Topic 3 - Business Combinations Flashcards
Which AASB standard refers to accounting for Business Combinations
AASB 3
There are steps in AASB 3, para5
What are the two forms of business combination?
1) Buying a collection of individual assets/liabilities that operate together as a business
OR
2) Buying equity (e.g., voting shares) to gain control
over the net assets of another entity
What 3 elements a necessary for a business to exist?
AABS 3 B7-B12
- inputs,
- processes,
- outputs (not always needed)
If the assets acquired do not constitute a business, what are the implications? (3)
AASB 3 doesn’t apply, there is no goodwill and transaction costs will be capitalised instead of expensed
How is the fair value of net identifiable assets calculated?
FVINA = identifiable assets
– identifiable liabilities
– contingent liabilities
When consideration transferred is cash, and it is a deferred payment how must the value be calculated? where is this amount derived from?
cash must be discounted to present value as at the date of acquisition
• The discount rate used is the entity’s incremental borrowing rate
When consideration transferred is equity, how is the value calculated?
It is the fair value of the shares as at the date of acquisition
Transaction costs such as stamp duties, underwriting
fees and brokers fees may be incurred in issuing equity instruments, how are they accounted for?
should be recognised directly in equity
Dr Share Capital xx
Cr Cash xx
Do other acquisition related costs that are directly attributable to a business combination form part of the consideration transferred, E.g. legal or accounting fees.
No they are expensed as incurred (para. 53).
Is AR recognised at carrying amount or fair value?
CA, provision for doubtful debts is created to bring balance to fair value
what if there is a contingent liability, i.e. a law suit?
amount must be deducted from FVINA and then a contingent liability must be created for the amount.
