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AFAR > Business Combination > Flashcards

Business Combination Flashcards

1
Q

What is good will?

A

Difference between COI and FVNA

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2
Q

How is good will presented in the books?

A

It is presented in the Asset Section

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3
Q

How do you compute for goodwill/GBP?

A

COI
(FVNA)
=
GW/GBP

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4
Q

What is gain on bargain purchase?

A

A negative amount when deducting FVNA from COI

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5
Q

How is gain on bargain purchase presented in the books?

A

INCOME
(Income Statement)

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6
Q

Types of Business Combination schemes?

A

*Structure
*Method
*Accounting Method used

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7
Q

What are the types of business combination as to structure?

A

*Horizontal
*Vertical
*Conglomerate
*Circular
——
H: Same industry
V: Same Industry, different levels
Co: Unrelated Industries
Ci: Diversified but with no drastic change like CONGLOMERATE

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8
Q

What are the types of business combination as to legal pov?

A

*Statutory Merger
*Statutory Consolidation
*Stock Acquisition

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9
Q

What are the 3 layers ownership to gain influence?

A

P-stock C-stock
<20% @FV @FV
20-50% @FV Associate
>50% @FV Subsidiary
——–
Associate:
Significant power to influence and participate

Subsidiary:
Power to control
(PERA)
Power
Exposure
Rights to valuable returns
Ability to use your power

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10
Q

What is non-controlling interest?

A

These are interests that is not purchased by an acquirer.

(Remaining stocks in the hands of different investors)

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11
Q

What is preferred shares?

A

A type of share that is sold without the property of power to influence and control.

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12
Q

Who is acquirer?

A

Buyer

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13
Q

As to what extent is the meaurement period in the business combination?

A

1 year after the acquisition date

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14
Q

What is the table to always remember in business combination?

A

Total Parent NCI
COI xx
FVNA (xx)
————————————–
GW/GBP XX

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15
Q

What is COI?

A

It is the total cost given up by the acquirer to obtain control and influence in from the Acquiree

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16
Q

What are the matters to consider under the COI?

A

*Cash
*Liabilities Assumed
*Equity Instruments
*Non-monetary assets
*Contingent consideration
*Share-based payments
*NCI
*PHI

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17
Q

Finder’s fee, Professional fees, General Administrative costs, accounting and legal fees are example of?

A

Acquisition-related costs

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18
Q

How do you recognize costs to issue equity shares?

A

A deduction to share premium, if share premium is insufficient, then deduct it to retained earnings

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19
Q

How are acquisition-related costs recognized?

A

Expensed

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20
Q

Hierarchy valuation of NCI

A

*Explicit
*Assumed
*Proportionate FV (only to stock acquisition)

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21
Q

How is control premium accounted?

A

Share Premium:

FV is Higher than BV

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22
Q

Compute for Fair Value of Net Assets

A

Identifiable assets @FV
(Identifiable liabilities @FV)
———————————
FVNA

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23
Q

Explain Previously Held Interest (PHI)

A

Previously bought interest of the holder before purchasing another set of interests

24
Q

Share-for-share exchanges

A

It is a business combination through exchange of equity interests.

Consideration transferred is measured at FV either from “ee” or “er” whichever is more reliably determinable.

25
Q

How do you compute for number of shares issued under the share for share exchanges?

A

Determine the increase in the share capital

Divide the Par Value per share

26
Q

How to compute fair value per share?

A

Determine the increase in both Share Capital and Share premium, total it
Divide the number of shares issued

27
Q

Step acquisition or Business Combination in stages

A

When an investor aacquires additional shares from an investee
The acquisition resulted to the investor gaining control over the investee

28
Q

Where should the Goodwill/GBP be recorded under the asset acquisition?

A

Books of acquirer

29
Q

Where should the Goodwill/GBP be recorded under stock acquisition?

A

Consolidated books

30
Q

How are adjustment in provisional amounts accounted?

A

It is accounted retrospectively

31
Q

Are goodwill apart from the business combination be recognized as an asset?

A

No

32
Q

How to account subsequent expenditures in maintaining goodwill?

A

Expensed immediately

33
Q

Are Goodwill amotized?

A

NO, it is tested for impairment at least annually

34
Q

These are the smallest identifiable group of assets that are largely independent of the cash inflows from the other assets or group of assets

A

Cash Generating Units (CGU)

35
Q

Is goodwill identifiable?

A

No, it is not identifiable therefore, it cannot be measured by impairment alone, only in conjunction with groups of assets that generate independent cash inflows (CGU)

36
Q

CGU is impaired when___

A

The recoverable amount is LESS than the carrying amount (including the allocated goodwill)

37
Q

Who initiated the due diligence audit?

A

Acquirer

38
Q

Due diligence audits are commonly performed by ___

A

CPAs and external firms

39
Q

Methods of estimating goodwill (2)

A
  1. Indirect Valuation
  2. Direct Valuation
40
Q

(UNDER DIRECT VALUATION)
-Excess Earnings

Normalized earnings are computed as:

A

Total earnings from the past years (PLUS/MINUS) the appropriation if any = Normalized Earnings

41
Q

(UNDER DIRECT VALUATION)
-Excess Earnings

Average earnings are computed as:

A

Normalized earnings (DIVIDE) past years = Average earnings

42
Q

(UNDER DIRECT VALUATION)
-Excess Earnings

Normal earnings are compputed as:

A

FV of net assets (TIMES) Normal rate of return (DIVIDE) past years = Normal Earnings

43
Q

(UNDER DIRECT VALUATION)
-Excess Earnings

Excess earnings are computed as:

A

Difference between the Average and the normal earnings = Excess earnings

44
Q

(UNDER DIRECT VALUATION)
-Excess Earnings

Goodwill is computed as:

A

Excess earnings (TIMES) Duration of excess earnings in years = Goodwill

45
Q

Full Goodwill Method indicates a share of ____ in the goodwill

A

Non-controlling interest

46
Q

Partial/proportionate method in the goodwill has ____

A

NO non-controlling interest share in the goodwill.

47
Q

Gain on Bargain Purchase is recognized in?

A

Profit or Loss

48
Q

What is directly attributable costs?

A

These are professional fees paid (legal advisors, accountants, brokerage) to effect the combination.

49
Q

Directly attributable costs are ___ immediately.

A

Expensed

50
Q

Indirect acquisition costs are ___?

A

General and administrative costs (costs that cannot be directly attributed to the particular costs)

expensed

51
Q

Costs of issuing securities is recognized as a debit to ____?

A

APIC/Share premium Account

52
Q

Identifiable tangible assets are recognized if it passes these 2 steps:

A

Probability test (if future inflows of economic benefit is probable)

Reliability test (if its FV can be measured reliably)

53
Q

Identifiable intangible assets are recognized even if:

A

There is no probable future inflow of economic benefit

54
Q

Are intangible assets part of goodwill?

A

NO. Under PAS 38, intangible assets are separate from goodwill and has a separate line item under INTANGIBLE ASSETS in the financial statements

55
Q

Are liabilities recognized?

A

Yes, only if there is probable outflow of cashflow to settle the obligation. (Except: Contingent Liability, it is always recognized if it can be measured reliably)

AFAR (2 decks)

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