Business combination:

- Una empresa/entidad toma el control de una o más empresas. All transactions in which an
entity obtains control of one or more businesses (Controla los intereses financieros):

Business:

Control:

- Both ASC 805 and IFRS 3 require business combinations to be accounted for using the
acquisition method. Steps: Identify the acquirer, Determining the acquisition date,
Recognizing and measuring identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree, Recognizing and measuring goodwill or a gain from a
bargain purchase.
- Business combination accounting is also referred to as the “acquisition method”
- Debe tratarse de la adquisición de un negocio (operaciones, ingresos y egresos) y no solo la
posesión de activos. Para lo cual se realiza un Screening test.
- Activos y pasivos, tangibles e intangibles. Once identified the net asset acquired, ASC 805
requires us to determine the fair value of the assets and liabilities at fair value determined
in accordance with ASC 820 Fair Value Measurements. Contingency is also measured at fair
value at the date of acquisition.
- Fair value is defined in both frameworks as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. (Precio que dos partes acuerdan para realizar la transacción).
- Fair Value. Valuation techniques that are appropriate to the circumstances, and for which
sufficient data are available, should be used to measure fair value. ASC 820 identifies the
following three valuation approaches: Market approach, Income approach (expectations to
obtain future income), Cost approach (replacement cost).
- Fair Value. ASC 820 requires that a fair value measurement of a nonfinancial asset take into
account a market participant’s ability to generate economic benefits by using the asset in
its highest and best use or by selling it to another market participant that would use the
asset in its highest and best use.

US GAAP:

- Valuations examples. All non-financial assets at their fair value at the acquisition date. The
acquirer is allowed to adjust the preliminary amounts recognized in a business
combination. The period cannot be longer than one year.
- Financial statements and reporting requirements
- Financial consolidation steps
- Inventory: LIFO and FIFO. Lower of cost or market value.
- Fixex assets: COST – depreciation
- Intangible assets
- Revenue recognition
- Net realisable value (NRV) is equal to selling price of the goods less the
estimated cost of completion of the goods and the cost that would be incurred to sell
the goods. Market value refers to the current or most recently-quoted price for a
market-traded security.
Measurements

1. Measure any tangible assets and liabilities that were acquired

2. Measure any intangible assets and liabilities that were acquired

3. Measure the amount of any noncontrolling interest in the acquired business

4. Measure the amount of consideration paid to the seller

5. Measure any goodwill or gain on the transaction

US GAAP vs IFRS

- Definition of control:
US GAAP: VIE and VOE
IFRS: 1. Power over the investee. 2. Exposure, or rights, to variable returns from its
involvement with the investee 3. Ability to use power to affect the returns

- Impairment loss: 2 steps US GAAP (recoverability-impairment)

- Consolidation accounting: US GAAP admits pushdown accounting.

JOURNAL ENTRIES (business, revaluations)

KEY METRICS FINANCIAL ANALYSIS (imagen quick ratios)

Business combination practical case

Consolidation in business combination