The fair value principle and identifiable net assets

Learning objectives

• Calculate the identifiable net assets from the fair values, given in the case, of the assets acquired and the liabilities assumed.L1, L2, L3
• Explain that items are measured at their acquisition-date fair values, with limited exceptions, and that their carrying amounts in the acquiree's books are not the basis.L1, L2, L3

Normative references

• 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).

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

3 questions

• To determine goodwill, the identifiable assets acquired and the liabilities assumed are measured at their fair value at the acquisition date, subject to exceptions.L1
• On 30 June, Cirque SA acquires 100% of Brume SA. At that date, Brume's identifiable assets have a fair value of {fv_assets} and its liabilities assumed a fair value of {fv_liabilities}; its book equity is {carrying_equity}. Case convention: the fair values are case data; no deferred tax or contingent liability is to be taken into account. Calculate the identifiable net assets measured under the acquisition method.L2
• Ibis SA acquires 100% of Sylve SA for consideration transferred of 5,500,000. A Sylve patent is recorded at 1,200,000 in its accounts; the acquirer's valuer estimates it at 1,800,000 at the acquisition date, using a technique based on future cash flows, for lack of an active market. The rest of Sylve's identifiable net assets, measured at fair value, is 3,000,000. Write a short note concluding on the amount of goodwill, distinguishing facts of the case, rule and professional judgement.L3