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Buscom-Notes

The document outlines the principles of business combinations under PFRS 3, defining a business combination as a transaction where an acquirer gains control over one or more businesses. It categorizes business combinations by structure, legal method, and accounting method, detailing the acquisition method steps, including identifying the acquirer and measuring identifiable assets and liabilities. Additionally, it discusses the computation of goodwill or gain from a bargain purchase and considerations for non-controlling interest measurement.

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Carla Lising
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16 views

Buscom-Notes

The document outlines the principles of business combinations under PFRS 3, defining a business combination as a transaction where an acquirer gains control over one or more businesses. It categorizes business combinations by structure, legal method, and accounting method, detailing the acquisition method steps, including identifying the acquirer and measuring identifiable assets and liabilities. Additionally, it discusses the computation of goodwill or gain from a bargain purchase and considerations for non-controlling interest measurement.

Uploaded by

Carla Lising
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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AFAR Rev (Advanced Financial Accounting and Reporting Review)

BUSINESS COMBINATION (PFRS 3)

A business combination is a transaction or event in which an acquirer obtains control of one or more
businesses. A business is defined as an integrated set of activities and assets that is capable of being conducted and
managed for the purpose of providing goods or services to customers, generating investment income (such as
dividends or interest) or generating other income from ordinary activities.

Classification of Business Combinations Elements


Input
A. As to Structure Process
1. Horizontal Integration. It is a business strategy consummated through businessOutput
combination in
which one entity acquires another entity at the same level within the same industry.
2. Vertical Integration. It is a business strategy consummated through business combination in which
one entity acquires another entity at different level but within the same industry.
3. Conglomerate Combination. It is a business strategy consummated through business combination
in which one entity acquires another entity that belongs to different industry.
B. As to Method or from a Legal Point of View
1. Acquisition of Assets
a. Statutory Merger: Munda Corp. + Francine Corp = Munda Corp. or Francine Corp combined fs
b. Statutory Consolidation: RFE Corp. + RBB Corp. = RFB Corp.
2. Stock Acquisition or Acquisition of Ordinary Shares: Financial Statements of P Corp. + Financial
Statements of S Corp. = Consolidated Financial Statements of P Corp. and S Corp.
C. As to Accounting Method
1. Pooling of interest method. This is used to account combination of entities under common control
PIC and Q&A No. 2012-01.
2. Purchase method. This method is used to account for business combination under PFRS for SME.
3. Acquisition method. This method is used to account for business combination under full PFRS,
specifically PFRS 3. Use this if the problem is silent.

Applying the Acquisition Method

Steps in applying the acquisition method are:

1. Identification of the acquirer- the combining entity that obtains control of the acquire.
2. Determination of the acquisition date- the date on which the acquirer obtains control of the
acquire.
3. Recognition and measurement of the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest (NCI) in the acquiree.
4. Recognize or measure goodwill or gain from bargain purchase.

Computation of Goodwill/ (Gain on Bargain Purchase)

Fair Value of consideration transferred XX

Non-controlling interest XX

Fair value of previously held equity interest XX

Total XX

Less: Fair value of identifiable net asset (FVINA) (XX)

Goodwill –B/S/ (Gain on Bargain purchase) - P/L XX

1
JANINE LOU M. MUAN, MBA, CPA
AFAR Rev (Advanced Financial Accounting and Reporting Review)

A. CONSIDERATION TRANSFERRED mga pwedeng ibigay


 Cash
 NCA
 Equity
 Debt
 Contingent consideration
pero pag SME, kasali siya
Excludes: i capitalized mo
hindi isasali
Acquisition-related costs
expense outright
Finder’s Fee
Professional Fee
Diligence Fee (Legal, Advisory)
General Admin Costs
Cost of registering and issuing
- Stocks – APIC/SP; if insufficient RE (balance)- [Stocks/ Share Issuance Cost)
- Bonds – Discount/Premium- included as part of the carrying amount of the bonds
issued- [Bond Issue Cost]
B. Measurement of NCI

choose whichever is higher

 Full goodwill method- NCI is measured at fair value


 Partial goodwill method- NCI is measured at proportionate share of the acquired net assets
C. Previously Held Interest
- Business combination achieved in stages/ step acquisition
Year 1 15% interest (FVPL, FVOCI, AC)
Year 2 40% interest (CONTROL)
55%
D. Fair value of identifiable net asset (FVINA)
Assets – Liabilities @ FV
Excludes goodwill of the acquiree

2
JANINE LOU M. MUAN, MBA, CPA

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