Business Combination Flashcards
I acquire 50% ownership in a business. PFRS 3 is applicable. True or False?
False (it must be more than 50% = 50 + 1)
Common Stock
- If 19% and below - FV
- If 20% to 50% - significant influence
- If 51% and above - control
Not Part of Scope of PFRS 3
joint arrangement - X
pooling of interest (under common control) - X
do not constitute a business - X
Classification of Business Combination
Horizontal vs Vertical
Horizontal - same industry (competitor)
Vertical - different level (supplier/buyer)
Classification of Business Combination
Acquisition of Net Assets (Merger and Consolidation)
ABM and C
- always 100% = No NCI
- A + B = A or B (Merger)
- A + B = C (Consolidation)
Classification of Business Combination
Acquisition of Stocks
Will the companies be dissolved?
- may be 100% (no NCI) or less than 100% (with NCI)
- companies involved will not be dissolved
4 Steps in Acquisition Method
1. Acquirer
2. Acquisition Date (when control is obtained)
3. FVINA and NCI (FV @ acquisition date)
4. Goodwill / GBP
Yes
some things to note in computing FVINA
FVINA → excludes goodwill of acquiree
Contingent Liability → even if not probable
Consideration Transferred
what value to use?
fair value (not book)
Contingent Consideration
CC is equity (Date of Acquistion vs Subsequent)
Date of Acquisition
- credit SP-CC
Subsequent
- NOT remeasured
Contingent Consideration
CC is cash (Date of Acquistion vs Subsequent)
Date of Acquisition
- credit CC Payable
Subsequent
Facts existing as of DoA AND within 1 year
- charged to goodwill/GBP
Facts existing after DoA OR after 1 year
- charged to P/L
NCI
what method of acquisition is it present?
two methods to compute NCI
- present only in acquisition of stocks
- FV and Proportionate Method
- FV = CT/Interest x NCI % (with NCI in the goodwill)
- Proportionate = FVINA x NCI%
Proportionate → minimum value for NCI (whether given FV or implied FV)
Treatment for Costs
DACs, IDACs, Listing Fee
expensed
Treatment for Costs
Debt / Bond Issue Cost
contra-liability
Treatment for Costs
Stock Issuance Cost
contra-equity
1. SP from issuance
2. SP from previous issuance
3. Retained Earnings
BEFORE CONCLUDING A GBP
1. Reassess the identification and measurement of identifiable net assets
2. Recognize in P/L any excess after the reassessment
Yes
Appearance of Goodwill/GBP in FS
Acquisition of Net Assets vs Acquisition of Stocks
Acquisition of Net Assets
- appear immediately in FS
Acquisition of Stocks
- only in CONSOLIDATED FS
SMEs (Purchase Method)
- Goodwill → amortized
- ACs → capitalized
- NCI → proportionate method only
Yes
Deconsolidation (With loss of control)
- what is the formula?
Proceeds (xx %)
FV of remaining (xx %)
NCI (xx %)
Less : FVINA (100%)
Gain or Loss
parang nagcompute lng din ng GW / GBP
Deconsolidation (Still in control)
- what is the formula?
as equity transaction (like treasury share)
Proceeds (12 %)
Less : CA (12%)
SP or RE
dito, kung 12% lang binenta, icompare mo lang sa CA nung 12%
Treatment of Dividends
- Cost Method - dividend income
- Equity Method - reduction in investment balance
- FV Method - dividend income
Yes
You will prepare consolidated FS only if there is control.
The principle behind consolidation is that
- only show results with outsiders
- accounting policies and dates must be uniform
- within 3 months & significant → adjust
Working Paper Eliminating Entries
- partnered with Investment in Subsidiary and NCI
What will be eliminated for subsidiary?
What will be eliminated for parent?
What will be eliminated for both?
NOTE : WPEE are only in working papers (✘ books)
NOTE : GW and NCI are only in consolidated FS (✘ books)
Subsidiary
- SHE (BV), FV Adjustments (magkakaroon)
Parent
- Investment in Subsidiary
Both
- Intercompany Transactions (in full)
Formula for Goodwill Ratio
GW (FV) less GW (Prop)
————————————-
GW (FV)
Total Asset
- formula (5 letters)
- Acquirer - BV
- Acquiree - FV
- Less : Expenses Paid
- Less : Considerations (Cash and Noncash)
- Goodwill (!!!)
always remember the GOODWILL
