Week 10: Business Combinations (NZ IFRS 3)

Question 1

What is a business combination?

Answer 1

A transaction or event in which an acquirer obtains control of one or more businesses.

Question 2

Jane Ltd acquires the assets and liabilities of Bryce Ltd on 1 April 2023. Jane Ltd pays $1,000,000 cash to the shareholders of Bryce Ltd on 1 April 2023. The fair value of the assets and liabilities of Bryce Ltd on 1 April 2023 are as follows:

Assets
Cash 81,526
Debtors 32,655
Inventory 74,894
PPE 750,487
Total assets 939,562

Liabilities
Creditors 17,747
Loan 230,500
Total Liabilities 248,247

Equity 691,315

Calculate the goodwill or gain from a bargain purchase on the acquisiton.

Answer 2

Fair value of consideration paid = $1,000,000

Fair value of assets acquired = $691,315

Goodwill = $1,000,000 - $691,315
= $308,685

Question 3

What are non-controlling interests?

Answer 3

The equity of a subsidiary not attributable, directly or indirectly, to a parent company.

Question 4

Where, on the financial statements, might you see attributions to non-controlling interests (NCI’s)?

Answer 4

• In the statement of financial performance/income statement (P&L): attribution of a portion of the profit and OCI to NCI’s;
• in the balance sheet: attribution of a portion of equity to NCI’s;
• In the statement of changes in equity: attribution of a portion of equity.

Question 5

What is control?

Answer 5

Control arises where an investor has rights to variable returns of an entity and the ability to affect those returns. Most commonly control arises from holding more than 50% of the voting rights. Where an acquisition results in control, the acquirer is called the parent.