Purchase price allocation

Learning objectives

• Prepare a purchase price allocation table: fair values, deferred tax, non-controlling interest and goodwill.L2, L3, L4
• Assess the consistency of an allocation (omitted items, measurement exceptions, effect of deferred tax) before concluding on goodwill.L2, L3, L4

Normative references

• IFRS 3 §10Recognition principle: at the acquisition date, the acquirer recognises, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree, subject to the conditions in paras. 11 and 12.
• IFRS 3 §18Measurement principle: the acquirer measures the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values; the limited exceptions are specified in paras. 24 to 31A (para. 20). The net assets so measured are term (b) of the goodwill calculation (para. 32).
• IFRS 3 §32Goodwill = consideration transferred + non-controlling interest + acquisition-date fair value of the previously held equity interest (business combination achieved in stages) − net amount of the identifiable assets acquired and liabilities assumed, measured in accordance with IFRS 3 at the acquisition date.

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

3 questions

• Orne SA acquires 100% of Sèvre SA for 5,000,000. Sèvre has assets with a carrying amount of 4,000,000, measured at a fair value of 4,900,000, and liabilities assumed of 1,500,000 (carrying amount and fair value identical). Case convention: No deferred tax or particular item is to be considered. What is goodwill?L2
• Zénith SA acquires 80% of Kora SA for consideration transferred of {consideration}. At the acquisition date, Kora's identifiable assets have a fair value of {assets_fv} and its liabilities assumed {liabilities_fv}; a deferred tax liability of {deferred_tax} and a recognised contingent liability of {contingent_liability} are to be added. Case convention: Zénith measures the 20% non-controlling interest at its fair value of {nci_fv}. Calculate goodwill.L3
• Zircon SA acquires 75% of Onyx SA for consideration transferred of 9,000,000, the non-controlling interest being measured at its fair value of 2,900,000. Onyx's net book value is 5,200,000. The fair value remeasurements concern an unrecorded trademark (1,500,000), unrecorded contractual customer relationships (900,000) and land (+400,000); deferred tax is 25% of these remeasurements; a contingent liability of 150,000, with no deferred tax, is recognised. Case convention: the fair values and the tax rate are case data. Write a note concluding on goodwill, distinguishing facts of the case, rule and professional judgement.L4