Business Combinations (Part 1) : Recognition and Measurement
Friday, 26 April 2024 1:52 pm
PFRS 3 : Business Combination
Business Combination
- There's control and business
TYPE:
1. Asset acquisition
- Buying assets and liabilities of an acquiree for a consideration (cash, stock)
TYPES:
a. Consolidation
- Company A + Company B = Company C
- No surviving entity
b. Merger
- Company A + Company B, there is a surviving entity, it is either Company A or Company B
- Ex: LandBank + UCPB = LandBank
2. Stock acquisition
- To have control, buy stocks or net assets of an acquiree
Acquirer
- parent
Acquiree
Control
- You have control if more than 50% (51%+) ownership, not absolute
- You can still have control even if < 50%
Acquisition method
- Very procedural
1. Identifying the acquirer
Acquirer
- Sya yung madalas nagbabayad or stocks yung inissue nya
- Merong control
- Kung sino yung mas nagdodominate
2. Determining the acquisition date
- Closing date
- The date on which the acquiree legally transfers the considerations
- Based on contract or actual transfer
- Nakakaaffect sa computation
3. Recognizing and measuring goodwill
CONSIDERATION TRANSFERRED
- @ fair value
- Contingent consideration - hindi matatransfer hangga't di nangyayari yung condition
NCI (NON-CONTROLLING INTEREST)
- Either @ fair value or NCI's proportionate share of acquiree's identifiable net assets
- Also known as "minority interest"
PREVIOUSLY HELD EQUITY INTEREST IN THE ACQUIREE
NET IDENTIFIABLE ASSETS ACQUIRED
- Acquisition date @ fair value
PROBLEM 6 ( page 56 )
3. Asset acquisition
Acquirer: Entity A
FV of net identifiable assets:
Receivables 100,000
Inventory 450,000
Building 1,800,000
Liabilities (700,000)
TOTAL 1,650,000
Consideration transferred 1,800,000
NCI (kapag acquired ALL, walang NCI) 0
Previously held interest 0
TOTAL 1,800,000
Less: FV of net identifiable assets (1,650,000)
Goodwill 150,000
4. Stock acquisition
Acquirer: Entity A
FV of net identifiable assets:
Identifiable assets 4,000,000
Liabilities (1,600,000)
TOTAL 2,400,000
Consideration transferred 2,000,000
NCI (2.4M x 25%) 600,000
Previously held interest 0
TOTAL 2,600,000
Less: FV of net identifiable assets 2,400,000
Goodwill 200,000
5. @ FV
FV of net identifiable assets:
Identifiable assets 4,000,000
Liabilities (1,600,000)
TOTAL 2,400,000
Consideration transferred 2,000,000
NCI 540,000
Previously held interest 0
TOTAL 2,540,000
Less: FV of net identifiable assets 2,400,000
Goodwill 140,000
ACQUISTION-RELATED COSTS
- Expense except for:
A. Costs to issue debt securities measured @ amortized cost
B. Costs to issue equity securities accounted for as deduction from share premium
RESTRUCTURING PROVISIONS
- Nagbago ng line of business
- Nagbawas ng tauhan/operations
- Nag-iiba yung mismong company
- Isasama lang ang restructuring provisions kapag existing na before iacquire ng acquirer
- Iinclude lang kapag may plano nang restructuring provisions bago pa magkaroon ng business
combination (on or before)
PROBLEM 6 ( page 57 )
6. .
FV of net identifiable assets:
Identifiable assets 3,800,000
Liabilities (1,900,000)
TOTAL 1,900,000
Consideration transferred 1,800,000
NCI 0
Previously held interest 0
TOTAL 1,800,000
Less: FV of net identifiable assets 2,400,000
Goodwill (Gain on bargain purchase) (100,000)
Journal Entry:
Share on premium 36,000
Cash 36,000
Expense 60,000
Cash 60,000
SPECIFIC RECOGNITION PRINCIPLES
1. Operating leases
- Acquiree is the lessee
- Favorable = intangible assets
- Unfavorable = liability
- Acquiree is the lessor - no recognition of liability/intangible asset
2. Intangible asset
PROBLEM 6 ( page 57 )
7. .
FV of net identifiable assets:
Identifiable assets (4M + 100K + 160K + 40K) 4,300,000
Liabilities (1,600,000)
TOTAL 2,700,000
Consideration transferred 2,800,000
NCI 0
Previously held interest 0
TOTAL 2,800,000
Less: FV of net identifiable assets 2,700,000
Goodwill (Gain on bargain purchase) 100,000
EXCEPTION TO RECOGNITION PRINCIPLE - CONTINGENT LIABILITIES
- Present obligation
- @FV is measured reliably
PROBLEM 6 ( page 58 )
8. .
FV of net identifiable assets:
Identifiable assets 4,000,000
Liabilities (1.6M + 200K) (1,800,000)
TOTAL 2,200,000
Consideration transferred 1,800,000
NCI (2.2M * 25%) 550,000
Previously held interest 0
TOTAL 2,350,000
Less: FV of net identifiable assets (2,200,000)
Goodwill (Gain on bargain purchase) 150,000
