Group Accounts - Piecemeal (Step) Acquisition

Question 1

Which IFRS standard relates to the calculation of step acquisition?

Answer 1

IFRS 3

Question 2

What is the approach IFRS 3 adopts to calculate piecemeal acquisitions goodwill?

Answer 2

Calculate goodwill when control is achieved, but remeasure the previously held investment to FV

Question 3

Investment to subsidiary:

how to account for it up to the date of control?

Answer 3

Account for investment (asset) under IFRS 9 (no groups accounting) up to date of control.

Dividend income is reported in the income statement

Question 4

Investment to subsidiary:

How to account for gain/loss on remeasurement to FV at the date of control?

Answer 4

Gain/Loss on measurement to FV of the parent’s previously held investment is treated according to IFRS 9 (P&L for ‘held for trading’ otherwise OCI)

Question 5

Investment to subsidiary:

How to account for goodwill at the date of control

Answer 5

Consideration = consideration paid for additional% PLUS FV of previously held investment

Question 6

Investment to Subsidiary:

How to account for general CSOFP at date of control?

Answer 6

Consolidate as a subsidiary from this point (Consolidate income, expenses, assets and liabilities, derecognise investment and stop recognising dividend income).

Question 7

Associate to subsidiary:

How to account for investment in associates at the date of control?

Answer 7

Remeasure investment in associate to fair value

Treat as if associate sold and a subsidiary purchased

Gain/Loss to profit or loss (Not OCI)

*A ‘control premium’ is often paid to gain control

Question 8

Associate to Subsidiary:

How to calculate goodwill at date of control?

Answer 8

Consideration = consideration paid PLUS FV of previously held investment

Question 9

Associate to Subsidiary:

How to account for general CSOFP at date of control

Answer 9

From this point consolidate as a subsidiary (consolidate asset +liabilities, derecognise investment in associate) show share of profit (and OCI) of associate up to date of control and thereafter consolidate income and expenses and show NCI

Question 10

Subsidiary holding increases:

How to calculate good will at date of control?

Answer 10

As control was already achieved prior to the increase holding, no goodwill calculation is needed

Question 11

Subsidiary holding increases:

How does the increase in holding affect NCI in CSOFP?

What is the double entry for it?

Answer 11

Reduce the NCI by:

NCI at date step acquisition
x
(NCI% purchased/NCI % Before step acquisition).

CR Cash (amount paid for shares)
DR NCI (reduction as above)
DR/CR to balance to parent’s retained earnings