Business Combinations

Question 1

Business Combination

Answer 1

When an acquiring business gains control of another business. Control is considered as greater than 50% of voting ownership.

All transaction costs associated with a business combination are expensed as incurred. This includes legal fees, audit fees, finder fees, etc.

Question 2

Merger

Answer 2

Entity A merges with Entity B. Entity B no longer exists in a merger, just entity A.

Question 3

Consolidation

Answer 3

Entity A and Entity B consolidate their net assets and become entity C. Entity A and B no longer exist, just the new entity C.

Question 4

Acquisition

Answer 4

Entity A acquires a controlling interest in entity B, but BOTH entity A and B continue as separate legal entities

Question 5

Income determination at the date of acquisition

Answer 5

Consolidated net income is just the parent’s net income

Question 6

Income determination for the full year of the combination

Answer 6

Consolidated net income is the parent’s net income for the year + the sub’s net income AFTER the combination.

Question 7

Income determination for years after the combination

Answer 7

Consolidated net income is parent’s net income + the sub’s net income each year

Question 8

Non Quantitative Disclosures

Answer 8

The name and description of acquiree

Acquisition date

Percentage voting equity acquired

The primary reason for combination

Description of how the acquiree gained control

Qualitative factors that make up the goodwill amount

Question 9

Acquisition Date Value Disclosures

Answer 9

Fair value of each class of consideration transferred and total amount transferred

Fair value of non-controlling interest and techniques/inputs used to determine fair value

Question 10

Goodwill Disclosures

Answer 10

Amount allocated to each reportable segment

Amount expected to be tax deductible

Question 11

For Bargain Purchase

Answer 11

Amount of gain
Where the gain shows in financial statements
Description of basis for gain

Question 12

Publicly Traded Entity Disclosures

Answer 12

Amounts of post-combination revenue and earnings of sub included in consolidated income

Revenue and earnings for the period as though combination occurred at beginning of period

Question 13

IFRS vs GAAP Differences

Answer 13

Under GAAP, contingent assets and liabilities can be recognized if criteria are met. Under IFRS, contingent assets are not recognized.

Under GAAP, goodwill allocation is to the reporting units. Under IFRS, goodwill is allocated to the cash-generating units

Goodwill impairment testing is a one-step process under IFRS, and a two-step process under GAAP