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IFRS 3Case studies (Step 3 of 5)

Case study

Step 3 of 5
Practical caseIFRS 3L1 · Fundamental

Acquisition of an activity: business or group of assets? Scope exclusions, inputs and processes, concentration test, acquirer and acquisition date

5 documents9 tasks≈ 45 min
0 / 11 items completed
Standards
IFRS 3 — Business Combinations
Assistance levelFull guidance · strong assistance
  • Method: shown
  • Checklist: shown
  • Hints: shown
  • Step-by-step work: shown

Case brief

Situation

Valmora Group SA (fictitious entity) carried out three transactions in 20X6: the purchase of a let office building, the acquisition of the shares of an operating bakery and the purchase of the shares of a sister company. You prepare the scoping note of the consolidation department: which transactions fall under IFRS 3, who is the acquirer and on what date?

Your assignment

Identify which of the three transactions are excluded from the scope; for transaction A, compute the fair value of the gross assets and apply the concentration test; for transaction B, assess the inputs and processes, identify the acquirer and the acquisition date; for transaction C, assess common control; record the illustrative entry of transaction A, present its 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.

Fundamental level: the method, help and references are shown.

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 / 5 consulted) · to do
  • Sort the information in the pieces · to do
  • Carry out the work (0 / 11) · to do
  • Submit the file, then assess yourself · to do

Documents

File documents

5 documents: open each one to read it.

Document 1Memo

Group profile and case conventions

Valmora Group SA (fictitious entity) closes its consolidated accounts on 31 December 20X6. Case conventions: amounts in EUR; fair values are those of independent valuations (case data); case convention (pedagogical assumption, not attributed to IFRS 3): for transaction A, Valmora elects to apply the optional concentration test; for transaction B, it does not apply it and analyses the inputs and processes directly; the entry requested is illustrative and the price paid is its cost, the accounting for the assets falling under the standards that apply to them.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Price paid for the building€5,000,000.00
Fair value of the land and building€4,800,000.00
Fair value of the leases in force€150,000.00
Fair value of the other assets€50,000.00
Price paid for the bakery€760,000.00
Skilled employees taken over12 units
Price paid for the shares of Valmora Logistique SAS€1,200,000.00
IT investment budget 20X7€300,000.00

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 sort5

  • Group profile and case conventions

  • Transaction A: purchase of a let office building

  • Transaction B: acquisition of the shares of an operating bakery

  • Transaction C: purchase of the shares of a sister company

  • IT investment plan

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      9 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

        Do the three transactions A, B and C fall within the scope of IFRS 3? Rule out those that are excluded and justify.

        Set out the facts, the question raised, then your analysis.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      2. Task 2Analysis

        Transaction A: compute the fair value of the gross assets acquired, apply the optional concentration test and conclude: business or acquisition of assets?

        Set out the facts, the question raised, then your analysis.

        Calculator

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

        Part 1 · Calculation

        Transaction A: compute the fair value of the gross assets acquired, apply the optional concentration test and conclude: business or acquisition of assets?

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      3. Task 3Analysis

        Transaction B: is the set acquired a business? Identify the inputs and processes and assess the accounting and payroll contract.

        Set out the facts, the question raised, then your analysis.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      4. Task 4Analysis

        Transaction C: does common control place the transaction outside the scope?

        Set out the facts, the question raised, then your analysis.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      5. Task 5Analysis

        Transaction B: identify the acquirer and justify.

        Set out the facts, the question raised, then your analysis.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      6. Task 6Analysis

        Transaction B: determine the acquisition date taking the agreements and the facts into account.

        Set out the facts, the question raised, then your analysis.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      7. Task 7Journal entries

        Record the purchase of the building of transaction A (illustrative entry).

        Identify the accounts affected and the direction of each movement; check the balance.

        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

      8. Task 8Effects on the financial statements

        What is the effect of the entry on the financial statements?

        For each financial statement, state the line affected, the direction and the amount.

        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

      9. Task 9Conclusion

        Write the conclusion.

        Write a conclusion that cites the facts and the treatment chosen.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      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 / 11).

      Document this file

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

      Normative references

      • IFRS 3 §2
      • IFRS 3 §B1
      • IFRS 3 §B7
      • IFRS 3 §6
      • IFRS 3 §7
      • IFRS 3 §8
      • IFRS 3 §9