IFRS 3

Question 1

How to determine control?

Answer 1

Ifrs 10 - 3 criteria (PERVA)

-Power over investee’s to direct relevant actvt

-Exposure or rights to variable returns of investee

-Ability to use power over investee to affect investor’s returns

Question 2

How to determine Power?

Answer 2

VR, direct relevant actvt, KMP (PDC over IVS)

Question 3

Explain Power using VR

Answer 3

Rebuttable presumption - 50% or > unless proven otherwise

50% or more - ord share has voting rights

Rights - direct relevant actvt (o&f) that affects IVS returns

Major VR - has control
W/o major VR (de-facto) :- substantive rights
-single largest sh
-contractual agreement with other holders
-direct relevant actvt

Potential rights (convertible opts, forwards etc, intrusive or in the money) - worthwhile to acquire when…
ex. Px < market sh px

Protective rights - no control, right to protect holders w/o giving power over e’

Question 4

Explain power/rights using KMP

Answer 4

KMP = ability direct, plan and control IVS

Power to appt, re-assign and remove kmp of IVS

Appoint or remove other entity

Rights to direct investee to enter into, or veto changes to transaction

Question 5

How to consolidate in FS? Acct req

Answer 5

-Combine A, L Eq, Exp and CF of Parent and Subsi.
-Eliminate Parent invst in Subsi with portion of its eq of Subsi.
-Eliminate intra-gp transaction and bal.
-Must use uniform acct policies (adj)
-Consol begins from date IVR gains control and ceases when losses
-Reporting dates cannot vary more than 3 months
-Present NCI in CSOFP separately from eq of parent
-Changes in owenership interest in Subsi that DO NOT result in losing control over Subsi are eq transactions
Dr cash
Cr NCI
Cr adj to Eq (CRE)

Question 6

Control over specified A & L of investee.

Answer 6

SILO - IVR treats a portion of IVS as deemed separate entity and whether has control over it

Conditions:
-specified assets are only source of payment for specified L
-other parties do not have right to specified A or to residual CF from those A

All A, L & E are ring-fenced from overall IVS

Question 7

how to determine who is the acquirer?

Answer 7

when one has CONTROL over the other

IFRS 10 P/ ERV / A
IFRS 3 (other factors)

Question 8

Deferred consideration recognition and measurement

Answer 8

Payable after DOA w/out condition.
Meas @ FV

PV of CF from DOT, inc FC at each reporting period -> inc Liab and GW

Intial
Dr GW
Cr Liab

FC (Subsq)
Dr FC
Cr Liab

Question 9

IFRS 3 states that new info available during messurement period shd take into acct. What shd be done?

Answer 9

Adjs shd be made retrospectively, if new info available.

Measurement period - 12 months after DOA

Incr/ Dec GW

Question 10

If proportionate method was use for NCI calculation, what shd be done when PPE was overvalued at DOA?

Answer 10

PPE constitutes NA
Adj shd be made to PPE and NA -> affects GW

NCI will be affected.

Question 11

If propotionate method was use to calculate GW, what shd be done if GW was impaired?

Answer 11

GW attrb to NCI will have to grossed up (find total notional GW)

IAS 36, compare CA to RA

CA = total notional GW + identifiable adj NA

If, CA > NA = impairment loss (has incl NCI portion)

GW and impairment has yet to incl in CSOFP

Impairment shd grossed down to H portion

Question 12

Does being an agent (investor) have decision making rights over investee?

Answer 12

Agent only to direct but do not possess decision making rights as it is the responsibility of the principal (shareholders)

Question 13

how to determine whether it is a biz combi or an Asset acq?

Answer 13

step 1 : Substantial all of FV of gross Assets acq concentrated in a single identified asset (YES -> Asset acq) / no - move step 2

Step 2: The acq actvt and assets includes INPUT and SUBSTANTIVE PROCESS that tgt contribute the ability to create OUTPUT.

OUTPUT -> incl organise workforce /and ability to convert input to output / ability to continue to create output w/o sigf cost

Question 14

In determine control, but IFRS 10 does not clearly indicate, how to use IFRS 3?

Answer 14

1 - acquirer usually trsf cash or other assets or incur liab

2 - relative VR after acquisition (largest portion/ substantial)

3 - existence of a large minority voting interest

4 - appoint the members of governing body of combined entity (BOD)

5 - dominate the senior mgmt

6 - pays premium over acquisition

7 - relative bigger in size (assets, rev, prft)

Question 15

Deferred and Contingent consideration shd be recognised at …. ….. of the amount payable at DOA and shd be ……. using the ……. (short form). Subsequently …… at year ends

Answer 15

1- present value
2-discounted
3-ERI
4-remeasured

Question 16

If consideration is payable in form of equity shares, it should be measured at ….. ……. (level ….) at DOA and it will be only measured ……. Issue cost will be recorded in accordane with ifrs … and shall be deducted from …. ….

Answer 16

1- Market price (fair value)
2- 1
3- once
3
4- 9
5- share premium

Question 17

If the consideration paid is a non- finl A, under ifrs 13, fair value would be measured at level ….. which is market participants ……. (short form) and adjusted at level …..

Answer 17

1-2
2-HABU
3-3

Question 18

Contingent consideration will be mutiplied by the …. …. to get the ….. ……

Answer 18

1- probability factor
2- expected value

Question 19

For consolidation purposes, can acquirer assign FV to all identifiable A/L not recognise by Subsi?

Answer 19

Condition : only if it meets defn of A/L in the CF and is probable thet eb flow (in/out) and value can be measured reliàbly

Question 20

How to treat restructuring cost in biz combi? Shd it account in pre-prft or post-prft?

Answer 20

Adjust it in post profits only when criteria is met:
-detail formal plan
-implement asap
-legal or comstructive oblg
-highly probable outflow
-no realistic possibility of withdrawal

But only charged to pre-prft when restructuring plan takes place before acquisition, it will do so irrespective H acq S or not

Question 21

There 2 ways to measure NCI

Answer 21

FV basis and NA basis

Question 22

Formula of FV basis to caluclate NCi (level 1 -quoted; active market;identical

Answer 22

Mrk px of S X no of sh

Question 23

NA basis formula to calculate NCI

Answer 23

FV of NA of Subsi at DOA X NCI%

Question 24

If equity shares are not available, how to measure NCI shares?

Answer 24

Level 3 (unobservable inputs; adjusted;valuation tech - mkt or income app; pricing multiples)

Question 25

Provisonal values can be assigned during the …… …… which is …… 1 year from DOAfor a …….. adjustment to be made. Goodwill shd be …… If the values confirm exceeds 1 year, …….. adjustment shd be made while Goodwill shd …… be restated.

Answer 25

1- measurement period
2- within
3- retrospective adj
4- restated
5- prospective
6- not

Question 26

Non-recognition of A/L in Subsi books is correctly done, however due to consol purposes IFRS 3 will …….. those stds.

Answer 26

Override

Question 27

Explain how acquiring addl shares in the same co (IIA to IIS) will lead to IFRS 3.

Answer 27

SOF
1- disp of an Asso and acq of a Subsi
2- H must revalue PHI to FV
3- recog G/ L in P/L
4- GW calculated on DOC
5- consol NA and post acq earnings of Subsi be combined with H
6- recog GW, NA and NCI