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Professional fileIFRS 3L4 · Expert

File of a group: identification, purchase price allocation, contingent consideration and step acquisition (IFRS 3)

9 documents27 tasks≈ 300 min
0 / 30 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  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn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

Alvane Group SA (fictitious entity) closes its consolidated accounts on 31 December 20X6. In 20X6, it took control of Corvel Mécanique SA in stages with a deferred price, then acquired Plastex SARL on bargain terms. The preparer builds the consolidation file of these two combinations, submitted to a reviewer, and receives in February 20X7 information on a liability existing at the acquisition date. Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.

Your assignment

Draw up the plan of the file; document the identification of the business, the acquirer and the date; allocate the price of Corvel and Plastex (fair values, deferred tax, non-controlling interest, goodwill, gain on a bargain purchase); measure the deferred price and its changes; deal with the measurement period and the retention bonus; record the six entries, present their consolidated effect, deal with the reviewer points and conclude. One document is not useful.

You prepare a complete file: documents, work, entries and conclusion, then compare your work with the solution and the review points of the file.

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

9 documents: open each one to read it.

Document 1Memo

Group profile and file conventions

Alvane Group SA (fictitious entity) closes its consolidated accounts on 31 December 20X6. File conventions: amounts in EUR, rounded to the cent; fair values, scenarios, probabilities, rates and percentages are file data; file convention (pedagogical assumption, not attributed to IFRS 3): for Corvel, the non-controlling interest is measured at the proportionate share of the identifiable net assets; the fair value of the deferred price is the weighted average of the possible payments, discounted at the rate given, a method that is not the only one possible; the entries are illustrative: the combination entry records the assets and liabilities assumed excluding deferred tax, and the supplementary entry records the deferred tax against goodwill.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Interest held before 1 July 20X625%
Interest acquired on 1 July 20X645%
Cash transferred for Corvel€1,800,000.00
Carrying amount of the 25 % interest€600,000.00
Fair value of the 25 % interest€750,000.00
Fair value of the identifiable assets of Corvel€3,600,000.00
Liabilities assumed of Corvel (excluding deferred tax)€900,000.00
Difference between fair value and tax base of the equipment€200,000.00
Tax rate25%
Percentage of the minority shareholders30%
Deferred price: payment of scenario 1 (none)€0.00
Deferred price: probability of scenario 125%
Deferred price: payment of scenario 2€300,000.00
Deferred price: probability of scenario 250%
Deferred price: payment of scenario 3€600,000.00
Deferred price: probability of scenario 325%
Number of periods until payment of the deferred price2 units
Cash transferred for Plastex€525,000.00
Fair value of the identifiable assets of Plastex€900,000.00
Liabilities assumed of Plastex€250,000.00
Deferred price: fair value at 31 December 20X6€280,000.00
Liability of the customer claim existing at the acquisition date€40,000.00
Retention bonus conditional on employment€120,000.00
Discount rate of the deferred price10%
Training budget 20X7€60,000.00

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 sort9

  • Group profile and file conventions

  • Acquisition agreement of Corvel Mécanique SA

  • Valuation of Corvel at the acquisition date

  • Deferred price payable in cash

  • Acquisition of Plastex SARL

  • Valuations at 31 December 20X6 and information of February 20X7

  • Retention bonus of the manager of Corvel

  • Treasury note: rate of the deferred price

  • Group training budget

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

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

      1. Task 1Analysis

        Draw up the plan of the file: identification, price allocation, deferred price, measurement period and step acquisition, with the judgments to document.

      2. Task 2Analysis

        Are Corvel and Plastex businesses within the scope of IFRS 3? Assess the inputs and processes.

      3. Task 3Professional judgement

        Corvel: identify the acquirer and the acquisition date; compute the share of the voting rights held after the transaction.

        Calculator

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

        Part 1 · Calculation

        Corvel: identify the acquirer and the acquisition date; compute the share of the voting rights held after the transaction.

        1. %

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Analysis

        Which items of Corvel and Plastex are measured at fair value and recognised separately from goodwill? Which exception applies to the equipment?

      5. Task 5Calculation

        Compute the deferred tax liability on the fair value difference of the equipment of Corvel.

        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 equipment of Corvel.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      6. Task 6Calculation

        Compute the identifiable net assets of Corvel (before and after deferred tax) and of Plastex.

        Calculator

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

        Part 1 · Calculation

        Compute the identifiable net assets of Corvel (before and after deferred tax) and of Plastex.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Identifiable net assets of Plastex

      7. Task 7Calculation

        Compute the weighted estimate of the deferred price of Corvel.

        Calculator

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

        Part 1 · Calculation

        Compute the weighted estimate of the deferred price of Corvel.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      8. Task 8Calculation

        Compute the initial fair value of the deferred price (present value) using the treasury information.

        Calculator

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

        Part 1 · Calculation

        Compute the initial fair value of the deferred price (present value) using the treasury information.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      9. Task 9Calculation

        Compute the consideration transferred for Corvel and for Plastex.

        Calculator

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

        Part 1 · Calculation

        Compute the consideration transferred for Corvel and for Plastex.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Consideration transferred for Plastex

      10. Task 10Professional judgement

        Which method should be retained for the non-controlling interest of Corvel, and on what basis do the fair values rest?

      11. Task 11Calculation

        Compute the non-controlling interest of Corvel at proportionate share.

        Calculator

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

        Part 1 · Calculation

        Compute the non-controlling interest of Corvel at proportionate share.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      12. Task 12Calculation

        Compute the remeasurement gain on the 25 % 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 25 % interest held before.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      13. Task 13Calculation

        Compute the goodwill of Corvel (before and after deferred tax) and the excess of Plastex before reassessment.

        Calculator

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

        Part 1 · Calculation

        Compute the goodwill of Corvel (before and after deferred tax) and the excess of Plastex before reassessment.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Excess of the net assets of Plastex over the consideration

      14. Task 14Professional judgement

        Plastex: what must Alvane do before recognising a gain on a bargain purchase and what is the conclusion?

      15. Task 15Professional judgement

        Is the retention bonus of the manager part of the exchange?

      16. Task 16Calculation

        Compute the change in fair value of the deferred price at 31 December 20X6.

        Calculator

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

        Part 1 · Calculation

        Compute the change in fair value of the deferred price at 31 December 20X6.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      17. Task 17Professional judgement

        Does the claim known on 5 February 20X7 give rise to an adjustment of the combination? What information is still missing?

      18. Task 18Calculation

        Compute the measurement period goodwill adjustment.

        Calculator

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

        Part 1 · Calculation

        Compute the measurement period goodwill adjustment.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      19. Task 19Journal entries

        Record the remeasurement of the 25 % 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

      20. Task 20Journal entries

        Record the combination with Corvel (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

        7. Line 7

        TotalsDebit0Credit0

      21. Task 21Journal entries

        Record the deferred tax 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

      22. Task 22Journal entries

        Record the combination with Plastex 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

      23. Task 23Journal entries

        Record the increase in fair value of the deferred price.

        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

      24. Task 24Journal entries

        Record the measurement period adjustment.

        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

      25. Task 25Effects on the financial statements

        What is the consolidated effect of the six 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

      26. Task 26Analysis

        Which points remain to be documented for the reviewer (assumption on the customer relationships, judgments)?

      27. Task 27Conclusion

        Write the final conclusion of the file.

      File review

      Points raised during the review of this file: read them as the preparer would.

      Review notes

      • BlockingResolvedReviewer note (blocking): support the discount rate of the deferred price by the treasury note
      • Non-blockingOpenReviewer note: specify the expected effect of the final value of the customer relationships on goodwill

      Information requests

      • ObtainedRequest to the treasury: discount rate of the deferred price
      • Assumption documentedDocumented assumption: provisional values of the customer relationships retained

      Completion checklist

      • Business, acquirer and date documentedDone
      • Price allocation and goodwill reconciled to the valuationsDone
      • Deferred price and measurement period supportedDone
      • Previous interest and separate transactions dealt withDone
      • Entries balanced and effect on the financial statements establishedDone
      • Assumption on the provisional values for the engagement reviewer to confirmTo review

      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 / 30).

      Document this file

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

      Normative references

      • IFRS 3 §2
      • IFRS 3 §B7
      • IFRS 3 §6
      • IFRS 3 §7
      • IFRS 3 §8
      • IFRS 3 §9
      • IFRS 3 §10
      • IFRS 3 §32
      • IFRS 3 §19
      • IFRS 3 §34
      • IFRS 3 §58
      • IFRS 3 §51
      • IFRS 3 §52