Measuring the consideration transferred

Learning objectives

• Calculate the consideration transferred: cash, fair value of the equity interests issued, liabilities incurred, fair value of the contingent consideration.L1, L2
• Distinguish what is included in the consideration transferred from what is not (acquisition-related costs, remuneration for future services).L1, L2

Normative references

• IFRS 3 §37The consideration transferred is measured at fair value: the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities it incurs to the former owners and the equity interests it issues; the portion of replacement share-based payment awards included in the consideration nonetheless follows para. 30. Possible forms: cash, other assets, a business or a subsidiary of the acquirer, contingent consideration, ordinary or preference shares, options, warrants, member interests of mutual entities.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

6 questions

• The consideration transferred is measured at fair value at the acquisition date; it adds the fair values of the assets transferred by the acquirer, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the acquirer.L1
• To acquire Verger SA, Colline SA pays {cash_paid} in cash, issues shares with a total nominal value of {shares_nominal} and a fair value at the acquisition date of {shares_fair_value}, and undertakes to pay {liability_to_owners} to the former owners in one year (fair value of that undertaking at the acquisition date). It also pays {acquisition_costs} of advisory fees. Calculate the consideration transferred.L2
• Pivoine SA acquires 100% of Roseau SA by paying {cash_paid} in cash and issuing shares whose fair value at the acquisition date is {shares_fair_value}. Roseau's identifiable assets have a fair value of {assets_fv} and its liabilities assumed {liabilities_fv}. Case convention: the entry is made at business combination level, the shares issued being credited to share capital and premium. Record the acquisition entry.L2
• On acquiring Prairie SA, Source SA undertakes to pay additional consideration depending on the next year's profit: {amount_1} with a probability of {probability_1}, {amount_2} with a probability of {probability_2} and {amount_3} with a probability of {probability_3}. Case convention: scenarios and probabilities are case data; probability weighting is not the only method of estimating fair value, and the calculation requested is before discounting. Calculate the expected value of the contingent consideration.L2
• On acquiring Étang SA, Rivage SA pays {cash_paid} in cash and undertakes to pay {contingent_payment} in {years} if an activity target is met. Case convention: the fair value of this contingent consideration is estimated by discounting the payment, assumed certain in the case, at the rate of {discount_rate} (case data, with no probability weighting). Calculate the consideration transferred at the acquisition date.L3
• To acquire Rocaille SA, Hêtraie SA pays 5,000,000 to the former owners, plus 60,000 to an investment bank for transaction advice and 40,000 of legal fees. How does it treat these 100,000 of costs?L2