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Help: Business Combination - Accounting Treatment
04-13-2010, 09:00 PM,
Help: Business Combination - Accounting Treatment
We being a listed company have acquired 100% holding in a company having following balance sheet on acquisition date. The purchase consideration was Rs.15 million.

IFRS3 requires to account for the assets and liabilites at their fair values.

Assets PKR'000
Property plant and equipment 32,000 (FV = 50,000)
Intangibles 5,000 (FV = 6,000)
Current Assets 23,000 (FV = 25,000)

Total 60,000

Non-current liabilties 35,000
Deferred liabilities 4,500
Current liabilities 30,000
Shareholders' equity (9,500)

Total 60,000

The fair value of PPE and intangibles is based on revaluation reports by independent valuers.

Now we need to prepare consolidated FS of our company. Should be take effect of revaluations in separate accounts of our subsidiary then consolidate or simply take the revaluations effects in the consolidation process (as consolidation adjustments) and recognize the goodwill?

Please help.
04-14-2010, 05:24 PM,
no reply, kamran bhai, where r u ?
05-01-2010, 03:50 AM,
IFRS 3 prescribes at the time of acquisition net assets of subsidiary acquired should be valued at its fair values in order to arrive at a correct goodwill. So,This is an adjustment in the goodwill
05-04-2010, 03:32 PM,
You will must take the effect of Revaluation of fixed assets in consolidated financial statements. In my opinion the effect of revaluation can be taken in subsidiary's own financial statement also.

The following material published in an article in "Student Accountant",official magzine of ACCA, deals very well with your question.

"The most common form of fair value adjustment is that made to the assets of the acquired subsidiary. The amount of the required adjustment is normally given in the question. The simplest of these adjustments would be to a non-depreciating, non-current asset (normally land). The amount of the adjustment should be added to the carrying amount of the asset (as it appears in the subsidiary’s books), and the total included in the consolidated balance sheet (think of this as a debit entry). The amount of the adjustment should also be included in the calculation of goodwill (the equivalent of a credit entry, similar to creating a revaluation reserve). Note – sometimes in practice (but not in a Paper 2.5 examination question) a subsidiary will actually revalue its assets to fair values (in its entity financial statements) prior to consolidation, to assist the consolidation process. This is sometimes referred to as ‘push down’ accounting, whereby the fair values determined by the parent are ‘pushed down’ into the subsidiary’s books."

For more information see the link



Awais Aftab


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