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The revised IFRS 3 resulted from a joint project with FASB. FASB issued a similar standard in December 2007 (SFAS 141(R) The revisions resulted in a high degree of convergence between IFRSs and US GAAP although some differences remain . Among the differences: the FASB requires (rather than permits) the full goodwill method. There are also differences in scope, the definition of control, including how fair values, contingencies, and employee benefit obligations are measured. The amendments are effective for annual periods beginning on or after 1 July 2009. Earlier application is permitted on or after 30 June 2007
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Contingent consideration. If the amount of contingent consideration changes as a result of a post-acquisition event, accounting for the change in consideration depends on its nature. If it is equity, the original amount is not re-measured
If the amount of consideration changes because of new information about the fair value of the amount of consideration at acquisition date then retrospective restatement is required
Acquisition costs. Costs of issuing debt or equity instruments are accounted for under IAS 39. All other costs associated with the acquisition must be expensed.
If it is cash or other assets, the changed amount is recognised in P&L
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IFRS 3 permit an entity to recognise 100% of the goodwill of the acquired entity. This is known as the 'full goodwill method'
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Illustration Full GW: P pays 800 to purchase 80% of shares of S. Fair value of S identifiable net assets is 600. The fair value of NCI is determine to be 185
If P elects to measure NCI as their proportionate interest in S
The fair value of the 20% NCI in S will not necessarily be proportionate to the price paid by P for its 80%, primarily due to control premium or discount as explained in paragraph B45 of IFRS 3.
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If the acquirer and acquiree were parties to a pre-existing relationship, this must be accounted for separately from the business combination.
Step acquisition. In most cases, this will lead to the Resulting in attaining control triggers rerecognition of a gain or loss for the measurement at fair values of acquired amount of the consideration transferred entitys net assets. to the seller Any changes are recognised in P & L.
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Step Acquisition Apply: IAS 39 IAS 28 IAS 31 Loss of control disposal: fair value residual holding calculate gain or loss
Control
99
0%
50%
100%
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Sources:
http://www.iasplus.com
http://ec.europa.eu/internal_market/accounting/docs/consolidated/ifrs3_en.pd f
Wiley IFRS: Practical Implementation Guide and Workbook (Wiley Regulatory Reporting), Epstein, Barry J./Abbas, Ali Mirza
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Quiz
HWR Acquisition of FU
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Quiz
HWR Acquisition of FU
Public offer made for 100% of the equity share of FU, conditional on regulatory approval, shareholder approval and receiving acceptances representing 60 % of FUs shares
Regulatory approval received Shareholder approval received Acceptances received to date represent 50 % of FUs shares Cash paid out to FU accepting shareholders
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Objective
IFRS 3 objective is to set out the accounting and disclosure requirements for a business combination, to improve the relevance, reliability and comparability of information presented in the financial statements A transaction or other event in which an acquirer obtains control of one more businesses Control is the power to govern its financial and operating policies of an entity so as to obtain the benefits from its activities [IFRS 3 Appendix A] The first accounting period beginning on or after 1 July 2009, on or after 30 June 2007. Retrospective application to earlier business combinations is not allowed.
Business Combination
Control
Application
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Thank you for your attention ! Further questions: Dare James: darejames@hotmail.co.uk Luca Mangione: quoquetu@tin.it
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