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WorkpaperIFRS 3 — Business CombinationsL2 · L3 · L4

Step acquisition: remeasurement of the previously held interest, other comprehensive income reclassified, goodwill, pre-existing relationship, remuneration and separate transactions

6 missions10 sections to document75 min
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Status
Published

Objective of the workpaper

List the previously held interest (carrying amount, fair value, cumulative amounts in other comprehensive income), compute the remeasurement gain and the goodwill, then review the items that are not part of the exchange: settlement of a pre-existing relationship, payments linked to employment. Fair values and the measure of the settlement are case data or case conventions, never rules presented as imposed.

10 sections · 34 blocks · 5 calculations · 3 entries

  • IFRS 3 §51
  • IFRS 3 §52
  • IFRS 3 §B52
  • IFRS 3 §B55
  • IFRS 3 §B20
  • IFRS 3 §7
  • IFRS 3 §59
  • IFRS 3 §60
  • IFRS 3 §B64

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

6 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity
Step acquisition: remeasurement of the previous interest, reclassification of other comprehensive income, goodwill, pre-existing relationship and remuneration for future services
Case tasks documented here
  • When and how does Halvane obtain control of Mirel, and what happens to the 30 % interest held before?
  • Classify the price of the further 40 %, the pre-existing supply contract and the retention bonus: are they part of the exchange?
  • Compute the loss on settlement of the pre-existing supply contract (IFRS 3, para. B52).
  • Compute the remeasurement gain on the 30 % interest and then the total gain in profit or loss with the amounts reclassified.
  • On what basis should the translation reserve be reclassified to profit or loss?
  • Compute the goodwill of Mirel (non-controlling interest at fair value retained, then at proportionate share) and the result of Lunel before and after reassessment.
  • How should the acquisition of 10 % from the minority shareholders on 15 December 20X6 be treated?
  • Record the remeasurement of the 30 % interest to fair value.
  • Record the reclassification of the translation reserve to profit or loss.
  • Record the settlement of the pre-existing supply contract.
1

Facts and data

Inputs

  • Description of the steps: interest held before, additional acquisition, date control is obtained

    Text

    THIRTY_PERCENT_ASSOCIATE_THEN_FORTY_PERCENT_PURCHASE_WITH_CONTROL

  • Fair value of the previously held interest at the acquisition date

    Number

    1,100,000

  • Carrying amount of the previously held interest

    Number

    900,000

  • Cumulative amounts in other comprehensive income to reclassify to profit or loss

    Number

    40,000

  • Transactions with the acquiree or its former owners: contracts, receivables, payments

    Text

  • Difference between the pre-existing contract terms and the market (case datum)

    Number

  • Amount of the settlement clause of the pre-existing contract (case datum)

    Number

  • Payments to former owners who became employees: employment conditions, forfeiture on termination

    Text

  • Amount of the payment linked to employment

    Number

  • Consideration transferred for the additional interest

    Number

    1,500,000

  • Non-controlling interest retained

    Number

    950,000

  • Identifiable net assets measured at the acquisition date

    Number

    2,900,000

  • Number of equity interests the accounting acquirer would have had to issue (reverse acquisition)

    Number

  • Consideration of a reverse acquisition (fair value of those interests)

    Number

2

Supporting documents

Evidence

  • Documents obtained and referenced (acquisition agreement, valuation of the previous interest, contracts with the target)

    EvidenceRequired

3

Analysis of the step acquisition

Analysis

IFRS 3 §51IFRS 3 §52IFRS 3 §B55IFRS 3 §B20IFRS 3 §7IFRS 3 §59IFRS 3 §60IFRS 3 §B64IFRS 3

  • Points reviewed: step acquisition and separate transactions

    ChecklistRequired

    • Previously held interest remeasured to fair value at the acquisition date; gain or loss in profit or loss
    • Amounts previously in other comprehensive income reclassified as if the interest had been disposed of directly
    • Goodwill computed with the fair value of the previously held interest
    • Amounts that are not part of the exchange identified and accounted for under the applicable IFRS
    • Settlement of a pre-existing relationship treated separately from the combination, with a gain or loss
    • Contingent payments linked to employment: automatic forfeiture on termination = post-combination remuneration
    • Later changes in the ownership percentage without loss of control: transactions between shareholders, outside profit or loss
    • Reverse acquisition: consideration measured from the number of equity interests the accounting acquirer would have had to issue
4

Calculations

Calculations

IFRS 3 §52

  • Remeasurement gain before reclassification (fair value − carrying amount)

    Calculation

    200,000

    Fair value of the previously held interest at the acquisition date ; − Carrying amount of the previously held interest

  • Total gain in profit or loss (remeasurement + amounts reclassified from other comprehensive income)

    CalculationRequired

    240,000

    Fair value of the previously held interest at the acquisition date ; − Carrying amount of the previously held interest ; Cumulative amounts in other comprehensive income to reclassify to profit or loss

  • Settlement of the pre-existing relationship: lower of the two case amounts (IFRS 3, para. B52)

    Calculation

    Difference between the pre-existing contract terms and the market (case datum) ; Amount of the settlement clause of the pre-existing contract (case datum)

  • Goodwill of the step acquisition (positive part)

    Calculation

    650,000

    Consideration transferred for the additional interest ; Non-controlling interest retained ; Fair value of the previously held interest at the acquisition date ; − Identifiable net assets measured at the acquisition date

  • Excess to reassess before any gain (negative part)

    Calculation

    0

    Consideration transferred for the additional interest ; Non-controlling interest retained ; Fair value of the previously held interest at the acquisition date ; − Identifiable net assets measured at the acquisition date

5

Illustrative entries

Entries

  • Entry: remeasurement of the previously held interest

    Entry

    AccountDebitCredit
    Previously held interest200,000
    Remeasurement gain200,000

  • Entry: reclassification of other comprehensive income to profit or loss

    Entry

    AccountDebitCredit
    Other comprehensive income reserve (released)40,000
    Gain reclassified to profit or loss40,000

  • Entry: settlement of the pre-existing relationship

    Entry

    Debit Settlement loss ← Settlement of the pre-existing relationship: lower of the two case amounts (IFRS 3, para. B52) ; Credit Receivable from the acquiree ← Settlement of the pre-existing relationship: lower of the two case amounts (IFRS 3, para. B52)

6

Judgments: exchange, remuneration and fair value of the previous interest

Judgment

IFRS 3 §51IFRS 3 §52IFRS 3 §B55IFRS 3 §B20IFRS 3 §7IFRS 3 §59IFRS 3 §60IFRS 3 §B64IFRS 3

  • Are the items part of the exchange?

    JudgmentRequired

    Part of the exchange: included in the consideration

    Part of the exchange: included in the consideration / Separate transaction: accounted for under the applicable IFRS / Not applicable

  • Rationale: for whose benefit the transaction is entered into

    Text

    CASH_FOR_SHARES_IS_THE_EXCHANGE

  • Payments linked to employment

    JudgmentRequired

    Remuneration for post-combination services / Additional consideration / Not applicable

  • Rationale: effect of termination of employment on the payment

    Text

  • Fair value of the previously held interest

    JudgmentRequired

    Independent valuation of the case

    Independent valuation of the case / Management estimate of the case / Not applicable: no previous interest

  • Rationale: source and assumptions of the fair value (case datum)

    Text

    INDEPENDENT_VALUATION_PROVIDED_BY_THE_CASE

7

Effect on the financial statements

FS impact

  • Effect derived from the entries

    Table

8

Items to document for the step acquisition note

Disclosure

IFRS 3 §59IFRS 3 §60IFRS 3 §B64IFRS 3

  • Information to prepare for the note

    Checklist

    • Information enabling users to evaluate the nature and financial effect of the combination
    • Specific information on each combination, including the primary reasons and pro forma information
    • Exposure draft of 2024: proposal, not a standard; no new requirement is applied
9

Conclusion

Conclusion

  • Remeasurement gain, goodwill, separate transactions and entries submitted to the reviewer

    ConclusionRequired

10

Normative references

References

  • Normative references cited in this workpaper

    References

11

Checks and financial statement impact

  • Exchange and separate transactions documentedPass
  • Fair value of the previous interest documentedPass
  • Remeasurement entry balancedPass
  • Reclassification entry balancedPass
  • Settlement entry balancedNot evaluated
Assets
200,000
Liabilities
0
Profit or loss
240,000
OCI
-40,000
Equity
200,000