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IFRS 3Case studies (Step 3 of 5)

Case study

Step 3 of 5
Practical caseIFRS 3L3 · Advanced

Step acquisition: remeasurement of the previous interest, reclassification of other comprehensive income, goodwill, pre-existing relationship and remuneration for future services

8 documents17 tasks≈ 120 min
0 / 19 items completed
Standards
IFRS 3 — Business Combinations
Assistance levelNo help · reduced assistance
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Halvane Group SA (fictitious entity) held 30 % of the associate Mirel Capteurs SA; it takes control of it in 20X6 by acquiring a further 40 %. You deal with the remeasurement of the previous interest, the items that are not part of the exchange, the goodwill, a second acquisition subject to reassessment and a later purchase from the minority shareholders.

Your assignment

Place the obtaining of control; classify the items that are or are not part of the exchange and compute the settlement loss; compute the remeasurement gain and the amounts reclassified; measure the non-controlling interest and compute the goodwill under both methods; deal with the reassessment of Lunel and the later purchase of 10 %; record the four 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.

Advanced level: no help, the work is grouped by kind.

Documents

File documents

8 documents: open each one to read it.

Document 1Memo

Group profile and case conventions

Halvane Group SA (fictitious entity) closes its consolidated accounts on 31 December 20X6. Case conventions: amounts in EUR; fair values and the cumulative amounts in other comprehensive income are case data; case convention (pedagogical assumption, not attributed to IFRS 3): the translation reserve of the associate is one of those that would be reclassified to profit or loss on a direct disposal of the interest; for Mirel, Halvane chooses to measure the non-controlling interest at fair value (the proportionate share is computed for comparison); the loss on settlement of a pre-existing contractual relationship is measured under IFRS 3 (para. B52) from the two amounts given by the case; case convention: this loss is charged to the receivable of the acquirer from the target; the entries are illustrative.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Cash transferred for the further 40 %€1,500,000.00
Carrying amount of the 30 % interest€900,000.00
Translation reserve accumulated in other comprehensive income€40,000.00
Fair value of the 30 % interest at the acquisition date€1,100,000.00
Fair value of the identifiable assets of Mirel€4,000,000.00
Liabilities assumed of Mirel€1,100,000.00
Identifiable net assets of Mirel€2,900,000.00
Percentage held by the minority shareholders30%
Fair value of the non-controlling interest€950,000.00
Unfavourable difference of the contract compared with the market€60,000.00
Amount of the termination clause€45,000.00
Retention bonus conditional on employment€100,000.00
Cash transferred for Lunel€1,000,000.00
Identifiable assets of Lunel: preliminary valuation€1,700,000.00
Identifiable assets of Lunel: revised valuation€1,560,000.00
Liabilities assumed of Lunel€560,000.00
Price paid for the 10 % acquired from the minority shareholders€250,000.00
Advertising budget 20X7€180,000.00

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 sort8

  • Group profile and case conventions

  • Obtaining control of Mirel Capteurs SA

  • Valuation of Mirel at the acquisition date

  • Pre-existing supply contract between Halvane and Mirel

  • Retention bonus of the founder of Mirel

  • Acquisition of Lunel Optique SAS

  • Later acquisition from the minority shareholders

  • Advertising budget of Mirel

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      17 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

        When and how does Halvane obtain control of Mirel, and what happens to the 30 % interest held before?

      2. Task 2Analysis

        Classify the price of the further 40 %, the pre-existing supply contract and the retention bonus: are they part of the exchange?

      3. Task 3Calculation

        Compute the loss on settlement of the pre-existing supply contract (IFRS 3, para. B52).

        Calculator

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

        Part 1 · Calculation

        Compute the loss on settlement of the pre-existing supply contract (IFRS 3, para. B52).

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Calculation

        Compute the remeasurement gain on the 30 % interest and then the total gain in profit or loss with the amounts reclassified.

        Calculator

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

        Part 1 · Calculation

        Compute the remeasurement gain on the 30 % interest and then the total gain in profit or loss with the amounts reclassified.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Total gain in profit or loss on the previous interest

      5. Task 5Analysis

        On what basis should the translation reserve be reclassified to profit or loss?

      6. Task 6Calculation

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

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      7. Task 7Analysis

        Which method did Halvane choose for the non-controlling interest and is that choice imposed?

      8. Task 8Calculation

        Compute the goodwill of Mirel (non-controlling interest at fair value retained, then at proportionate share) and the result of Lunel before and after reassessment.

        Calculator

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

        Part 1 · Calculation

        Compute the goodwill of Mirel (non-controlling interest at fair value retained, then at proportionate share) and the result of Lunel before and after reassessment.

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

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Excess of Lunel after reassessment

      9. Task 9Calculation

        Compute the part of the goodwill of Mirel attributable to the non-controlling interest.

        Calculator

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

        Part 1 · Calculation

        Compute the part of the goodwill of Mirel attributable to the non-controlling interest.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      10. Task 10Analysis

        Lunel: what had Halvane to do before recognising a gain, and what is the conclusion after reassessment?

      11. Task 11Analysis

        How should the acquisition of 10 % from the minority shareholders on 15 December 20X6 be treated?

      12. Task 12Journal entries

        Record the remeasurement of the 30 % interest to fair value.

        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 reclassification of the translation reserve to profit or loss.

        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 settlement of the pre-existing supply contract.

        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

      15. Task 15Journal entries

        Record the obtaining of control of Mirel with the 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

        3. Line 3

        4. Line 4

        5. Line 5

        6. Line 6

        TotalsDebit0Credit0

      16. Task 16Effects 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. €
        4. €

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      17. Task 17Conclusion

        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 / 19).

      Document this file

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

      Normative references

      • IFRS 3 §51
      • IFRS 3 §52
      • IFRS 3 §B52
      • IFRS 3 §42
      • IFRS 3 §B55
      • IFRS 3 §19
      • IFRS 3 §32
      • IFRS 3 §36
      • IFRS 3 §7