BusinessCombination

PFRs 3 Acquisition method

the PFRS10- control
Identify acquirer
>
-

1. - * net assets (no NCI) :

.
2

3 .
Acquisition date
measurement of asset and Liabilities - non-controlling Interest
- *
Stock
-

Identifiable Assets

Acquisition (w/NCI)
& Liabilities

↑ Goodwill/Gain on Bargaining Purchase -shareholder's Equity + NC I

Template :

price paid consideration Transferred) ↑ XX

less : FN of NA of Acquire (xx)

Goodwill / Gain on
Bargain Purchase #XX((X)
PlL
Intangible Asset

composition :
* Price paidashinstrument Bonds Payable junu
=
(

I
↓ (share swap)
Equity Instrument

contingent Liability

* #V of NA of Acquiree (Asset &Liab)

-

the usual

identifiable
ABL (Tangible)
Identifiable (Intangible (
-

fair value
- separability
· legal contractual criterion measurement

-
unidentifiable
=>
Goodwill

Knee Budd
Price Paid 3, 375 008 (11 200 x
, 150) 1 , 680 ,000
[22 500 X 150)
.
,

less : Fl of Net Asset

CA 230 000
450000 ,

Ch 2150, 000 1 , 975, 000

000

000)
(20 (140 000
30000)
(2045
Liabilities
, ,
,

Goodwill/Gain on BP) (105,000

Entries :

Knee Tree

I. CA450K CA 230K

NCA 1 150 M
2 1 , 975000
NCA E

G 985M
Liab 140k

Liab 210K
3854
Gain On BP
DooX 22 500) Ordinary shares
.
2, 250M

Ordinary shares 1 , 120 000

(50X22 500) Share premium
,
1, /25 ,
000
10x11200 ,

560 00
50 X11200 share Premium
#2 .

Acquisition Exp (direct/Indirect)

-

expense
PFRS3 8 Share premium =
176 500
,

↓ + 1 ,,125, 000
smE-capitalized SME-expense
Cprice Paid) 560000

Issuance cost -
discount treatment -

16000 (share issuance cost)

Issuance of shares -
deducted from share premium 1 845 500
,
,

Out ofPocket cost

Share Issuance cost-legal Acquisition Expenses .

9 Accumulated profits/RE (Tree only
9k4 8k : 1 , 250 ,
000

SK 4K + 385 000 ,
(Gain on BP)

ak 38 , 00
lok
(Acq Exp)
=

14k TK 1 , 597 000 ,

9k
38K 10 ·

SHE
ord share 6118500
Entries : share Premium
.

1845 500
jat00
Share Premium 16k Acc .
Profits 1,

9 , 561 , 000
cash lok

Acquisition typ 38

38K
cash #3

price paid
: 3 , 375, 000 (22 , 500 X /50]

Add : Contingent 200 000

Balances
,

viability
1 .
6W-985K total price Paid 3 , 575 000 ,

G .
Jain on BP-385k Less : Fr of NA

CA 45000
1325 000
,

3 .

CA -

2150, 000
NCA
+ 45000 (210000)
Liab .

(FX)
(2 390000)
+ 230000 ,

+ 38000 (Acq Exp ) Good will 1 185 000

,

. .

16000 (share issuance cost)

2 001 000
, , Entries :

CA 450K
(Tree) 2150K
4 NCA -3125000
.

NCA

+ 2150000 couda) 6W 1 180k

,

+ 1 975000
,
Lab .

210
+ 985000 cloodmil) 200k
Contagent
8 235, 000 ord shares 2250K
,

.
5

Total Asset =
CA + NCA Share Premium 1 125K ,

: 2 , 001000
+ 8 , 235 00 ,

=
10 ,
236 , 000
What if NI exceeds >5 M ?

Total Liabilities
h Tree
pays & 500k
.

(knee) (budd(
(Tree)
+ 210k + 140k & 200k
= 325k 1st : reverse
contingent viab

625k 30K
Contingent viab
=

Loss on

Cush 50K

Ordinary Shares (Tree Company < JM ?

What if NI
7 .

2 748 500
=

payment
,

no
,

+ Addti issuance
2250 000
[
,

o
(G2 500 X 100)
,
contingent Lab 200k
1, 200
(11 200 X 100)
,

Gain on
contingent liab Look
6 118, , so
measurement period

FY
provision
-

71112014 5/31/2015 7130115

Price Paid : 160 M 160 M 160m

less : A (135m) (lom)

FU
o 25M zom

-
IM

(Revaluation surplus)
 Is Consolidation
method
Intercompany stock Acquisition PAS 27 Separat Es

· 20% of stock
-

Parent (Acquirer) -
recordInvestment in subsidiary F
Fair Asset TIP PERS 9

Between 20% -50 % * Conso FS

/EY)
(Full Goodwill

if owned include NCI

SignificantInfluence
Joint Control JV
partially .
CSHE)
- (partial Goodwill
-

1 Proportionate
.

Investment in Associate >

-
measured & Equity method -+ PAS28

-Over 50%
↑ Joint ControlestmentinJoinoperationsVenture PFRS 3110
-
Parent-subsidiary

Stock Aquisition of Business Combination

100% owned

partially owned NCI

- -

Date of Acquisition
Goodwill/Gain -
Consolidation

↓
80%

gomi
Separate FS

100% 000% <Parent) 20% NCI

Format : price paid 12, 500, 000

- #V given
10 M 2 , 500 ,500
%
100 80% (P) 20% CNCl) Fr not given
① Price paid # XX * *
# of net asset 8 , 000,000 6400 &
, 000 1600 on
Gived
less : Ev of net asset [xX) (xx) (xx) Excess/Goodwill 4 .
5M 3 . 6M gook

CSHE-subdian)
F

Goodwill/(gain) XX(XX) XX XX Good will (Full Goodwill) :

4 .
5M

Goodwill (Proportionate) :
3 GM .

①
Consolidation procedures :

Steps : NCI CFX/ Full Goodwill) : 2 5M.

1 Goodwill/bain NCI (proportionale) : 1 .

6M
Formula :
in

(determination & Allocation of Excess

what if there is FM impairment Loss ? (sharewill/total Goodwill) / amount of Impair

price paid Parent (3 6M/4 5m)

. .

X /M
= 800K

less Book Value

:
of SHE-S NC1 (900K/4 .
5 M) X IM
=
200K

Excess

Less : Allocation to FN

6W/(Gain)

2 working paper elimination Entries

.
3 Consolidated Balances

PERS 10 Guidelines for control

over investee <BoD)

control-power
-

exposure or
right to returns
↓
(variability

over investee creturns)

power
-
 100 % Go% 40% 100% 75 % 25 %

price paid 300 , 00

Price paid
10 , 6 , 300 ,
000
y000 ,
o
El
less : FY Of NA 7 000 , 500
,
4 200
, ,
00 2 , 800 , 000 60% 2 160 , 000
, 2160 , 000/60
540K
Goodwill
=
3 6N
3 , 300 , G 15%.
.

2 , 100 ,
000 1 , 200, 000
X 15 %
total 3 6M 2 7M
Look
. .

=
full 540K
All Of NA
Good will CF1) :
3, 300 , 000

Good will (Proportionale) : 2 100 , 000

,
accet m
, (64m) Copartial
Good will look
Lok full k partial
NCI (FX) :
YM

NCI (Proportionate) : G 8M
.

Remeasurement of gain/loss
540K

control Premium extra price that an acquired willing to pay.

Fogain
-

# 6 294 , 000
,

100 % 40 % 40%
Price Paid 10, 000, 000 4m
4 00 , 00
,

o0
400 I

:
less
FX Of NA (7m) 4 2m) .

(2 8m) .

Good will 3, 294 000 ,

2094 ,
000
1.2M

100 % 7si 23
loss ? Im
what if :
Impairment price paid : 307K 225k 82K Full

↑ (2Im/3 3 m) .

X 1M = 636 , 364 EN of NA :
Asset 510K

Call us
Liab
NCI (12m / 3 3 M) X /M =
363 636
partial
.

(2y0k) look)
?
what it : FX Of NCI & 2 4M.

given
Price paid
100 % Go% 90%
gain on Bargain
B full
. 151
partial (2
8 7M.
6 . 3M 2 Um
.
Purchase not reported
FV of NA 7M 4 2M.
2 8M.

Good will 17M 2M (Y00k)

6 3m 2 8m
a Im
.
.

Adjusts

eliminate yook
Em f
- IM
2 Loss of Control

Cash Proceeds (70% ) : 490

Fr of remaining % . (rol ) :
.

7012

NCI Fr (20 %)
%

-
C 600KX 20

total Fu

less CA of net asset

 10% 30%
price paid 215 000
,
, po 64 , 500

Less: Br Ot SHE

s
~

an Y2K

Excess 75K

FV :
Inventory CISIC)
Land (20k)
Good will YOK
-
-

P S Conso
Cash
YUK 30K ZUR
AIR 110k 155K
451
Invi 130 85k 615K
Land 80k 45k 125k

Bldy-bequip JOOK YOOK gook

AD : (223k) clusk) (3800k)
Good will Yok YOK

total Asset 1 121 000

,
,

AlP 41500 201 89500

takes 95k37K 132k

Bonds payable 200K 200K YOUR

701 500 ,

common stock look 150K

[
119,500

Retained Earnings 203K 205K

64 500
-

NCI ,

1, 121 Ou
 subsequent to Date
of Acquisition

1 complete set ES
-
income statement

statement of Retained Earnings

statement of Financial positions

.
2 Amortization Schedule (Excess Amortization)

Income statement

1. Consolidated net income P S Conco .

net Income from own XX XX

operations
Less : Amortization of excess (xx)

Goodwill impairment (x)

Adj. Net Income * + X =
XX
=

T
* NCI
Parent
20
20 %
% Got
xx80 *
10 %
XX
adjusted
share of NCE
price paid 2 5 M
.

am
in netIncome
less: BV of SHE 1 875m
.

of
subsidiary
Excess ·

625K

. net Income
2 attributable to parent Allocation Fri
⑨ consolidated not income ↑X Inv Gok
⑪ less :
Share of NCI in NI of subsidiary (xx) Buldy . (ark)
Net Income attributable to parent Good will 3254
XX
③
Adj .
Net income of parent XX Excess AmortizationSchedule
Add : new share of Parent netIncome XX
Inv look

Cawk/Sys
NOR
XX Bldy .

.
3 noncontrolling Interest Balance
NC I ↑ XX Consolidated net Income P S
,
beg
Add : Share of NCI of NI 3 =
XX not Income 600K 500K
Less: Share of NC1 in Dividends -

> (XX) less: Amortization CH0K)

NCI end XX adj book t 360K
=
960K
, .

NI
=
X

4 Retained Earnings Bal (Parent only ③ not income attributable to Parent

I
Parent

N
940

·
KE , beg ·
P #4
Add : NI attributable to Parent YX 12k)
less : Dindends paid-parent (xX) 5884
↑ X
=

Consolidated Asset& viabilities nCI JOK

5 .
,
beg
share of NCINIS Zak
Add :

Less : Dividends -
> (201) (INKX20%
nel ,
and 552k
 PAS 27

-separate S Parent

insubsidiaries
A COCPF
Inv .

e
example : -Accrual
costasis Equity
price paid GM Inv in subs
. . 2M Inv in subs
. . 2M
cash
100% owned am cash am

net Income-s Look no

entry Inv .
insubs .
Jook

Inv Inc
.
JooK

Cash look eash IWK

Dividers paid-s look Dividend Inc look .
Inv in subs.
.
look

Inv Income Jok

under depreciation 50k .

no entry
insubs Jok
Inv .

Ps
CNI :Lok + 50K :
170k

#
Investment Income
share of NCI- not Income -

subsidiary Cown operations) #XX

less : Amortization of excess
(xx)
bey 101/70 %: 2004X30
=O
Adj- net Income subdiary
-

nCl XX
,

share of NCIS % of parent + 80%

less :
Divided (51)x30% k] Inv .
Income XX

75
Investment in subsidiary
Inv . ,
beg #XX
Add : Investment Income XX

less : birdend-5
Inv , end
 Investment in subsidiary beg
,
500k
-
Inv . Inc
.
55K

paid
we
Dir
-

Inv .
ins ,
end
=

invinc . [20x3)
11-S gok

Ser
Amora . In

Inv in .
subsdiay

inv-ins -

jys
+

Inv Inc . 85k

puld
rol
-Dividend
k
-

cost method (20xY) (20X5]

Inv .

Income 10k l0K

500k 500k
Inv . in subsidiary

Equity method croxy)

MI
-

S 80k

ircepad (25k) sook

Amortization
Adj
BV
.
NI 10%%

Inv .
Income K
-

In Chokllyr)

54
pay/20yr -
 Inter Company Transactions
selling price sok
Inter Company Sale of Inventory cost :

so
-

eliminate Unrealized Gross Profit GP

X 25 %
seller Buyer

selling Price #80, 000 #500

cost : (50 , 000)

↑ 30, 000 > closed to RE of sale

Profit
year
-

Gross :

sales Sok

seller's Books Buyer's Book coos Sok

Ar 80k purchases/Invtry Sok >
-
(06) COGS CE1)7500

80k
Alp 7500
sales Sok
Invty
Perpetual

50K
CoGs year after sale :

Invty 50l RE 7500

beg seller
-

COOS (BI) 7500

Elimination Entry : also called as Realized gross profit. on Beg. Fuuty

-

(year of sale)

⑦ sales 80K

CoGs 80K
:

To Eliminate Intercompany sale.

Assumption a
Effect

hindipanabeen
:

ur
②
Coos 301

#candre
i
30k it
Invty lang .

To remove Unrealized GP on .
El

30 under

upstream Transactions YS . Downstream transactions

What if :
75% is sold .

Elimination Entry : o Upstream transactions

Sok (seller) Parent (Buyer)

① sales subsidiary - >

COUS SOK

⑳ 30KX 25 %: 7 , 500
Downstream
A Transactions
so USP :

R6P = 22 500
,
-
Consolidated Is Parent (seller) -
Subsidiary (Buyer)
COGs 7 , 500

Inuty
7 , 500 ~ 100% owned
Effect ~
partially owned
:

Oller 7500 Downstream upstream upstream

BI Example :
(year after the sale) (100% / Partially <100 % ) C partially)

③ Assume

RIE
75% sold

, beg 7500 -
curre year of sale

sales
:

sok
- - -
coos Sok
Loos 7500 overstated
COGS (D(I)
7500
LOGSCEE 750
7
# - -

↑
year after sale :

RE , beg
COOS
-

seller

(BI)
7500

7500
↑ X
also called as Realized gross profit. on -
Beg. Enuty
entry :
Assume So% owned

subsidiary and upstream

ok
seller (so)
RE beg- 1 51
(20)
.

NCI
7 5k
.

2065
Effect of Intercompany on Consolidated Balances Investment in subsidiary
Invest in subsidiary beg , ↑ XX

net Income Parent subsidiary Add : Invest Income #

not Income from own operations # XX # XX less : Dividend in subsidiary (rX)

Less : Amortization (XX) Invest in subsidiary end , # M

unrealized GP El (xx) -

down (xx) -

up

Consolidated
X-down M-up
Add: Realized 6P-BI net income

:
XX
Adjusted net Income

PS
XX XX - Share of NCI

. less:
CNI

Share of NCI
-
XX

(XX)

Attributable toParent XX

consolidated sales

sales P # X
,

sales ,
S XX

whether upstream or

Price)
Less :
Intercompany Sales (Transfer
downstream

Consolidated sales

consolidated CoGs

Coos ,
P #XX
LOGS S . XX
whether upstream or

Less Intercompany Sales (Transfer Price (xX) downstream

Less: Realized 6P-BI ((X)

i
Add : Unrealized 6P-tI
Consolidated Coos

Equity method

Effects of IntercompanyTransactions on
Invty
.

Investment Income

not Income -S #XX

Adjustment of Amortization (x)

unrealized op-El (XX) -

up

Realized

NFA s
6P-BI

adjusted :

Unrealized GP-EI(XX)

Realized 6P-BI XX
-

Investment Income # XX
 computation :

(seller) (Buyer) #60 , 000 down 25 % Income

cost consolidated net
-
Par Sub

Sub(seller) Par (Buyer) 000 20 % sales

# 40 up Sub
-
, Par

30% in Ending Inventory Adj .

MI 97, 450 + 26 600
,
= 124 050
,

/w
BI-par 2500 Transfer Price
%
-

#1 000
,
-

Unrealized 6P
3 upstream

BI-Sub #3000-
Y downstream
35 -
mark up (based on sales) Net Income attributable to Parent
OR
CNI : 124 , 050 97 . 450

so *
Less : a

In
consolidated netIncome ? share of NCI
1

a First determine the adjustment

unrealized & Realized

Down stream 40 , 000 nCI Balances

sales 125% Unrealized EI -not given Do DNA schedule
-
-

Obs #V3X(25(15- look 80% 20%

↑
Price Paid 425K 340K 85K
:
Floor
Cl ,
beg

Less : Fr Of SHE

upstream common stock's 150K

sales
100% USP-EI RE-S 230K (380K) (304K)(76k)

SRop-BI
# YOK x 30 % X 20% =
2 400
, Excess Y5K 36 9k

Allocation (20k) Cluk) [Yk)

Equipment
# 3000 / 35%: 1 ,
050 25k 20k 5k

=
Adjustments : nCI ,
beg 85K
-

Add : Undistributed Income 13k *

Downstream UGP-EI Undistributed Income
&

Transfer Price
60 000 , /30% x 25/122 =
3600 98K 2017 RE , beg -s 230K

S 125% RGP-BI Share of NCI 5 320

a
2019 ibeg-s
,

o
Less: Dividends paid -s

L
=
# 3kx35% = 1 050
,
2, 000
ClOk X 20% )
CNI + Dividends

to
Good will
NCI ,
12/31/19 Full
Adjust : Amortization (2yrs) 2kx2 (4k)
=

Less : share of NC I goodwill Glok

consider :
proportionale UGD-El 2018 ((k)
upstream 96 320 up
-

: UGP- El .

S look 40k X 30% x 20% =

, 40
2 undistbid Inc. 65K
BK
↓ 20%:

us
BI
-

RGP 52k
↓ 20% =

= 1 000
, Retained Earnings
Fook
RE
Add :
, Parents ,
beg 11/1/19) -
> cost

b .

Amortization of Excess Adj undistributed Income

.
52k
(65KX 80% )

Equipment : 20000 : 10 yrs not In come attributable to parent 118730

less :
=
2k 160000
Dividend paid
Rop , BI (down) (1 050)
consolidated net Income :
,

RE , P end ,
809 680 ,

Parent subsidiary
net Income look 30K

less : Amortization (2k) consolidated SHE

Less : UGP (3600) (2 , 40) Common stock-p 1, 000 , 000 1, 000 000
consolidated
,

u partiana
blo
RGP 1000 809 680
Add : 1050
net Inc
-

RE-12/31 ,

124 12/31
Goodwill l
97 450 26 600 = 050 nCI-
Adj Net income
·
. ,

-
,

Full
 sales & cost of sale

sales
-

P
1 100 000
, ,

Inter company of Fixed Asset

000
sales
-

S 900 ,

Less :

Down (60000

Up (40000)
consolidated Sale 1 , 900 , 000

COGS-P 880000
E

COGS S 720 , 00
-

less :
Down (60000)
up (40000)
(1 050)
ROP-BI Down
,

D (1000)
Add 3600
UGP-El T Down 2400

consolidated 950
Lobs
1.03 ,

Equity method
Investment Income

NE-S 30K
, beg
(2k)
Adj : Amortization
USP-El-up
(240)
Add

~ To USP-EI-dowp (3 , 600)

1050
ROP-BI-down

Investment Income 18 , 730

=

Investment account Balance

Investment in subsidiary beg

,
390, 950

law .
Inc . 18 738 ,

less SK)
Dividend paid > 120009 (10k 180%
:

Investment in subsidiary end

,
401 688 ,

-
-

DividencIncome

10k x 80% = 2000

Investment Income under cost method

340k
,
hindi nugbabago
cash basis .