ABCO311: Accounting for Business Combinations

09.25.21/Starts 5:25PM
W3 Activities

• Class Photo (Start)

• Recap by Presenter (max of 5mins)

• Lessons for the Day:

Chapter 1 BUSINESS COMBINATIONS (Part 1)

• Feedback by Observer

• Class Photo (End)

 Proposed Topic
Week
1 House Roles/Intro to ABCO
2 Intro to Business Combination
3 Chapter 1 - Intro to Business Combination P1
4 Chapter 2 - Intro to Business Combination P2
5 Chapter 3 - Intro to Business Combination P3
6 PRELIMS
7 Chapter 4 - Consolidated Financial Statements P1
8 Chapter 5 - Consolidated Financial Statements P1
9 Chapter 6 - Consolidated Financial Statements P1
10 Chapter 7 - Consolidated Financial Statements P1
11 Chapter 8 - Separate FS
12 MIDTERMS
13 Chapter 9 - Hyperinflationary Ecomony
14 Chapter 10 - Foreign Currency Transactions
15 Chapter 11& 12 - Derivatives Theory and Problems
16 Chapter 12& 13 - Derivatives Theory and Problems
17 Corporate Liquidation & Reorganization
18 FINALS
 Restructuring provisions
• Restructuring is a program that is planned and controlled by
management, and materially changes either:
a. the scope of a business undertaken by an entity; or
b. the manner in which that business is conducted.

• Restructuring provisions are generally not recognized as part of

business combination unless the acquiree has at the
acquisition date an existing liability for restructuring that has
been recognized in accordance with PAS 37.

• Such would be the case when he entity has a present

obligation as of the acquisition date evidenced by a detailed
formal plan developed by the acquiree that has been
announced publicly on or before the acquisition date.
 Specific recognition principles

1. Operating leases (whereby the acquiree is the lessee) -

If the terms of an operating lease relative to market
terms is:
1. Favorable – the acquirer shall recognize an intangible asset.
2. Unfavorable – the acquirer shall recognize a liability.

2. Intangible assets – The acquirer recognizes the

identifiable intangible assets acquired in a business
combination if they meet either the (a) separability
criterion or the (b) contractual-legal criterion.
 LESSOR refers to the person
who owns the asset and
allows the other person, to
use their asset by getting
periodic rent in return.

LESSEE refers to the person

who uses the asset owned
by another person for a
specified period by paying
some periodic rent as per
the terms of agreement.

Source:
https://www.wallstreetmojo.com/lessor-vs-lessee/
Illustrative Problem:
On Jan 1, 2020, JONSNOW Co acquired all the assets and liabilities
of STARK Co for P1,600,000. On this date, STARK Co.’s assets and
liabilities have a fair value of P2,200,000 and P1,500,000 respectively.
The fair value differential of the operating lease is P50,000
 Exception to the recognition
principle – Contingent liabilities
• A contingent liability assumed in a business
combination is recognized if:
1. it is a present obligation that arises from past events
and
2. its fair value can be measured reliably.

• A contingent liability assumed in a business

combination is recognized if the criteria above
are met even if the contingent liability has an
improbable outflow.
Illustrative Problem:
JONSNOW Co acquires 90% of
the assets and liabilities of Is there a present obligation?
STARK Co for P1,600,000. On
this date, STARK Co.’s assets Is the FV of the obligation
and liabilities have a fair value measurable?
of P2,200,000 and P1,500,000
respectively. JONSNOW opts to
measure the non-controlling Consideration Transferred 1,600,000
interest at its fair value of Non Controlling Interest in the Acquiree 150,000
Previously Held Equity Interest in the Acquiree -
P150,000.
Total 1,750,000
Fair Value of Net Identifiable Assets Acquired - 470,000
STARK Co is a defendant in a Goodwill 1,280,000
pending litigation , for which
no provision was recognized Asset 2,200,000
Liabilities - 1,500,000
because STARK Co strongly
Contingent Liability - 230,000
believes that it will win the Fair Value of Net Assets 470,000
case. The fair value of settling
the obligation if P230,000.
Income Taxes
• Accounted using PAS 12 Income Taxes.
• Deferred taxes affect the computation of
goodwill or gain on bargain purchase at
the acquisition date.

Asset = DTL Liab = DTA

Asset = DTA Liab = DTL

 Wk 3 Self-Practice
Problem 6. Items 1-5; Pages 59-62
Per Individual : write name
Picture format
Handwritten with solutions

Google Forms
https://forms.gle/KqKjWdMMLg9JMSYG9
Not later than Sep 24, 12NN
Solutions
 Wk 4: Self-Practice
Problem 3. Items 1-7; Pages 99-102
Per Individual : write name
Picture format
Handwritten with solutions

Google Forms
https://forms.gle/ETQ2JuXvrEPJuU9q7
Not later than Oct 1, 12NN
Questions?