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IFRS 3Workpapers (Step 4 of 5)

Workpaper assignment

Step 4 of 5
Mission · workpaperWorkpaper · IFRS 3L3 · Advanced

Documents

Group profile and case conventions

Memo

Group profile and case conventions

Brevalis Group SA (fictitious entity) closes its consolidated accounts on 31 December. It acquired all of Soren Analytics SAS on 1 October 20X6. Case conventions: amounts in EUR, rounded to the cent; scenarios, probabilities, discount rates and fair values are case data; case convention (pedagogical assumption, not attributed to IFRS 3): the initial fair value of a cash-settled contingent consideration element is estimated by the weighted average of the possible payments, discounted at the rate given, a method that is not the only one possible; the collection of the indemnity is not in doubt (the contractual limit applies under IFRS 3); the tax rate of the adjustment is 25 %; the entries are illustrative, the adjustments being recorded against goodwill.

Contingent consideration and measurement period: classification, initial fair value, remeasurement, retrospective adjustments, contingent liability, indemnification asset, reacquired right and replacement award: Information received within the period

Contingent consideration and measurement period: classification, initial fair value, remeasurement, contingent liability, indemnification asset and retrospective adjustments

6 documents9 sections to document
0 / 6 sections completed
Guided mode

Section 1 of 9

Objective

In progress
Section brief
What to document
The engagement, its scope and the working mode chosen.
Why
A workpaper answers one precise question: framing it avoids off-topic work.
How
Read the objective and the assignment, then choose the mode (guided, semi-guided, professional).
Expected result
You know which question the workpaper must settle, and for which reporting date.
Your role
Preparer of the IFRS 3 workpaper
Level
Advanced
Estimated time
≈ 90 min
Progress
0 / 5 steps done (review excluded)

Context

Brevalis Group SA (fictitious entity) acquired Soren Analytics SAS on 1 October 20X6 for cash and three contingent consideration elements. You follow the accounting for the combination after the acquisition date: contingent consideration elements, information received during and after the measurement period, litigation assumed and sellers' indemnity.

Assignment

Contingent consideration, measurement period, contingent liability and indemnification asset

Purpose of the workpaper

Classify the contingent consideration (liability or equity), estimate its initial fair value from the scenarios and the rate of the case, track its changes after the acquisition date, distinguish measurement period adjustments (against goodwill) from later changes (in profit or loss), and deal with the contingent liability, the indemnification asset, the reacquired right and the replacement award. Scenarios, probabilities, rates and caps are case data; the probability-weighted estimate is not the only fair value method.

Questions of the file covered by this workpaper

  • How should elements A, B and C be classified, and at what value do they enter the consideration?
  • Compute the probability-weighted estimate of the possible payments of element A.
  • Compute the initial fair value of element A (present value).
  • Compute the change in fair value of elements A and C at 31 December 20X6.
  • Where should the changes in elements A and C be recognised, and what about element B on its settlement?
  • Date the measurement period and deal with each of the three pieces of information received.
  • Compute the measurement period goodwill adjustment (liability identified, decrease in the asset, decrease in deferred tax) and the adjusted goodwill.
  • Measure the contingent liability at 31 December 20X6 after its initial recognition.
  • Compute the indemnification asset to recognise.
  • Record element A as a liability at the acquisition date.
  • Record element C as a liability and element B in equity at the acquisition date.
  • Record the increase in fair value of element A.
  • Record the decrease in fair value of element C.
  • Record the settlement in shares of element B.
  • Record the contingent liability assumed at the acquisition date.
  • Record the indemnification asset.
  • Record the measurement period adjustment.

Documents in the file

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