IFRS 3 Flashcards
How to determine control?
Ifrs 10 - 3 criteria (PERVA)
-Power over investee’s to direct relevant actvt
-Exposure or rights to variable returns of investee
-Ability to use power over investee to affect investor’s returns
How to determine Power?
VR, direct relevant actvt, KMP (PDC over IVS)
Explain Power using VR
Rebuttable presumption - 50% or > unless proven otherwise
50% or more - ord share has voting rights
Rights - direct relevant actvt (o&f) that affects IVS returns
Major VR - has control
W/o major VR (de-facto) :- substantive rights
-single largest sh
-contractual agreement with other holders
-direct relevant actvt
Potential rights (convertible opts, forwards etc, intrusive or in the money) - worthwhile to acquire when…
ex. Px < market sh px
Protective rights - no control, right to protect holders w/o giving power over e’
Explain power/rights using KMP
KMP = ability direct, plan and control IVS
Power to appt, re-assign and remove kmp of IVS
Appoint or remove other entity
Rights to direct investee to enter into, or veto changes to transaction
How to consolidate in FS? Acct req
-Combine A, L Eq, Exp and CF of Parent and Subsi.
-Eliminate Parent invst in Subsi with portion of its eq of Subsi.
-Eliminate intra-gp transaction and bal.
-Must use uniform acct policies (adj)
-Consol begins from date IVR gains control and ceases when losses
-Reporting dates cannot vary more than 3 months
-Present NCI in CSOFP separately from eq of parent
-Changes in owenership interest in Subsi that DO NOT result in losing control over Subsi are eq transactions
Dr cash
Cr NCI
Cr adj to Eq (CRE)
Control over specified A & L of investee.
SILO - IVR treats a portion of IVS as deemed separate entity and whether has control over it
Conditions:
-specified assets are only source of payment for specified L
-other parties do not have right to specified A or to residual CF from those A
All A, L & E are ring-fenced from overall IVS
how to determine who is the acquirer?
when one has CONTROL over the other
IFRS 10 P/ ERV / A
IFRS 3 (other factors)
Deferred consideration recognition and measurement
Payable after DOA w/out condition.
Meas @ FV
PV of CF from DOT, inc FC at each reporting period -> inc Liab and GW
Intial
Dr GW
Cr Liab
FC (Subsq)
Dr FC
Cr Liab
IFRS 3 states that new info available during messurement period shd take into acct. What shd be done?
Adjs shd be made retrospectively, if new info available.
Measurement period - 12 months after DOA
Incr/ Dec GW
If proportionate method was use for NCI calculation, what shd be done when PPE was overvalued at DOA?
PPE constitutes NA
Adj shd be made to PPE and NA -> affects GW
NCI will be affected.
If propotionate method was use to calculate GW, what shd be done if GW was impaired?
GW attrb to NCI will have to grossed up (find total notional GW)
IAS 36, compare CA to RA
CA = total notional GW + identifiable adj NA
If, CA > NA = impairment loss (has incl NCI portion)
GW and impairment has yet to incl in CSOFP
Impairment shd grossed down to H portion
Does being an agent (investor) have decision making rights over investee?
Agent only to direct but do not possess decision making rights as it is the responsibility of the principal (shareholders)
how to determine whether it is a biz combi or an Asset acq?
step 1 : Substantial all of FV of gross Assets acq concentrated in a single identified asset (YES -> Asset acq) / no - move step 2
Step 2: The acq actvt and assets includes INPUT and SUBSTANTIVE PROCESS that tgt contribute the ability to create OUTPUT.
OUTPUT -> incl organise workforce /and ability to convert input to output / ability to continue to create output w/o sigf cost
In determine control, but IFRS 10 does not clearly indicate, how to use IFRS 3?
1 - acquirer usually trsf cash or other assets or incur liab
2 - relative VR after acquisition (largest portion/ substantial)
3 - existence of a large minority voting interest
4 - appoint the members of governing body of combined entity (BOD)
5 - dominate the senior mgmt
6 - pays premium over acquisition
7 - relative bigger in size (assets, rev, prft)
Deferred and Contingent consideration shd be recognised at …. ….. of the amount payable at DOA and shd be ……. using the ……. (short form). Subsequently …… at year ends
1- present value
2-discounted
3-ERI
4-remeasured
If consideration is payable in form of equity shares, it should be measured at ….. ……. (level ….) at DOA and it will be only measured ……. Issue cost will be recorded in accordane with ifrs … and shall be deducted from …. ….
1- Market price (fair value)
2- 1
3- once
3
4- 9
5- share premium
If the consideration paid is a non- finl A, under ifrs 13, fair value would be measured at level ….. which is market participants ……. (short form) and adjusted at level …..
1-2
2-HABU
3-3
Contingent consideration will be mutiplied by the …. …. to get the ….. ……
1- probability factor
2- expected value
For consolidation purposes, can acquirer assign FV to all identifiable A/L not recognise by Subsi?
Condition : only if it meets defn of A/L in the CF and is probable thet eb flow (in/out) and value can be measured reliàbly
How to treat restructuring cost in biz combi? Shd it account in pre-prft or post-prft?
Adjust it in post profits only when criteria is met:
-detail formal plan
-implement asap
-legal or comstructive oblg
-highly probable outflow
-no realistic possibility of withdrawal
But only charged to pre-prft when restructuring plan takes place before acquisition, it will do so irrespective H acq S or not
There 2 ways to measure NCI
FV basis and NA basis
Formula of FV basis to caluclate NCi (level 1 -quoted; active market;identical
Mrk px of S X no of sh
NA basis formula to calculate NCI
FV of NA of Subsi at DOA X NCI%
If equity shares are not available, how to measure NCI shares?
Level 3 (unobservable inputs; adjusted;valuation tech - mkt or income app; pricing multiples)
Provisonal values can be assigned during the …… …… which is …… 1 year from DOAfor a …….. adjustment to be made. Goodwill shd be …… If the values confirm exceeds 1 year, …….. adjustment shd be made while Goodwill shd …… be restated.
1- measurement period
2- within
3- retrospective adj
4- restated
5- prospective
6- not
Non-recognition of A/L in Subsi books is correctly done, however due to consol purposes IFRS 3 will …….. those stds.
Override
Explain how acquiring addl shares in the same co (IIA to IIS) will lead to IFRS 3.
SOF
1- disp of an Asso and acq of a Subsi
2- H must revalue PHI to FV
3- recog G/ L in P/L
4- GW calculated on DOC
5- consol NA and post acq earnings of Subsi be combined with H
6- recog GW, NA and NCI
