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Practical caseIFRS 3L2 · Intermediate

Purchase price allocation: fair values, deferred tax, non-controlling interest (fair value or proportionate share), goodwill, gain on a bargain purchase and acquisition costs

7 documents16 tasks≈ 75 min
0 / 18 items completed
Standards
IFRS 3 — Business Combinations
Assistance levelHelp on demand · assistance on request
  • Method: on request
  • Checklist: on request
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Orvane Industries SA (fictitious entity) acquired 80 % of Tessaly Composants SAS and then 100 % of Calnor Plastiques SARL during the year 20X6. You prepare the purchase price allocation of each combination, with the goodwill or the gain on a bargain purchase, the deferred tax and the treatment of the fees, and the illustrative entries.

Your assignment

Identify the items recognised separately from goodwill; compute the deferred tax, the identifiable net assets, the consideration transferred, the non-controlling interest and the goodwill of Tessaly (two methods); determine the excess of Calnor and the approach before any gain; deal with the fees; record the four entries requested, present their cumulative effect on the financial statements and conclude. One document is not useful.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Intermediate level: help remains available, on demand.

Method

  1. Read the brief and the assignment.
  2. Open each document and spot the relevant data.
  3. Carry out the work in the suggested order.
  4. Submit, then read the conclusion and the model answer.

File checklist

  • Open each piece (0 / 7 consulted) · to do
  • Sort the information in the pieces · to do
  • Carry out the work (0 / 18) · to do
  • Submit the file, then assess yourself · to do

Documents

File documents

7 documents: open each one to read it.

Document 1Memo

Group profile and case conventions

Orvane Industries SA (fictitious entity) closes its consolidated accounts on 31 December 20X6. Case conventions: amounts in EUR; fair values, tax base and the 25 % tax rate are case data; case convention (pedagogical assumption, not attributed to IFRS 3): for Tessaly, Orvane chooses to measure the non-controlling interest at the proportionate share of the identifiable net assets (the fair value method is computed for comparison); the entries are illustrative: the combination entry records the assets and liabilities assumed excluding deferred tax, and the supplementary entry records the deferred tax liability against goodwill, the final goodwill being the sum of the two amounts.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Cash transferred for Tessaly€1,700,000.00
Fair value of the Orvane shares issued€300,000.00
Percentage held by the minority shareholders20%
Fair value of the identifiable assets of Tessaly€3,200,000.00
Liabilities assumed of Tessaly (excluding deferred tax)€900,000.00
Difference between fair value and tax base of the building€400,000.00
Tax rate25%
Earlier goodwill carried by Tessaly€80,000.00
Fair value of the non-controlling interest€480,000.00
Acquisition-related costs of Tessaly€90,000.00
Cash transferred for Calnor€880,000.00
Fair value of the identifiable assets of Calnor€1,400,000.00
Liabilities assumed of Calnor€360,000.00
Group headcount1,250 units

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort7

  • Group profile and case conventions

  • Acquisition of 80 % of Tessaly Composants SAS

  • Valuation of the Tessaly items at the acquisition date

  • Valuation of the non-controlling interest

  • Fees related to the acquisition of Tessaly

  • Acquisition of 100 % of Calnor Plastiques SARL

  • Group communication brochure

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      16 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.

      1. Task 1Analysis

        Among the items of Tessaly, which are recognised separately from goodwill? What should be done with the goodwill already carried by Tessaly?

      2. Task 2Calculation

        Compute the deferred tax liability on the fair value difference of the building.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the deferred tax liability on the fair value difference of the building.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      3. Task 3Calculation

        Compute the identifiable net assets of Tessaly (before and after deferred tax) and of Calnor.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the identifiable net assets of Tessaly (before and after deferred tax) and of Calnor.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Identifiable net assets of Calnor

      4. Task 4Calculation

        Compute the consideration transferred for Tessaly and for Calnor.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the consideration transferred for Tessaly and for Calnor.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Consideration transferred for Calnor

      5. Task 5Analysis

        Which method for measuring the non-controlling interest did Orvane choose for Tessaly, and is that choice imposed by the standard?

      6. Task 6Calculation

        Compute the non-controlling interest of Tessaly at the proportionate share of the identifiable net assets.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the non-controlling interest of Tessaly at the proportionate share of the identifiable net assets.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      7. Task 7Calculation

        Compute the goodwill of Tessaly before and after deferred tax, the goodwill with the interest at fair value, and the excess of Calnor before reassessment.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the goodwill of Tessaly before and after deferred tax, the goodwill with the interest at fair value, and the excess of Calnor before reassessment.

        1. €
        2. €
        3. €
        4. €

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Excess of the net assets of Calnor over the consideration before reassessment

      8. Task 8Calculation

        Compute the part of the goodwill attributable to the non-controlling interest under the fair value method.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the part of the goodwill attributable to the non-controlling interest under the fair value method.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      9. Task 9Analysis

        Calnor: what must Orvane do before recognising a gain on a bargain purchase?

      10. Task 10Analysis

        How should the fees of EUR 90,000 related to the acquisition of Tessaly be treated?

      11. Task 11Journal entries

        Record the combination with Tessaly (main entry, excluding deferred tax).

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        4. Line 4

        5. Line 5

        6. Line 6

        TotalsDebit0Credit0

      12. Task 12Journal entries

        Record the deferred tax on the fair value difference against goodwill.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      13. Task 13Journal entries

        Record the fees related to the acquisition of Tessaly.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      14. Task 14Journal entries

        Record the combination with Calnor after reassessment.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        4. Line 4

        TotalsDebit0Credit0

      15. Task 15Effects on the financial statements

        What is the cumulative effect of the four entries on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      16. Task 16Conclusion

        Write the conclusion.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 18).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IFRS 3 §10
      • IFRS 3 §11
      • IFRS 3 §19
      • IFRS 3 §32
      • IFRS 3 §34
      • IFRS 3 §36
      • IFRS 3 §37
      • IFRS 3 §53