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Business Combinations (Phase II)

Date recorded:

Minority interests issues

At this meeting, the Board considered the accounting and display issues related to the minority interests and the conclusions were the following:

Accounting

Display

Step acquisitions

Income:

  • Carrying amount of investment - its fair value
  • Previously recognised value changes

Subsequent increases in ownership of a subsidiary by members of the consolidated group after the parent obtains control of the subsidiary

Income:Increases of parent's controlling assets

Subsequent decreases in ownership of a subsidiary by members of the consolidated group that do not result in a loss of control

Income:Decreases of parent's controlling assets

Subsequent decreases in ownership of a subsidiary by members of the consolidated group that result in a loss of control

Income:Decreases of parent's controlling assets

Display of minority interests (related to the totals) in the consolidated income statement

Separate line

Display of minority interests (related to key totals) in the consolidated statement of changes in shareholders' equity

Separate line

The Board agreed with the Staff's recommendations on the level of details that should be disclosed for the amounts attributable to the controlling and minority interests for individual line items in the consolidated income statement and statement of changes in equity.

The Board agreed that the losses of a subsidiary should be attributed to both the controlling and minority interests on the basis of their ownership interests. The board also agreed that losses in excess of the minority interests' investment will be attributed to the minority interests and that if losses attributable to the minority interests in excess of their investment are instead attributed to the controlling interests, the future income will be attributed first to the controlling interest to the extent of the excess losses previously attributed to the controlling interest.

Recognition and Measurement of deferred tax assets and valuation allowances

The Board considered whether the goodwill should continue to be reduced for the subsequent recognition of deferred tax benefits acquired in a business combination (as presently required under Statement IAS12).

The Board decided that the goodwill should not be adjusted for the subsequent recognition of deferred tax benefits. The acquirer recognises a deferred tax asset and the resulting deferred tax income is recognised in the income statement.

Measurement of Acquired Assets and Assumed liabilities in a Business Combination

In the context of this project the FASB and the IASB, in accepting the working principle, agreed to use fair value as the measurement objective for valuing the assets acquired and liabilities assumed in a business combination. The Board discussed the proposed fair value hierarchy:

  • Level 1 - the estimate of the fair value shall be determined by reference to observable prices of market transactions for identical assets or liabilities at or near the measurement date whenever that information is available.
  • Level 2 - If observable prices of market transactions for identical assets or liabilities at or near the ….., adjustments for any differences are objectively determinable (Ref IASB's website, observer notes).
  • Level 3: if observable prices of market transactions for identical or similar assets or liabilities at or near the measurement date are not available, the estimate of faire value shall be determined …..those that marketplace participants would incorporate in an estimate of fair value (Ref IASB's website, observer notes).

The Board agreed to provide fair value guidance with be developed in conjunction with FASB.

Scope - Identifiable Assets and liabilities that did not satisfy the criteria for recognition separately from the Goodwill

The Board's intentions are to adjust the goodwill and they are thinking of a 12 months window. The Staff has to work further on this issue.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.