Business Combinations

Date recorded:

Value in Use and Tax

  • The post tax liability should be included in future cash flow calculations when performing a goodwill impairment review.
  • IAS 12 prohibits discounting of cash flows. This is inconsistent with IAS 38 but will not be changed at the moment.
  • The treatment of tax cash flows under IAS 37, Provisions will be dealt with under the improvements project.

Reverse acquisitions

  • Guidance is based on Canadian rules.
  • IAS 22.12 to be replaced.
  • Examples will be included of accounting for reverse acquisitions in the new guidance.
  • They are rare situations.
  • The consolidated financial statements will be in the name of the legal parent, the original acquirer.
  • A control approach is adopted to identify the acquirer.
  • An ownership approach is adopted to identify the minority interest.
  • Comparatives show the acquiree's net assets.
  • Guidance will be included on the implications on EPS.

Cost of acquisition

  • IAS 22.24 principles to be used.
  • It is calculated as the number of shares the acquiree would have had to issue to get the same % shareholding as the acquirer, multiplied by the fair value of the acquiree's shares.

Accounting in the consolidated financial statements

  • Assets and liabilities are added together using the pre-combined carrying amounts, using the control concept.
  • The legal parent's books are adjusted for fair values.
  • Issued capital is the legal subsidiary's capital before acquisition plus the cost of acquisition. This is based on the ownership principle.
  • The number of issued shares is the legal parent's shares in issue after acquisition.
  • Accumulated profits are those of the legal subsidiary based on percentage of ownership.
  • Minority interest is to be calculated using the ownership principle. It is the shareholders of the legal subsidiary that did not take up the offer of shares in the group. The minority only has interest in part of the group rather than the group as a whole. Minority interest is calculated based on the net assets of the legal subsidiary at the balance sheet date.

Disclosure of recoverable amount

  • There is a conflict between usefulness to users and the magnitude of the extra disclosures proposed that the Board hopes to address by including a compact example of the type of disclosure it would like to see.
  • Key assumptions on which the cash flow projections are based should be disclosed. No list will be provided of examples as often it is seen as exhaustive even though it is not meant to be. Entities will have to decide on key disclosures themselves and disclosure the assumptions on which the cash flows are most sensitive.
  • If assumptions do not reflect past experience, that fact and the justification must be disclosed.
  • A description and amount of the cash flows are to be disclosed.
  • If the projected period is greater than 5 years, disclosure is to be expanded beyond those in IAS 36. Detail is needed of the sensitivity growth rate assumptions.
  • If goodwill is spread over a large number of cash generating units, disclosure will not have to be made for all units.
  • Only similar cash generating units' disclosures can be aggregated.

Correction list for hyphenation

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