Skip to main content
IFRS Academy

CERTYNEX IFRS ACADEMY

My account — Professional

Search the Academy

Home
My learning path
Exercises & quizzes
Cases
Workpapers
Exams
My progress

Cases

Practical case

Practical caseIFRS 3L4 · Expert

File of an acquiring group: complex allocation (leases, reacquired rights, replacement awards, employee benefits, liabilities within IAS 37), reverse acquisition in outline, allocation of goodwill and disclosures

10 documents23 tasks≈ 180 min
0 / 26 items completed
Standards
IFRS 3 — Business Combinations
Assistance levelFree workspace · autonomous situation
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn

Case brief

Situation

Sorvane Group SA (fictitious entity) takes control of Tarvel Technologies SA in 20X6 by increasing its interest from 20 % to 70 %. The consolidation file must deal with the measurement exceptions (lease, reacquired right, replacement award, retirement plan, litigation, insurance contracts), the previous interest, the items outside the exchange, the goodwill, its allocation to cash-generating units, a reverse acquisition and the disclosures.

Your assignment

Confirm the identification of Tarvel and analyse the reverse acquisition of Pelgrane; identify the rule applicable to each particular item; compute the lease liability, the right-of-use asset, the amortisation of the reacquired right, the replacement award and the remeasurement gain; deal with the retention bonus and the pre-existing receivable; compute the identifiable net assets, the non-controlling interest, the goodwill, its gross-up and its allocation; prepare the disclosures; record the five entries requested, present their effect 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.

Autonomous professional situation

As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.

  • Organise the work
  • Document each point
  • Argue the conclusion

Documents

File documents

10 documents: open each one to read it.

Document 1Memo

Group profile and case conventions

Sorvane Group SA (fictitious entity) closes its consolidated accounts on 31 December 20X6. Case conventions: amounts in EUR; fair values, discount rates, percentages and allocation keys are case data; case convention (pedagogical assumption, not attributed to IFRS 3): Tarvel is a business, Sorvane is its acquirer and the acquisition date is 1 October 20X6, as established by the identification analysis; for Tarvel, the non-controlling interest, made up of ordinary shares only, is measured at the proportionate share of the identifiable net assets; deferred tax effects are set aside; the expense of the replacement award is spread on a straight-line basis; the entries are illustrative: the combination entry records the assets and liabilities assumed excluding leases, and the lease entry records the lease liability and the right-of-use asset, the difference against market terms being charged to goodwill.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Cash transferred for the 50 %€3,000,000.00
Carrying amount of the 20 % interest€400,000.00
Fair value of the 20 % interest€500,000.00
Percentage of the minority shareholders30%
Sorvane's ownership percentage70%
Identifiable assets acquired (excluding right-of-use assets)€6,270,000.00
Liabilities assumed (excluding lease liability)€1,500,000.00
Litigation provision€200,000.00
Net retirement liability (IAS 19)€85,000.00
Group of insurance contracts (IFRS 17)€130,000.00
Regulatory levy due on 1 January 20X7€40,000.00
Remaining rent payable in a single instalment€314,928.00
Discount rate retained by the case8%
Number of periods until payment3 units
Adjustment for unfavourable terms€20,000.00
Annual charge of the reacquired right€90,000.00
Months elapsed since the acquisition date3 months
Market-based measure of the replacement award€250,000.00
Share of the service rendered before the combination70%
Remaining vesting period24 months
Retention bonus conditional on employment€200,000.00
Pre-existing trade receivable of Sorvane on Tarvel€80,000.00
Expected synergies of the Sensors unit€600,000.00
Expected synergies of the Services unit€400,000.00
Pelgrane shares outstanding before the issue3,000 units
New Pelgrane shares issued9,000 units
Dorvane shares outstanding3,000 units
Fair value of a Dorvane share€800.00
Revenue of Tarvel before the acquisition (year)€2,100,000.00
Profit of Tarvel before the acquisition (year)€180,000.00
Estimated emissions (tonnes)41,000 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 sort10

  • Group profile and case conventions

  • Obtaining control of Tarvel Technologies SA

  • Valuation of the Tarvel items at the acquisition date

  • Lease in which Tarvel is the lessee

  • Reacquired brand licence and replacement award

  • Payments to the selling managers and pre-existing receivable

  • Allocation of goodwill to cash-generating units

  • Pelgrane and Dorvane transaction

  • Year information on Tarvel

  • Sustainability report

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

      Organise your work freely: deal with each point, then argue your conclusion.

      1. Task 1Analysis

        Tarvel: confirm the business, the acquirer and the acquisition date retained by the case and place the 20 % interest already held.

      2. Task 2Analysis

        Pelgrane and Dorvane transaction: who is the accounting acquirer? Compute the share of the voting rights of the owners of Dorvane, the number of shares Dorvane would have had to issue and the consideration.

        Calculator

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

        Part 1 · Calculation

        Pelgrane and Dorvane transaction: who is the accounting acquirer? Compute the share of the voting rights of the owners of Dorvane, the number of shares Dorvane would have had to issue and the consideration.

        1. %
        2. units
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Consideration of the reverse acquisition

      3. Task 3Analysis

        For each item of D3 to D5 (provision, levy, retirement plan, insurance contracts, reacquired right, replacement award, lease), which recognition or measurement rule applies?

      4. Task 4Calculation

        Compute the lease liability at the acquisition date.

        Calculator

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

        Part 1 · Calculation

        Compute the lease liability at the acquisition date.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      5. Task 5Calculation

        Compute the right-of-use asset at the acquisition date.

        Calculator

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

        Part 1 · Calculation

        Compute the right-of-use asset at the acquisition date.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      6. Task 6Calculation

        Compute the amortisation of the period of the reacquired right.

        Calculator

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

        Part 1 · Calculation

        Compute the amortisation of the period of the reacquired right.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      7. Task 7Calculation

        Compute the portion of the replacement award included in the consideration, the remainder and the expense of the period.

        Calculator

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

        Part 1 · Calculation

        Compute the portion of the replacement award included in the consideration, the remainder and the expense of the period.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Expense of the period of the replacement award

      8. Task 8Calculation

        Compute the remeasurement gain on the 20 % interest held before.

        Calculator

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

        Part 1 · Calculation

        Compute the remeasurement gain on the 20 % interest held before.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      9. Task 9Analysis

        Are the retention bonus of EUR 200,000 and the pre-existing receivable of EUR 80,000 part of the exchange?

      10. Task 10Calculation

        Compute the identifiable net assets of Tarvel (with the lease), then those of the combination entry (excluding leases).

        Calculator

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

        Part 1 · Calculation

        Compute the identifiable net assets of Tarvel (with the lease), then those of the combination entry (excluding leases).

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Identifiable net assets of Tarvel (with the lease)

      11. Task 11Analysis

        What are the components of the non-controlling interest of Tarvel and which method does the case retain?

      12. Task 12Calculation

        Compute the consideration transferred, the non-controlling interest and the final goodwill, then that of the combination entry.

        Calculator

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

        Part 1 · Calculation

        Compute the consideration transferred, the non-controlling interest and the final goodwill, then that of the combination entry.

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

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Final goodwill of Tarvel

      13. Task 13Calculation

        Compute the goodwill grossed up to 100 % for the impairment test and the share belonging to the minority shareholders.

        Calculator

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

        Part 1 · Calculation

        Compute the goodwill grossed up to 100 % for the impairment test and the share belonging to the minority shareholders.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Share of the grossed-up goodwill belonging to the minority shareholders

      14. Task 14Calculation

        Allocate the goodwill to the two cash-generating units according to the expected synergies.

        Calculator

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

        Part 1 · Calculation

        Allocate the goodwill to the two cash-generating units according to the expected synergies.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Goodwill allocated to the Services unit

      15. Task 15Analysis

        Are the valuations of the reacquired right, the lease and the award final at 31 December 20X6? What treatment for what follows?

      16. Task 16Analysis

        What information on the Tarvel combination must be prepared for the note, including the amounts given in D9?

      17. Task 17Journal entries

        Record the remeasurement of the 20 % interest.

        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

      18. Task 18Journal entries

        Record the combination with Tarvel (main entry, excluding leases).

        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

        7. Line 7

        TotalsDebit0Credit0

      19. Task 19Journal entries

        Record the right-of-use asset and the lease liability.

        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

        TotalsDebit0Credit0

      20. Task 20Journal entries

        Record the amortisation of the reacquired right for the period.

        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

      21. Task 21Journal entries

        Record the remuneration expense of the replacement award for the period.

        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

      22. Task 22Effects on the financial statements

        What is the cumulative effect of the five 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

      23. Task 23Conclusion

        Write the conclusion.

      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 / 26).

      Document this file

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

      Normative references

      • IFRS 3 §10
      • IFRS 3 §32
      • IFRS 3 §21A
      • IFRS 3 §29
      • IFRS 3 §30
      • IFRS 3 §B56
      • IFRS 3 §19
      • IFRS 3 §B19
      • IFRS 3 §B20
      • IFRS 3 §52
      • IFRS 3 §B55
      • IFRS 3 §B64