IFRS 3

Question 1

What does IFRS 3 Cover?

Answer 1

It covers business combinations.
The acquirer gains control of a business. You have to calculate goodwill

Question 2

What is a business?

Answer 2

It is an integrated set of activities that incorporates inputs, processes, and outputs

Question 3

What is the concentration test?

Answer 3

It is an exemption to the application of IFRS 3 - if the majority of the business value is concentrated in one asset or small group of similar assets - no need to look upon it as a business combination.

Question 4

What is meant by control IFRS 10 and IFRS 3?

Answer 4

Control is the ability to direct the operating and financial decisions

Question 5

What are the three conditions to satisfy for control?

Answer 5

1. Power over the investee - ability to direct activities
2. Access to a variable return - entitled to return based on profitability
3. Ability to use your power to impact the variable return. My decisions impact the variable return.

Question 6

Generally, if you have more than 50% of the shares in the company what do you have?

Answer 6

You have control

Question 7

How do we calculate goodwill?

Answer 7

Compare the price paid for the business to the value of the business.

Question 8

What is goodwill?

Answer 8

Amounts paid over and above the net asset value for the good name of the business.

Reputational value.

We expect to generate inflows of economic benefit in the future.

It’s an intangible asset (not amortised) with an indefinite life.

Question 9

What can make up the price paid for the business?

Answer 9

1. Cash paid - cash value
2. Shares issued - mv of the shares at the date we get control
3. Assets transferred - mv
4. Deferred payment - pv of the future cash
5. Contingent payment - fv will be given. Use the fv at the date we get control.
6. Expenses - cannot be included must be expensed to P/L

Question 10

What is the FVNA Definition?

Answer 10

It’s the fair value of the net assets.

The net asset value at the date of control.

It’s the BVNA + any adjustments.

It’s the observable value of the business.

Question 11

What makes up your equity / capital?

Answer 11

Ordinary share capital plus any reserves

Question 12

What is the FVNA?

Answer 12

It’s the BVNA (book value of the net assets) plus adjustments

Question 13

What’s the book value of the net assets (BVNA)?

Answer 13

It’s the book value of the net assets (net assets as per the balance sheet)

BVNA = Share capital plus reserves = equity = net assets

Question 14

What is the full goodwill method?
Also known as measuring NCI at acquisition at fair value.

Answer 14

The NCI is measured at fv (fv is given)

Question 15

What is the partial goodwill method?

Answer 15

The NCI is measured at their % of the net asset (FVNA)

Question 16

What is the 12 month rule and provisional values under IFRS 3 Business Combinations?

Answer 16

We can use provisional values to calculate goodwill. We can make amendments to the values within 12 months of the date we acquired control.
Treat as changes in estimates (no prior period errors)
Any changes after 12 months, correction of error, prior year adjustment. IAS 8

Question 17

What are the steps for a bargain purchase - negative goodwill?

Answer 17

1. Check your calculations
2. If you are happy that the calculations are correct. Negative goodwill is recorded on the P/L as an immediate gain.

Question 18

How do we calculate the goodwill?

Answer 18

Compare the purchase consideration, including a value for the NCI to the fair value of the net assets, including any contingent liabilities