Reassessment before any gain

Learning objectives

• Explain the checks to be performed before recognising a gain: identification of all the items, then review of the measurements.L2, L3
• Assess, from a case, whether an excess of net assets results from a measurement error (omitted items, understated fair values) before concluding that there is a gain.L2, L3

Normative references

• IFRS 3 §36Before recognising a gain, the acquirer reassesses whether it has correctly identified all of the assets acquired and liabilities assumed, and then reviews the measurement of the assets and liabilities, the non-controlling interest, the previously held equity interest and the consideration transferred, so that the measurements reflect all available information as of the acquisition date.

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

6 questions

• On 1 July, Alpe SA acquires 100% of Dune SA for {consideration}. Dune's identifiable net assets, measured under IFRS 3, are {net_assets}. Case assumption: after checking the identification of all assets and liabilities and reviewing their measurement, the excess remains; there is no non-controlling interest or previously held interest. Calculate the gain on a bargain purchase recognised in profit or loss.L2
• The net amount of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the non-controlling interest and the previously held interest. Which statements are correct? More than one answer is possible.L2
• Cassis SA acquires 100% of Menthe SA, paying {cash_paid} in cash. At the acquisition date, Menthe's identifiable assets have a fair value of {assets_fv} and its liabilities assumed {liabilities_fv}. Case assumption: the check of the identification of the items and the review of their measurement have been carried out, and the excess remains. The entry is made at business combination level. Record the acquisition entry.L3
• In a business combination file, identifiable net assets exceed the price paid, and the analyst at Frêne SA immediately recognises the excess as a gain, without further work. What is the error?L2
• Éole SA acquires 100% of Gave SA for 4,000,000. The initially measured identifiable net assets are 4,300,000, an excess of 300,000. The review of measurements, carried out before any gain, reveals an omitted liability assumed of 140,000 and an asset overstated by 60,000. What gain on a bargain purchase does Éole recognise?L3
• Fava SA acquires 100% of Loup SA for 7,800,000. The allocation team measures identifiable net assets at 9,100,000, an excess of 1,300,000 over the price. Management wants to recognise a gain of 1,300,000 immediately “since the price obtained is advantageous”. Write a short note concluding on this request, distinguishing facts of the case, rule and professional judgement.L3