Lecture 4
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16 terms
Terms | Definitions |
|---|---|
 Nature of a business combination | a transaction or other event in which an acquirer obtains control of one or more businesses |
| Acquisition steps for a business combination | 1. identify an acquirer 2. determine the acquisition date 3. recognise and measure the identifiable assets acquired, liabilities assumed, and any non-controlling interest in the acquiree 4. Recognise and measure goodwill or gain from a bargain purchase |
| Acquisition date = | date the acquirer obtains CONTROL over acquiree |
| when acquirer purchases assets and assumes liabilities of another entity, need to consider: | a) the recognition and measurement of the identifiable assets aquired and liabilities assumed b) the measurement of the consideration transferred to the acquiree c) the recognition and measurement of goodwill or a gain from bargain purchase |
| FVINA = | Fair value of identifiable net assets (incl. contingent liabilities |
| an asset or liability should be recognised if: | - it is probable that future economic benefits will flow to or from the entity; and - the item has a cost or value that can be measured reliably |
| assets and liabilities acquired are measured at... | FAIR VALUE |
| Three levels of fair value heirarchy | 1. by reference to observable prices of market transactions for IDENTICAL assets or liabilities 2. by adjusting observable prices of market transactions for SIMILAR assets or liabilities 3. By using other valuation techniques |
| Consideration transferred - Cash | - where settlement is deferred the cash must be discounted to present value - discount rate is the entity's incremental borrowing rate |
| Consideration transferred - costs of issuing equity and debt instruments | - costs of issuing equity instruments are NOT part of the consideration transferred - these costs reduce the proceeds from equity issue |
| Journal entry from costs of issuing equity | Share capital Dr. xxx Cash Cr. xxx |
| Aquisition related costs | expensed as incurred, not part of consideration |
| Goodwill is an... | unidentifiable asset which is incapable of being individually identified and seperately recognised |
| Gains from bargain purchase are expected to be ____ due to _____. | - rare - informed markets |
| Journal entry if shares acquired rather than assets | Shares in acquiree Dr. Share capital Cr. Cash Cr. |
| Existence of previously owned shares - acquirer required to... | remeasure previously held shares to fair value - any gain or loss goes to profit or loss |
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