F2 - 3. Fair Value Adjustments + Mid Year Acquisitions

Question 1

What does IFRS Fair Value Measurement state?

Answer 1

When preparing group accounts, the assets and liabilities of the subsidiary (but NOT the parent) must be stated at their fair value

Question 2

What is the figure usually used to determine fair value?

Answer 2

Market value

Question 3

What is the adjustment needed for the difference between the book value and fair value of a subsidiaries assets at acquisition?

Answer 3

Increase/decrease the asset value on consolidation

Question 4

What is the adjustment needed for any change in fair value of a subsidiaries assets between acquisition and financial statement date?

Answer 4

Dr P&L reduction, Cr reval surplus for increase

Question 5

What are the 4 main contributors to the ‘fair value of consideration transferred’?

Answer 5

1. Cash payments
2. Deferred consideration
3. Contingent consideration
4. Share for share exchange

Question 6

What is deferred consideration measured at?

Answer 6

The present value of future consideration, using the parent’s cost of capital for the discount factor

Question 7

How is contingent consideration measured?

Answer 7

At fair value at the acquisition date, regardless of probability of being payed (any revision goes through P&L)

Question 8

What is NOT included in the fair value of consideration calculation?

Answer 8

Directly attributable costs (e.g legal fees)

Question 9

What 2 assets/liabilities that might not be included in the subsidiaries individual accounts should be included in the consolidated statement of financial position?

Answer 9

1. Intangible assets (such as brands or patents) that meet the definition of IA and their FV can be measured reliably
2. Contingent liabilities (note becomes provision)

Question 10

For mid year acquisitions, how are profits of the subsidiary treated in the SoFP?

Answer 10

Add on the proportion of profits since acquisition to group retained earnings