the ECCB,
30 April to 4 May 2012
Control
IFRS 10 Consolidated Financial Statements
[[[
Objective
Information about
resources under the control of the group (assets)
and
claims against those resources
assists users to better assess the prospects for future
net cash inflows to the group which is useful in making
decisions about providing resources to the group.
The global financial crisis highlighted the importance of
enhancing disclosure requirements, in particular for
special purpose or structured entities.
Definition of control
Example:
Control
A owns 100% of Z.
Example:
Structured entity
A pharmaceutical manufacturer (entity A) established a
viral research centre (RC) at a university.
A determined sole & unalterable purpose of RC =
research & develop immunisation & cures for viruses
that cause human suffering.
RC is owned and staffed by the university.
Example:
Structured entity
continued
De facto control
Example:
de facto control
10
Example:
Assessing power
11
Entity B
Trust
Example:
Delegated rights
Responsible
entity
Other
investors
Investment
trust
Investment
portfolio
12
Responsible entity:
Broad decision making
powers
Removal by simple majority
Remunerated via marketbased fee - 1% of assets
under management and
20% of profits over a hurdle
Equity interest of 20%
13
Agency relationships
14
15
16
IFRS 3
Business
Combinations
[[[
Introduction
18
19
20
Example:
21
22
23
24
Reacquired rights
measured at fair value based on remaining
contractual term ignoring the fair value effect of
renewal
Share-based payment transactions
replacement awards: measured in accordance with
IFRS 2
Assets held for sale
measured in accordance with IFRS 5 (ie fair value
less costs to sell)
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25
Income taxes
deferred tax assets or liabilities arising from acquired
assets or liabilities accounted for using IAS 12
Employee benefits
accounted for using IAS 19
Indemnification assets
may not be recognised at fair value if it relates to an
item not recognised or measured in accordance with
IFRS 3
Consideration transferred
26
Example:
27
Goodwill
28
Goodwill
continued
29
Disclosure
30
31
32
33
IFRS 10
Consolidated Financial
Statements
[[[
Effective Date
Aligned effective date for IFRS 10 and IFRS 12
Annual periods beginning on or after 1 January
2013
Earlier application permitted if applied as a
package
35
Introduction
36
37
Principle
38
Example:
Consolidation procedures
39
Example:
Consolidation procedures continued
40
100
700
Goodwill (asset)
200
As investment in B
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1,000
Example:
Consolidation procedures continued
41
20
20
Example:
Consolidation procedures continued
42
150
150
20
20
43
Example:
NCI
44
Example:
NCI continued
45
Eliminate Investment
Proforma journal entry at acquisition is:
Property, plant & equip.
100
700
Goodwill
400
Non-controlling interest
As investment in B
200
1,000
Example:
NCI continued
46
20
20
Example:
NCI continued
47
Allocate profit
Proforma journal entry allocating the NCI their share of
Bs profit for the year:
NCI profit allocation
95
NCI (equity)
Calculation:
Profit
400
Depreciation adjust
380
25% attributable to NCI
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95
(20)
95
Example:
NCI continued
48
150
150
20
20
Example:
NCI upstream sale
49
5
5
Loss of control
50
51
IFRS 12
Disclosure of Interests in
Other Entities
[[[
Introduction
53
54
Objective
55
Disclosures
56
Subsidiaries
The composition of the group (including any
changes)
Involvement of NCI in the groups activities (including
profit and loss allocation and summarised financial
information for subsidiaries with large NCI)
The effect of significant or unusual restrictions on
assets and liabilities
The nature of, and changes in, the risks associated
with structured entities
57
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57
58
59
60
Questions or comments?
Expressions of individual views
by members of the IASB and its
staff are encouraged.
The views expressed in this
presentation are those of the
presenter.
Official positions of the IASB on
accounting matters are
determined only after extensive
due process and deliberation.
61
62
2011
IFRS Foundation
| 30 Cannon
Street
| London
EC4M
6XH | UK.
www.ifrs.org
IFRS Foundation
| 30
Cannon
Street
| London
EC4M
6XH | UK | www.ifrs.org