Purchase price allocation: consideration transferred, fair values, deferred tax, non-controlling interest (two methods), goodwill or gain on a bargain purchase and allocation of goodwill: Corvel — purchase price allocation

Context

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.

Assignment

Purchase price allocation of Corvel and Plastex

Purpose of the workpaper

List the consideration transferred, the fair values of the identifiable assets and liabilities assumed, the deferred tax on the fair value uplift, the non-controlling interest under both methods and the previously held interest; compute the goodwill or the excess to reassess, record the combination and allocate the goodwill to the cash-generating units. Fair values, rates, percentages and allocation keys are case data; the method chosen for the non-controlling interest is a choice of the acquirer, never imposed by the standard.

Questions of the file covered by this workpaper

• Which items of Corvel and Plastex are measured at fair value and recognised separately from goodwill? Which exception applies to the equipment?
• Compute the deferred tax liability on the fair value difference of the equipment of Corvel.
• Compute the identifiable net assets of Corvel (before and after deferred tax) and of Plastex.
• Compute the consideration transferred for Corvel and for Plastex.
• Which method should be retained for the non-controlling interest of Corvel, and on what basis do the fair values rest?
• Compute the non-controlling interest of Corvel at proportionate share.
• Compute the goodwill of Corvel (before and after deferred tax) and the excess of Plastex before reassessment.
• Plastex: what must Alvane do before recognising a gain on a bargain purchase and what is the conclusion?
• Record the combination with Corvel (main entry, excluding deferred tax).
• Record the deferred tax against goodwill.
• Record the combination with Plastex after reassessment.

• MemoGroup profile and file conventionsOpen
• ContractAcquisition agreement of Corvel Mécanique SAOpen
• ScheduleValuation of Corvel at the acquisition dateOpen
• ContractDeferred price payable in cashOpen
• ContractAcquisition of Plastex SARLOpen
• MemoValuations at 31 December 20X6 and information of February 20X7Open
• ContractRetention bonus of the manager of CorvelOpen
• MemoTreasury note: rate of the deferred priceOpen
• MemoGroup training budgetOpen