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Acquirer buys additional 50% of Target on 1 January 2010 for 520. Fair value of 100% of
INA at 1 January 2010 is 800 (50% of FV INA = 400). Target’s equity is 600 (i.e., Target
recorded zero profit for year ended 31 December 2009 and did not recognize any asset
revaluations). Target’s balance sheet is as follows:
• As the table above shows, the 200 movement in the fair value of identifiable net assets
between the two transaction dates is attributable to the change in the fair value of land
and building (value not recognized in Target’s books; i.e., Target’s equity at 1 January
2010 is 600).
• Prior to the acquisition of the additional 50%, Acquirer’s initial 25% interest is equity
accounted. The carrying amount of Acquirer’s 25% interest in Target as at 1 January
2010 is cost (180) – i.e., no equity accounted adjustments.
• The fair value of Acquirer’s pre-existing 25% interest in Target as at 1 January 2010 is
250.
1
IFRS 3: The Changes and the Consequences
Cost 180
25% of fair value of identifiable net assets 150 (25% of 600 = 150)
Goodwill 30
Cost 520
50% of fair value of identifiable net assets 400 (50% of 800 = 400)
Goodwill 120
Calculate goodwill:
The following table presents a consolidation worksheet complete with the journals required
to record the business combination accounting:
Journal 1 (Remeasure pre-existing 25% interest to fair value at acquisition date. Excess of
FV over carrying amount is recognized as a gain in consolidated accounts)
Calculate goodwill:
In comparison to the measurement of the NCI at share of net asset, the NCI is 60 higher.
The following table presents a comparison of the accounting under (prior) IFRS 3 and IFRS
3R:
Observations:
• Greater amount of goodwill recognized under IFRS 3R and higher if NCI is valued at fair
value (i.e., full goodwill at acquisition date).
• Under (prior) IFRS 3, the value change in the identifiable net assets between the
exchange transactions that related to the pre-existing 25% interest was recorded in
consolidated equity (i.e., asset revaluation reserve).
IFRS 3: The Changes and the Consequences
• Under IFRS 3R, the value change in Target (including INA and goodwill) between the
exchange transactions that related to the pre-existing 25% interest was recorded as a gain
in the consolidated income statement.
IFRS 3: The Changes and the Consequences
Cost 250
25% of fair value of identifiable net assets 200 (25% of 800 = 200)
Goodwill 50
The following table presents a comparison of the accounting under (prior) IAS 27 and IAS 27
R:
Observations:
• No impact on goodwill when NCI is acquired after gaining control.
• Greater amount of goodwill recognized under (prior) IAS 27 of acquisition of minority
possible.
• The revaluation reserve is released to P&L under (prior) IAS 27 (i.e., asset revaluation
reserve).