Accounting 2 Groups Summary

SAICA Competency framework:

Decision-making acumen: critical thinking
Research, investigate, critically analyse, reflect and apply professional judgement to the
evaluation of data and information from a variety of sources and perspectives.
a) Demonstrate an intellectually disciplined questioning mind-set to develop a
purpose, problem or question.
c) Conceptualise, apply, analyse, synthesize, and evaluate information gathered.
Questions to think about? Why would an entity invest in another? What is their mission or
vision and does this align with that?

 Financial Returns: One of the primary reasons is to generate financial returns. By

investing in another company, especially if it's a startup or a high-growth company,
they can benefit from potential capital gains if the investee company grows in value
over time.
 Strategic Alignment: Investing in another company can align strategically with the
investor’s business goals. This could involve gaining access to new markets,
technologies, or products that complement their existing offerings.
 Diversification: Investing in another company allows diversification of the investor’s
portfolio. This is particularly important for larger companies looking to spread risk
across different industries or sectors.
 Synergies: There may be operational synergies between the investor and the
investee company that could lead to cost savings or revenue enhancements through
collaboration and shared resources.
 Control or Influence: Depending on the size of the investment, companies may seek
to gain a significant stake in another company to exert influence over its strategic
direction or to eventually acquire it outright.
 Access to Talent: Investing in startups or innovative companies can provide access
to talented individuals, expertise, or intellectual property that could be beneficial for
the investor’s own operations.
 Brand Enhancement: Sometimes, investing in a socially responsible or innovative
company can enhance the investor’s own brand image, demonstrating a commitment
to cutting-edge technology, sustainability, or other desirable values.
 Regulatory Compliance: In some industries, investing in other companies may be
necessary to comply with regulatory requirements or to fulfill corporate governance
standards.
Objective of IFRS 3 is to improve the relevance, reliability and comparability of the
information that a reporting entity provides in its financial statements regarding a business
combination and its effects. To accomplish that, this IFRS established principles and
requirements for how the acquirer:

 Recognizes and measures in its financial statements the identifiable assets

acquired, the liabilities assumed any non-controlling interests in the acquiree.
 Recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase, and
 Determines what information to disclose to enable users of the financial statements
to evaluate the nature and financial effects of the business combination.
 1. Identify business combination
2. Apply the acquisition method:
a. Identify the acquirer (one – i.t.o.IFRS 10, therefore this will be given)
b. Determine the acquisition date (i.e. when is control obtained?)
c. Recognise and measure the identifiable assets acquired, liabilities assumed
and non-controlling interest in the acquiree;
i. Recognition principle:
1. Assets and liabilities must definition in the conceptual
framework for financial reporting at acquisition date.
2. Identified assets must be part o the acquirer and acquiree
exchanges in the business combination rather than result in
separate transaction.
3. Some assets and liabilities of the intangible assets may be
recognized in a business combination even though they are
not recognized by the acquiree.
4. Intangible assets are recognized provided they are identifiable.
An intangible asset is identifiable if it meets either separability
or contractual/legal criteria (to note for later).
ii. Measurement principle:
1. Acquirer shall measure the acquisition identifiable assets and
liabilities assumed at the acquisition date fair values.
2. Non-controlling interests are measured at fair value or at their
proportionate share of the acquiree’s identifiable net assets.
d. Recognize and measure goodwill or a gain from bargain purchase.
Goodwill calc:
Method 1: AOE

SC RE OR Total NCI Inv G/W

x x x 3x 0 4x (1x)

OR Method 2: End product method:

Net identifiable assets – Inv in S – NCI’s = G/W