IFRS3V3

Business combinations II
Revised IFRS 3 & IAS 27
Impacts on SAP® BusinessObjectsTM

Financial Consolidation, starter kit for IFRS
Version: 3
July 2009
Document Author: Enterprise Performance Management

Starter Kits & Innovations
Business Combinations II – Impacts on the starter kit
Version 3
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Business Combinations II – Impacts on the starter kit
Version 3
TABLE OF CONTENTS
A. Introduction .................................................................................................................4
A.1. Objective................................................................................................................... 4
A.2. Revised IFRS 3 and IAS 27: summary of major changes ........................................... 4
A.3. Main impacts on the Starter Kit.................................................................................. 4
B. New rules for business combinations and scope changes.......................................5
B.1. Business combinations.............................................................................................. 5

B.2. Subsequent changes................................................................................................. 9
C. Applying these rules in the Starter Kit......................................................................12
C.1. Scope changes in Financial Consolidation................................................................12

C.2. Acquisitions..............................................................................................................14
C.3. Loss of control..........................................................................................................17
C.4. Equity transactions...................................................................................................18
C.5. Changes in interest rates of associates and joint-ventures........................................19
C.6. Impact on rules dedicated to elimination of shares....................................................20
D. Other changes in IFRS 3 and IAS 27.........................................................................21
D.1. Acquisition costs ......................................................................................................21

D.2. Contingent considerations ........................................................................................21
D.3. Attribution of subsidiary’s losses to non-controlling interests .....................................21
D.4. Modifications in terminology .....................................................................................21
Appendix A – Goodwill calculation (example)............................................................................ 22
Appendix B – Bargain purchase (example) ............................................................................... 23
Appendix C – Impairment of goodwill ........................................................................................ 24
Appendix D – Associate becomes a subsidiary ......................................................................... 25
Appendix E– Acquisition of Non-Controlling Interests................................................................ 26
Appendix F – Bargain purchase in the Starter Kit ...................................................................... 27
Appendix G – Associate becomes a subsidiary (in the Starter Kit)............................................. 29
Appendix H – Joint-venture becomes a subsidiary .................................................................... 31
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Business Combinations II – Impacts on the starter-kit
Version 3
A. Introduction
A.1. Objective
In January 2008, IASB completed the second phase of its business combinations project by issuing a
revised version of IFRS 3 ‘Business combinations’ and an amended version of IAS 27 ‘Consolidated and
separate financial statements’. This project was undertaken with the US Financial Accounting Standards
Board (FASB). The FASB’s equivalents to IFRS 3 and IAS 27 are SFAS 141(R) ‘Business Combinations’
and SFAS 160 ‘Non-controlling Interests in Consolidated Financial Statements’.
The revised IFRS 3 and IAS 27 must be applied for annual periods beginning on or after 1 July 2009.
The objective of this document is to outline how these revised standards have been implemented in SAP®
BusinessObjectsTM Financial Consolidation starter kit for IFRS.
A.2. Revised IFRS 3 and IAS 27: summary of major changes

Main changes can be summarised as follows:
Acquisition costs: IFRS 3 now requires all acquisition-related costs (e.g.: finder's fees; advisory,
legal, accounting, valuation and other professional fees …) to be recognised as period expenses;
the previous version of IFRS 3 required these costs to be included in the acquisition cost.
Contingent consideration: contingent consideration (e.g. earn out agreement) must be measured at
fair value at the time of the business combination. Subsequent changes that arise after the
measurement period are dealt with in accordance with relevant IFRS. This will usually mean that
changes in fair value of consideration are recognised in profit and loss.
Non-controlling Interests (formerly ‘minority interests’) : for each business combination, the acquirer
shall measure any non-controlling interest in the acquiree either at their proportionate share of the
net identifiable assets of the acquiree (which is the previous IFRS 3 requirement) or at fair value
(which is a new option, sometimes called the full goodwill method, and is mandatory under US
GAAP). Where this option is taken, the difference between the fair value of the non-controlling
interests (NCI) and their proportionate interest in identified net assets will be recognised as goodwill.
In a business combination achieved in stages, the identifiable net assets of the acquiree are
measured to their fair value on the date of acquisition (i.e. the date that control passes). Any
previously held interests in the acquiree are first remeasured to fair value, with any gain recognised
in profit or loss.
Changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control are
accounted for as equity transactions (with no impact on goodwill or profit or loss).
Total comprehensive income is allocated to the non-controlling interest even if this results in the
non-controlling interest having a deficit balance
A.3. Main impacts on the starter kit

As explained in our previous document ‘How do IFRS evolutions impact Starter Kits?’, BCII mainly impact
the starter kit’s processing of scope changes, including business combinations (see section C). Other minor
impacts are dealt with in section D.
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B. New rules for business combinations and scope

changes
B.1. Business combinations
B.1.1. Definition
According to IFRS 3, a business combination is a transaction or other event in which an acquirer obtains
control of one or more businesses. Control is the power to govern the financial and operating policies of an
entity.
Acquiring a significant influence or a joint control over an entity is therefore excluded from the scope of IFRS
3, which only regards the acquisition of a controlling interest (subsidiary). Nevertheless, IAS 281 refers to
IFRS 3 when it comes to accounting for the acquisition of an investment in an associate. Likewise, the
acquisition method is usually applied for the first consolidation of a joint-venture, even if it is not explicitly
specified in IAS 312.
B.1.2. Acquisition method of accounting
IFRS 3 requires that all business combinations be accounted for by applying the acquisition method. Four
stages in the application of the acquisition method are listed:
identifying the acquirer
determining the acquisition date
recognising and measuring the identifiable assets acquired, the liabilities assumed and any non-
controlling interest in the acquiree
recognising and measuring goodwill or a gain from a bargain purchase (formerly known as badwill or
negative goodwill).
The first two stages have no impact on the starter kit. Therefore, they are not addressed in this document.
B.1.2.1. Identifiable assets acquired and liabilities assumed
The acquirer shall recognise, separately from goodwill, the identifiable assets acquired and the liabilities
assumed and measure them at their acquisition-date fair values. It may result in recognising some assets
and liabilities that the acquiree had not previously recognised in its financial statements (for example,
intangible assets such as brand name or customer relationship).
These acquisition-date fair values become the initial carrying values of the acquired assets and liabilities in
the consolidated financial statements.
Two specific cases need further analysis:
Accumulated other comprehensive income (other than foreign currency translation reserve) as
at the acquisition date
As at the acquisition date, accumulated other comprehensive income may exist in the acquiree’s separate
financial statements. These reserves (revaluation surplus, hedging reserve and fair value reserve) represent
the difference between the fair value of the underlying assets (intangible and tangible assets for which
revaluation method is applied, hedging instruments used in a cash flow hedge and available for sale
financial assets) and their original value.
1
IAS 28 : Investments in Associates
2
IAS 31 : Interests in Joint Ventures
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Since these assets are already measured at their fair value, no manual adjustment is generally necessary at
the acquisition date. However, in our opinion, the difference between fair value and original value shall be
part of the acquired equity which means that the accounts mentioned above should be reclassified in
ordinary reserves (retained earnings). This reclassification is done automatically by rules in the starter kit
(see C.2.1.1).
Foreign currency translation reserve as at the acquisition date
The starter kit for IFRS does not allow data collection at a sub consolidated level, except for entities
accounted for using the equity method (specific data entry schedules).
For those entities, the foreign currency translation reserve existing as at the acquisition date should be
reclassified to retained earnings in the consolidated statements, given that every asset and liability has to be
measured at the acquisition-date fair value and translated into group currency using the acquisition-date
exchange rate. This reclassification is done automatically by rules in the starter kit (see C.2.1.1).
B.1.2.2. Non-controlling interests
For each business combination, the acquirer shall measure any non-controlling interest in the acquiree
either at fair value (new option which is mandatory under US GAAP) or at their proportionate share of the
acquiree’s identifiable net assets (which is the only method under current IFRS).
This choice is available for each business combination, so an entity may use fair value for one business
combination and the proportionate share of the acquiree’s identifiable net assets for another.
For the purpose of measuring NCI at fair value, it may be possible to determine the acquisition-date fair
value on the basis of active market prices for the equity shares not held by the acquirer. When a market
price is not available because the shares are not publicly traded, the acquirer should measure the fair value
of NCI using other valuation techniques3.
When non-controlling interest are measured at fair value, the difference between this amount and their
proportionate share of the identifiable net assets is recognised as goodwill (see B.1.2.3).
B.1.2.3. Goodwill or bargain purchase
As explained above, goodwill can be measured in two different ways, according to the option taken to
measure NCI:
The first way is similar to the method under current IFRS: goodwill is the difference between the
consideration paid and the purchaser’s share of identifiable net assets acquired. This is a ‘partial
goodwill’ method because the NCI are recognised at their share of identifiable net assets and do not
include any goodwill
Goodwill can also be measured on a ‘full goodwill’ basis, where goodwill includes the NCI’ share. It
is calculated as follows:
+ Consideration paid
+ Fair value of NCI
- Identifiable net assets
The difference between this full goodwill and the group’s goodwill (calculated as above in the first
method) is attributed to NCI.
See example in appendix A.

If the fair value of the identifiable net assets exceeds the sum of the consideration paid and the amount of
NCI, the acquirer recognises the resulting gain in profit or loss as a bargain purchase. This gain shall be
attributed to the acquirer (IFRS 3.34). See example in appendix B.
3
The fair value of the acquirer’s interest in the acquiree and the non-controlling interest on a per-share basis may differ.
The main difference is likely to be the inclusion of a control premium in the per-share fair value of the acquirer’s
interest or, conversely, the inclusion of a discount for lack of control in the per-share fair value of the non-controlling
interest.
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B.1.3. Measurement period
The measurement period is the period after the acquisition date during which the acquirer may adjust the
provisional amounts recognised for a business combination. The measurement period ends as soon as the
acquirer receives the information needed. It cannot exceed one year from the acquisition date.
The adjustments to provisional amounts should be recognised as if the accounting for the business
combination had been completed at the acquisition date. Therefore, comparative information for prior
periods presented in the financial statements is revised.
Example (IFRS 3, Illustrative examples, IE51-IE53)
AC acquires TC on 30 September 20X7. AC seeks an independent valuation for an item of property, plant and
equipment acquired in the combination, and the valuation was not complete by the time AC authorised for issue its
financial statements for the year ended 31 December 20X7. In its 20X7 annual financial statements, AC recognised a
provisional fair value for the asset of CU30,000. At the acquisition date, the item of PPE had a remaining useful live of
five years. Five months after the acquisition date, AC received the independent valuation, which estimated the asset’s
acquisition-date fair value as CU40,000.
In its financial statements for the year ended 31 December 20X8, AC retrospectively adjusts the 20X7 prior year
information as follows:
(a) The carrying amount of PPE as of 31 December 20X7 is increased by CU9,500. That adjustment is measured as
fair-value adjustment at the acquisition date of CU10,000 less the additional depreciation that would have been
recognised if the asset’s fair value at the acquisition date had been recognised from that date (CU500 for three months’
depreciation).
(b) The carrying amount of goodwill as of 31 December 20X7 is decreased by CU10,000
(c) Depreciation expense for 20X7 is increased by CU500.
AC discloses :
(a) in its 20X7 annual financial statements, that the initial accounting for the business combination has not been
completed because the valuation of PPE has not yet been received
(b) in its 20X8 annual financial statements, the amounts and explanations of the adjustments to the provisional values
recognised during the current reporting period. Therefore, AC discloses that the 20X7 comparative information is
adjusted retrospectively to increase the fair value of the item of PPE at the acquisition date by CU9,500 offset by a
decrease to goodwill of CU10,000 and an increase in depreciation expense of CU500.
B.1.4. Impairment of goodwill
As part of the Business Combinations project, IAS 36 (Impairment of assets) has been amended as regards
allocation of impairment loss.
If NCI are measured at fair value, the impairment loss is allocated between the parent and the NCI on the
same basis as that on which profit or loss is allocated (and not on the basis of their share in the full
goodwill). See example in appendix C.
B.1.5. Business combinations achieved in stages
IFRS 3 provides additional guidance for applying the acquisition method to particular types of business
combinations such as business combinations achieved in stages (sometimes referred to as “step
acquisition”).
In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the
acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss. In prior
reporting periods, the acquirer may have recognised changes in the value of its equity interest in the acquiree in other
comprehensive income. If so, the amount that was recognised in other comprehensive income shall be recognised on
the same basis as would be required if the acquirer (IFRS 3.42)
Step acquisitions cover the following situations:
associate becoming a subsidiary (see B.1.5.1)
associate becoming a joint-venture (see B.1.5.2)
joint-venture becoming a subsidiary (see B.1.5.3)
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B.1.5.1. Associate becomes a subsidiary
This operation is similarly treated as if the interest in the associate was disposed of and a controlling interest
in a subsidiary was acquired.
Therefore, the different stages are the following:
Other comprehensive income of the associate that have been previously recognised shall be
recycled on the same basis as would be required if the acquirer has disposed of its interest in the
associate (a)
The acquirer shall remeasure its previously held equity interest in the associate at its acquisition-
date fair value and recognise the resulting gain or loss in profit or loss (b)
The acquisition of a controlling interest shall be accounted for by applying the acquisition method (c)
(a) Recycling other comprehensive income

When a parent loses control of a subsidiary, the parent shall account for all amounts recognised in other comprehensive
income in relation to that subsidiary on the same basis as would be required if the parent has directly disposed of the
related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income would be
reclassified to profit or loss on the disposal of the related assets or liabilities, the parent reclassifies the gain or loss from
equity to profit or loss (as a reclassification adjustment) when it loses control of the subsidiary (IAS 27. 35).
This “recycling process” applies to fair value reserve (remeasurement of AFS financial assets to fair value),
hedging reserve and foreign currency translation reserve4.
(b) Gain or loss on disposal
The previously-held interest in the associate shall be remeasured at its acquisition-date fair value. IFRS 3
does not provide any further guidance on how to measure this fair value. The difference between the
acquisition-date fair value and the carrying amount of the associate under IAS 28 is recognised in P&L.
(c) Applying the acquisition method
This means that:
the identifiable net assets of the acquiree are remeasured at their fair value on the date of
acquisition (i.e. the date that control passes)
NCI are measured on the date of acquisition under one of the two options permitted by IFRS 3 (see
B.1.2.2)
goodwill (or bargain purchase) is measured as follows :

+ Consideration paid
+ Fair value of NCI (if NCI are measured at fair value)
+ Fair value of previously-held equity interest
- Fair value of the identifiable net assets (or acquirer’s share in this fair value if NCI are not
measured at fair value)
See example in appendix E.
B.1.5.2. Associate becomes a joint-venture
This case is not addressed by IFRS. According to PwC’s IFRS Manual of accounting5, accounting principles
are the same as those described for an associate becoming a subsidiary (see B.1.5.1).
4
For more information about components of other comprehensive income, see the document “ IAS 1 revised : impacts
on SAP BusinessObjects Financial Consolidation starter kit for IFRS ”
5
IFRS Manual of Accounting – 2009, Global Accounting Consulting Services PricewaterhouseCoopers LLP, published
by CCH
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B.1.5.3. Joint-venture becomes a subsidiary
Same as previously explained for an associate becoming a subsidiary (see B.1.5.1).
B.2. Subsequent changes
B.2.1. Changes in parent’s ownership interests that do not result in a loss of control
B.2.1.1. In a subsidiary
According to IFRS 3 and IAS 27, only a change in control is a significant economic event. Once control has
been achieved, any subsequent transactions that do not result in a loss of control are accounted for as
equity transactions.
Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity
transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests shall be
adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which
the non-controlling interests are adjusted and the fair value of the consideration paid or received shall be recognised
directly in equity and attributed to the owners of the parent. (IAS 27.30 & IAS 27.31)
IAS 27 does not give detailed guidance on how to measure the amount to be allocated to the parent and
non-controlling interest to reflect a change in their relative interests in the subsidiary. In particular, IAS 27
does not specify anything about goodwill or accumulated other comprehensive income.
B.2.1.1.1. Goodwill
IAS 27 states that no change in the carrying amounts of the subsidiary’s assets (including goodwill) should
be recognised as a result of such transactions. But it does not specify whether the allocation of goodwill
between parent and non-controlling interests shall be modified.
In the Basis for conclusions on IFRS 3, the Board explains that the adjustment to the carrying amount of
non-controlling interests, that will be recognised when the acquirer purchases some (or all) of the shares
held by non-controlling interests, will be affected by the choice of measurement basis for non-controlling
interests at acquisition date (fair value or proportionate share of net assets). It means that, when parent
acquires non-controlling interests (part or all of them) that have been initially measured at their fair value,
goodwill (part or all) is included in the carrying amount of non-controlling interests that is transferred to group
equity. See example in appendix E.
As regards partial disposals (parent disposes part of its interest to non-controlling interest without losing
control), the question remains whether part of the parent’s goodwill should be transferred to NCI or not.
According to interpretations published by professional bodies, it seems that no goodwill has to be allocated
to NCI in that case. It means that principles set by IAS 27 apply differently depending on the nature of
change in the parent ownership interest (increase or decrease).
B.2.1.1.2. Accumulated other comprehensive income
The question is the following: should accumulated other comprehensive income (for example: exchange
differences on foreign subsidiaries) be part of the transfer between group and non-controlling interest in
case of an equity transaction?
As regards partial disposals, IAS 21 requires explicitly that “the entity shall re-attribute the proportionate
share of the cumulative amount of the exchange differences recognised in other comprehensive income to
the non-controlling interests in that foreign operation” (§ 48.C). IAS 39 has been amended in the same
direction regarding hedging reserves.
On the other hand, IFRS are silent when it comes to an increase in parent’s ownership interest. SFAS 160
NonControlling Interests in Consolidated Financial Statements, which is supposed to be the US GAAP
equivalent of IAS 27, is clearer.
A change in a parent’s ownership interest might occur in a subsidiary that has accumulated other comprehensive
income. If that is the case, the carrying amount of accumulated other comprehensive income shall be adjusted to reflect
the change in the ownership interest in the subsidiary through a corresponding charge or credit to equity attributable to
the parent (§ 34).
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As a consequence, we assume that accumulated other comprehensive income has to be re-allocated

between group and NCI according to their new respective shares, whether there is an increase or a
decrease in the parent’s ownership interest6.
B.2.1.2. In a joint-venture
If a parent increases its interest in a joint-venture without achieving control (which means that the acquiree
remains a joint-venture afterwards), IFRS do not specify how to deal with this operation in the consolidated
financial statements. It does not meet the criteria of an equity transaction given that no NCI are recognised
in the balance sheet. It does not meet either the definition of a business combination as no control is
achieved after the transaction
As regards partial disposals, IAS 31 has been amended:
If an investor’s ownership interest in a jointly controlled entity is reduced, but the investment continues to be a jointly
controlled entity, the investor shall reclassify to profit and loss only a proportionate amount of the gain or loss previously
recognised in other comprehensive income (IAS 31.45B).
It lets it be inferred that a gain or loss should be recognised in the income statement on a partial disposal of
a joint-venture.
B.2.1.3. In an associate
As previously for joint-ventures (see B.2.1.2), IFRS do not provide any guidance on how to account for an
increase in an associate that remains an associate afterwards.
According to PwC’s IFRS Manual of accounting, goodwill arising on the purchase of the additional stake
should be calculated using fair value information at the date the additional interest is acquired. However, the
previously held interest shall not be remeasured to fair value as there is no change in status of the
investment. This solution results in a “hybrid” value for investments in associates (based on the fair values
for each tranche).
As regards partial disposal, IAS 28 has been amended in the same way as IAS 31:
If an investor’s ownership interest in an associate is reduced, but the investment continues to be an associate, the
investor shall reclassify to profit and loss only a proportionate amount of the gain or loss previously recognised in other
comprehensive income (IAS 28.19A).
It means that a gain or loss shall be recognised in the income statement on a partial disposal of an
associate.
B.2.2. Loss of control
B.2.2.1. Disposal of the entire interest in a subsidiary, joint-venture or associate
The revision of IAS 27 does not bring any change in substance as regards disposal of subsidiaries.
Nevertheless, it is now clearer on some topics such as accumulated other comprehensive income (see
B.1.5.1).
B.2.2.2. Partial disposals
When it does not result in a loss of control, see B.2.1.

When the parent company loses control but retains an interest, it triggers recognition of gain or loss on the
entire interest:
a gain or loss is recognised on the portion that has been disposed of;
a further gain is recognised on the interest retained, being the difference between the fair value of
the interest and its book value.
Both are recognised in the income statement.
6
This is also the interpretation of PwC in their ‘Understanding new IFRS for 2009’ guide
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The fair value of any investment retained in the former subsidiary at the date when control is lost shall be regarded as
the fair value on initial recognition of a financial asset in accordance with IAS 39 Financial Instruments: Recognition and
Measurement or, when appropriate, the cost on initial recognition of an investment in an associate or jointly controlled
entity (IAS 27.37)
It means that, if the residual interest gives a significant influence or a joint control, the acquisition method is
applied as if a new entity has been acquired.
Similar considerations apply to the partial disposal of an interest in an associate or a jointly controlled entity
where the residual interest is accounted for as a financial asset under IAS 39.
On the other hand, IFRS are silent on how to account for a joint-venture becoming an associate.
B.2.3. Summary
As summarised in the table below, IFRS 3 and IAS 27 identify three major kinds of events:
On the other hand, the following transactions are not clearly addressed in IFRS:
Joint-control achieved in stages (an associate becomes a joint-venture) : see B.1.5.2
Partial disposal of a joint-venture which becomes an associate, see B.2.2.2
Increase of the parent’s ownership interest in a joint-venture (that remains a joint-venture after the
transaction) : see B.2.1.2
Increase of the parent’s ownership interest in an associate (that remains an associate after the
transaction) : see B.2.1.3
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C. Applying these rules in the starter kit for IFRS
C.1. Scope changes in SAP BusinessObjects Financial Consolidation

First of all, it is worth reminding how scope changes are handled in SAP BusinessObjects Financial
Consolidation.
C.1.1. Consolidation engine
In SAP BusinessObjects Financial Consolidation, scope changes are addressed by the consolidation engine
according to the following criteria:
information entered in the consolidation scope,
options set in the category scenario,
configured calculation rules.
C.1.1.1. Consolidation scope
The consolidation scope includes the following information for each entity, at opening and at closing:
Consolidation method: Not consolidated (NC), Full (FC), Proportionate consolidation (PC) or Equity
method (EM)
Financial interest, ownership interest and consolidation rate
Based on this information, Financial Consolidation identifies incoming and outgoing entities. As regards
outgoing entities, it is possible to specify:
if the entity leaves the scope at the beginning of the period or during the period; and
if the entity has been merged with another entity of the group.
This information is used during the consolidation process to trigger calculations defined in the category
scenario and rules configured in the set of rules.
C.1.1.2. Category scenario
In the category scenario, options are configured to define how the consolidation engine handles scope
changes. More precisely, these options enable to define the flows associated to the following events:
entry in scope (incoming entities)
All of the data contained in the package’s opening balance, as well as all manual or automatic journal entries
which impact the opening flow of an incoming company, will be switched to this dedicated flow (F01 in the
starter kit).
change in consolidation method (2 different flows : old method and new method)
Opening data will be reversed in the “old method” flow (F02 in the starter kit) and switched to the “new method”
flow (F03 in the starter kit), following the consolidation principles applying to the closing consolidation method.
In Financial Consolidation, the following changes are regarded as a change in consolidation method:
- associate (equity method) becoming a joint-venture (proportionate consolidation) or a subsidiary (full
consolidation)
- subsidiary or joint-venture becoming an associate
On the other hand, a joint-venture becoming a subsidiary (and conversely) is not regarded as a change in
consolidation method but as a change in consolidation rate.
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change in consolidation rate (for entities accounted for using the equity method or the proportionate
consolidation, or when a joint-venture becomes a subsidiary and conversely)
The impact of the change in consolidation rate will be posted on this flow (F04 in the starter kit, see C.2.2.3)
exit in scope
All of the outgoing company’s data at the date of the disposal will be reversed in this dedicated flow (F98 in the
starter kit).
internal merger
All of the merged company’s data at the date of the merger will be reversed in this dedicated flow (F70 in the
starter kit).
C.1.1.3. Rules
When configuring a consolidation rule, scope criteria enable to define more precisely than in the category
scenario the scope changes that will be addressed.
For example, it is possible to define specific rules that apply only to associates becoming joint-ventures or
subsidiaries and not to joint-ventures or subsidiaries becoming associates.
Moreover, changes in financial interest can only be addressed by rules as they are not handled by the
consolidation engine as a scope change.
C.1.2. Mapping
Mapping events defined by IFRS 3 and IAS 27 (see summary in B.2.3) and scope changes as they are
defined in SAP BusinessObjects Financial Consolidation can be summarised as follows:
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C.2. Acquisitions
C.2.1. Incoming entities
C.2.1.1. Remeasuring net identifiable asset to fair value
In the starter kit, adjustments resulting from the remeasurement of identifiable assets and liabilities (including
recognition of assets and liabilities that do not exist in the subsidiary’s separate statements) are booked
manually using a dedicated audit-ID. Impacts on deferred tax assets and liabilities are also booked manually
using the same audit-ID.
Accumulated other comprehensive income7 (see B.1.2.1) is automatically reclassified to retained earnings.
C.2.1.2. Booking goodwill
In the previous version of the starter kit, a manual journal entry was booked in the owner company’s ledger
using an off-balance account and a dedicated audit-ID. Goodwill was then automatically recorded in the
incoming subsidiary’s balance sheet. The impact on equity was allocated between group and (indirect) NCI
based on the owner company’s interest rate.
IFRS do not precise if goodwill should be allocated to indirect minority interests (which are NCI in the acquirer) or not.
This question is usually referred to as the alternative between direct share and group share methods. Some accounting
rules (for example, French GAAP) require the use of the direct share method (which means allocating part of the
goodwill to the indirect minority interests). Some others (as German GAAP) allow both methods.
Example:
Two questions have been considered when it came to defining the new starter kit content:
full goodwill vs partial goodwill
direct share method vs group share method

C.2.1.2.1. Full goodwill / partial goodwill
Since the choice between measuring NCI at fair value or at their proportionate share of the acquiree’s
identifiable net assets is made for each operation (see B.1.2.2), it is necessary to make the coexistence of
both methods in the starter kit. It must be emphasized that these two methods should not only be available
in the starter kit but also coexist. This means making it possible that the right automatic journal entries are
triggered when information is entered regardless of the method chosen.
Besides, it seems preferable to enter the amount of goodwill in the acquiree’s ledger (on technical accounts)
and no more in the acquirer’s ledger. It would facilitate the conversion process as the goodwill must be
booked in the subsidiary’s currency (IAS 21).
As a consequence, in the starter kit, the amount of goodwill related to the acquirer’s share and, if NCI are
measured at fair value, the amount of goodwill related to their share are declared on a technical account,
broken down by share.
7
Including foreign currency translation reserve when the incoming entity is an associate that reports consolidated data
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For example (see data in appendix A): goodwill is 500, parent company P’s share is 440, NCI’s share is 60. Declaration
of goodwill is as follows :
Entity : S (subsidiary)
Audit-ID: GW01
Account Flow Debit Credit Share Debit Credit
XA1310 – Goodwill declared F01 500 P 440
8
TP-999 60
Dedicated rules have been created to book the goodwill related to NCI. They are triggered only if this
amount exists.
C.2.1.2.2. Direct share / group share
A more in-depth analysis should be carried out before making the two methods available in the starter kit (if
possible). This is planned to be done for a next release of the starter kit.
In the meantime, the starter kit remains unchanged (direct share). When necessary, the adjustment needed
to comply with the group share method is performed through manual journal entries.
C.2.1.3. Bargain purchase
In the previous version of the starter kit, a bargain purchase (or negative goodwill) had to be directly
recorded in profit or loss by manual journal entry.
The new starter kit offers an automatic process, comparable to the existing one for positive goodwill. See
example in appendix F.
C.2.2. Step acquisitions
In SAP BusinessObjects Financial Consolidation, step acquisitions can result in a change in a consolidation
method (associate becoming a joint-venture or a subsidiary) or in a change in consolidation rate (joint-
venture becoming a subsidiary).
C.2.2.1. Change in method – equity method to full consolidation
As explained previously in B.1.5.1, this operation shall be similarly treated as if the interest in the associate
was disposed of and a controlling interest in a subsidiary was acquired.
In SAP BusinessObjects Financial consolidation, changes in consolidation method are handled as follows:
Opening balances are reversed on the “old method” flow
And are reloaded on the “new method” flow with the new consolidation method applying
As regards a change from equity method to full consolidation, it means that:

the line “Investments in associates” is reversed and “replaced” by the subsidiary’s assets being
reloaded on the new method flow
the equity accounts (the proportionate share of them that correspond to the consolidation rate) are
reversed on the old method flow and reloaded at 100% on the new method flow
the subsidiary’s liabilities are loaded on the new method flow
In the previous version of the starter kit, every existing data at opening was reloaded on the new method
flow, including goodwill and allocation between group and NCI (when indirect NCI exist). The impact of the
change in consolidation rate (from the consolidation rate used for the equity method to 100%) was attributed
to NCI9. Then, the allocation between group and NCI’s share was corrected on the flow F92 (increase in
interest rate) according to the new interest rate.
8
TP-999 is the code used for third parties
9
If an associate becomes a subsidiary without any change in its interest rate (which is uncommon), the impact on
equity would only be the recognition of non-controlling interests.
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Given that further acquisitions in an existing subsidiary (see C.4) are now considered as equity transactions
and, therefore, not handled as a further acquisition in an associate that becomes a subsidiary, it seems
preferable to use different flows for these different events. Consequently, allocation between group and NCI
is now calculated on the new method flow in case of a change in method. It means that allocation existing at
opening is no more reloaded on the new method flow.
In the same way, goodwill existing at opening (and included in the carrying amount of the investment in
associates) is no more reloaded on the new method flow. Indeed, it is part of the carrying amount of the
previously held interest and is, therefore, taken into account to calculate the profit on “disposal”. A new
goodwill has to be calculated as part of the acquisition method process and declared by a manual journal
entry using the new method flow.
Lastly, accumulated other comprehensive income at opening is automatically reclassified to retained
earnings on the new method flow, as for incoming entities. Reclassification adjustments displayed in the
comprehensive income take into account the old method flow (because change in consolidation method is
handled as if the associate was disposed of).
Manual journal entries are necessary to:
recognize a gain or loss on “disposal” of the previously held interest (which means, in particular,
remeasure previously held shares in associates to fair value)
remeasure net identifiable assets of the held company to fair value (as if it was an incoming entity)
declare goodwill.
See example in appendix G.
C.2.2.2. Change in method – equity method to proportionate consolidation
This scope change is not addressed by IFRS. However, according to PwC’s manual of accounting, it shall
be treated as an associate becoming a subsidiary (see B.1.5.2).
In the starter kit, automatic processes are the same as those applied for an associate becoming a subsidiary
(see C.2.2.1).
C.2.2.3. Change in consolidation rate (proportionate to full consolidation)
As explained previously in B.1.5.3, this operation shall be similarly treated as if the interest in the joint-
venture was disposed of and a controlling interest in a subsidiary was acquired.
In SAP BusinessObjects Financial consolidation, the impact of the change in consolidation rate (from x % to
100% in this case) is posted on a dedicated flow, as defined in the category scenario.
In the previous version of the starter kit, as explained previously (see C.2.2.1), the impact of the change in
consolidation rate is attributed to NCI. Then, the allocation between group and NCI’s share is corrected on
the flow F92 (increase in interest rate) according to the new interest rate.
Given that a change in consolidation rate – even when it results in a change in method from proportionate to
full consolidation – is not regarded as a change in scope in the “scope” tab of a consolidation rule, it is not
possible to configure dedicated rules for those entities. It means in particular that rules which calculate the
impact of an increase in interest rate in a subsidiary necessary apply to joint-ventures becoming subsidiaries
(because they are identified as subsidiaries at closing).
In the new starter kit, coefficients have been created in order to process differently changes in interest rate
depending on whether the subsidiary was a subsidiary at opening or a joint venture. In the last case, the
impact is posted to flow F04 (change in consolidation rate).
reclassify items previously recognised in other comprehensive income to P&L or retained earnings
(according to their natures)
recognize a gain or loss on “disposal” of the previously held interest (which means, in particular,
remeasure previously held shares in joint-venture to fair value)
remeasure net identifiable assets of the held company to fair value (as if it was an incoming entity)
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declare goodwill.
See example in appendix H.
C.2.3. Measurement period
As explained in B.1.3, adjustments are made retrospectively as if the accounting for the business
combination had been completed at the acquisition date.
Therefore, in SAP BusinessObjects Financial Consolidation, adjustments can be recognized in prior periods’
financial statements by using another variant (native feature of the software). No specific parameter has to
be implemented for that purpose in the starter kit.
C.2.4. Impairment of goodwill
The amendments made to IAS 36 as part of the Business Combinations project (see B.1.4) raise the issue
of allocating an impairment loss between parent and NCI differently whether NCI have been measured at
fair value or not.
In the starter kit, recording an impairment loss follows the same principles as for booking the goodwill:
The amount of the impairment loss is declared by manual journal entry using a dedicated technical
account (entity = held company); the total of impairment loss is declared including NCI’s share if
they have been measured at fair value. Distinction between parent’s share and NCI’s share is made
using the dimensional analysis by share (see example for goodwill, C.2.1.2.1)
This amount is then automatically recorded in the balance sheet and the P&L
If the owner company is not wholly-owned by the group, the impairment loss is allocated between
group and (indirect) NCI using the interest rate of the owner company
NCI’s share in impairment loss, if any, is booked by dedicated rules and allocated to NCI’s share in
net income.
C.3. Loss of control

In SAP BusinessObjects Financial Consolidation, loss of control can result:
in an entity leaving the scope (when the parent company does not keep any interest or when the
remaining interest is under the consolidation threshold)
in a change in a consolidation method (subsidiary or joint-venture becoming an associate), or
in a change in consolidation rate (subsidiary becoming a joint-venture).
C.3.1. Outgoing entities
Principles set in the previous version of the starter kit will remain unchanged as regards outgoing entities,
given that the revision of IAS 27 does not modify the treatment of such operation (see B.2.2.1).
10
As joint-ventures becoming subsidiaries cannot be identified in the scope tab of a consolidation rule, same
automatic processes apply to acquisitions of additional shares in a subsidiary (equity transactions, see C.4) and to
acquisitions of shares in a joint venture thus becoming a subsidiary. These investments are eliminated using flow F92
given that equity transactions are more usual than joint-ventures becoming subsidiaries.
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C.3.2. Partial disposals
C.3.2.1. Change in method – from full consolidation to equity method
As explained previously in B.2.2.2, this operation shall be similarly treated as if the interest in the subsidiary
was disposed of and an equity interest in a subsidiary was acquired.
Configuration principles explained in C.2.2.1 will apply similarly to a change from full consolidation to equity
method.
C.3.2.2. Change in method – from proportionate consolidation to equity method
This scope change is not addressed by IFRS (see B.2.2.2). In the starter kit, automatic processes are the
same as those applied for a subsidiary becoming an associate (see C.3.2.1).
C.3.2.3. Change in consolidation rate – from full to proportionate consolidation
As explained previously in B.2.2.2, this operation shall be similarly treated as if the subsidiary was disposed
of and an interest in the joint-venture was acquired.
Configuration principles explained in C.2.2.3 will apply similarly to a change from full to proportionate
consolidation.
C.4. Equity transactions

Equity transactions are referred to as changes in a parent’s ownership interest in a subsidiary that do not
result in a loss of control. Changes in a parent’s ownership interest in a joint-venture (that remains a joint-
venture afterwards) or in an associate (that remains an associate) are not covered by IFRS and, therefore,
are not addressed in this section (see C.5).
C.4.1. In the previous starter kit
In the previous starter kit, changes in a parent’s ownership interest in a subsidiary is handled differently
depending whether it results in an increase or in a decrease in the subsidiary’s interest rate.
When the transaction results in an increase in the subsidiary’s interest rate:
the increase in shareholders’ equity is calculated on the basis of the restated opening net equity,
after dividends have been withdrawn and it has been converted at the average rate of the period for
foreign subsidiaries
it is recorded on flow F92 - Change in financial interest
a goodwill has to be declared by manual journal entry
When the transaction results in a decrease in the subsidiary’s interest rate:

the decrease in shareholders’ equity is calculated on the basis of the restated opening net equity,
after withdrawal of dividends.
it is recorded in flow F98 - Outgoing entities
a profit or loss on the partial disposal should be calculated and booked manually.
C.4.2. In the new starter kit
In the current version of starter kit, increases and decreases in a parent’s ownership interest are handled
identically, except as regards goodwill.
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C.4.2.1. Principles
Configuration principles are the following:

the amount to be transferred from group’s equity to NCI (or conversely) is calculated on the basis of
the subsidiary’s opening equity after deduction of dividends paid on the period (but relating to prior
benefits)
accumulated other comprehensive income (revaluation surplus, fair value reserve, hedging reserve
and foreign currency translation reserve) is part of the transfer (see B.2.1.1.2)
this transfer is recognized on flow F92 which is renamed ‘Increase / decrease in interest rate”
C.4.2.2. Goodwill
As explained in B.2.1.1.1, if NCI have been initially measured at fair value, goodwill (or part of it) is included
in the carrying amount of NCI that is transferred to group equity when parent acquires NCI (or part of it). On
the other hand, when parent sells part of its interest to NCI (without losing control), no goodwill is transferred
to NCI.
In the first case, the amount of goodwill to be transferred from NCI to group has to be declared by manual
journal entry (same as for an incoming entity but using flow F92).
C.5. Changes in interest rates of associates and joint-ventures
C.5.1. In an associate
C.5.1.1. Increase in interest rate
IFRS are silent on how to deal with an increase in a parent ownership’s interest in an associate that does
not result in a change in consolidation method. According to PwC’s interpretation (see B.2.1.3), the
acquisition method shall be applied to the additional stake purchased (which means fair value
remeasurement of associate’s net assets – for the additional stake only – and goodwill recognition).
In the starter kit, the new interest rate and the new integration rate (which changes as a consequence) are
taken into account with the impact of change posted on flow F04. An audit-ID generated at consolidated
level (without further application of the consolidation rate or allocation between group and NCI if any) is
available, that enables a client to recognize a fair value adjustment on the additional stake only (following
PwC’s recommendations).
C.5.1.2. Decrease in interest rate
A gain or loss shall be recognized on a partial disposal of an associate (which remains an associate after the
transaction) including proportionate reclassification of accumulated other comprehensive income (see
B.2.1.3).
In the starter kit, the new interest rate and the new integration rate (which changes as a consequence) are
taken into account with the impact of change posted on flow F04. Manual journal entries are necessary to
recognize a profit or loss on disposal (including reclassification adjustments of accumulated other
comprehensive income).
C.5.2. In a joint-venture
C.5.2.1. Increase in interest rate
IFRS are silent on how to deal with an increase in a parent ownership’s interest in a joint-venture that does
not result in a change in consolidation method.
In the starter kit, automatic processes are the same as those applied for an increase in an associate.
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C.5.2.2. Decrease in interest rate
A gain or loss shall be recognised on a partial disposal of a joint-venture (which remains a joint-venture after
the transaction) including proportionate reclassification of accumulated other comprehensive income (see
B.2.1.2).
In the starter kit, automatic processes are the same as those applied for a decrease in an associate.
C.6. Impact on rules dedicated to elimination of shares

In the starter kit, investments and disposals of shares in consolidated entities are recorded in the owner
company’s package using the following flows:
Acquisition : flow F20
Disposal : flow F30
Subscription to a share issue : flow F40
In the previous starter kit, these shares were eliminated against held entity’s equity using different flows
depending on the status of this entity in the scope:
Flow used in Status of held entity Flow used in held entity’s equity
the package in scope
F20 Incoming F01 (incoming entities)
Others F92 (increase in interest rate)
F30 All F98 (outgoing entities and decrease in interest rate)
F40 All F40 (capital increase)
In the current starter kit, these principles have been modified to be consistent with the new rules described
above:
Flow used in the Status of held entity in scope Flow used in held entity’s equity
package
F20 Incoming F01 (incoming entities)
Change in consolidation method F03 (new method)
Others (held entity fully consolidated) F92 (increase/decrease in interest rate)
Others (held entity PC or EM) F04 (change in consolidation rate)
F30 Change in consolidation method F03 (new method)
Others (held entity fully consolidated F92 (increase/decrease in interest rate)
Others (held entity PC or EM) F04 (change in consolidation rate)
F40 All F40 (capital increase)
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D. Other changes in IFRS 3 and IAS 27
D.1. Acquisition costs

According to revised IFRS 3, acquisition costs shall be expensed.
This change has no impact on the starter kit: these costs are recorded in the package using a generic
account as, for example, ‘other operational expenses’. However, an enhancement can easily be performed
by a client wishing to have a dedicated account.
D.2. Contingent considerations
D.2.1. Recognition at acquisition date
The consideration the acquirer transfers in exchange for the acquiree includes any asset or liability resulting
from a contingent consideration arrangement. Contingent consideration is defined as follows.
‘Usually, an obligation of the acquirer to transfer additional assets or equity interests to the former owners of an acquiree
as part of the exchange for control of the acquiree if specified future events occur or conditions are met. However,
contingent consideration may also give the acquirer the right to the return of previously transferred consideration if
specified conditions are met’ (IFRS 3, § 39).
Contingent consideration is recognized as part of the consideration transferred in exchange for the acquiree,
measured as its acquisition-date fair value.
In the starter kit, this accounting entry is entered in the package using a non-cash flow (for example: F50).
D.2.2. Subsequent accounting
Subsequent changes in the value of contingent considerations are recognised as adjustments against the
original accounting for the acquisition only when the two following conditions are met:
they are the result of the acquirer obtaining additional information about facts and circumstances
that existed at the acquisition date ; and
they occur within the measurement period.
All other changes are dealt with in accordance with relevant IFRS (for example, IAS 37 if the obligation has
been classified as a liability). As regards starter kit, in either situation, the accounting entries are entered in
the package without any specific enhancement needed.
D.3. Attribution of subsidiary’s losses to non-controlling interests

Revised IAS 27 requires that losses be allocated to non-controlling interests even if they exceed the non-
controlling interest’s share of equity in the subsidiary. In other words, losses can be attributed without
limitation to the NCI even if this results in the NCI being negative. However, this amendment shall not be
applied retrospectively which means that limitations placed on NCI before must be maintained.
In the previous version of the starter kit, a dedicated audit-ID was available to adjust (posting a manual
journal entry) the allocation of profit and loss between group and non-controlling interests. This audit-ID is
maintained in the new starter kit to allow restoration of historical data.
D.4. Modifications in terminology

The modifications in terminology included in revised IFRS 3 and IAS 27 are taken into account in the starter
kit:
Minority interest Non-controlling interest
Badwill Bargain purchase
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APPENDIX A – GOODWILL CALCULATION (EXAMPLE)
Parent P pays CU 1,000 for 80% of subsidiary S
Net assets of S are as follows :

Carrying
amount Fair value
PPE 500 800
Less : Liabilities (100) (100)
Net assets 400 700
Option 1 : NCI are measured at their proportionate share of S' net assets
Consideration paid 1,000 (i)
Fair value of S's net assets 700

% 80%
Parent's share in F's net assets 560 (ii)
Goodwill 440 (i) - (ii)
Option 2 : NCI are measured at fair value
Through valuation techniques, fair value of non-controlling interest is determined to be 200

"Full" goodwill is calculated as follows :
Consideration paid 1,000

Fair value of the NCI 200
1,200
Fair value of S's net assets (700)
Total Goodwill 500 (i)
Parent's goodwill (see above) 440 (ii)

NCI share of goodwill 60 (i) - (ii)
Consolidated statement of financial position
Option 1 Option 2 Option 1 Option 2

Goodwill 440 500 Capital (parent company) 1,000 1,000
PPE 800 800 Non-controlling interest 140 200
Liabilities 100 100
Total assets 1,240 1,300 Total equity & liabilities 1,240 1,300
NCI % in S's net assets :

20 % x 700
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APPENDIX B – BARGAIN PURCHASE (EXAMPLE)
(IFRS 3, Illustrative example, IE45-IE49)
On 1 January 20X5, AC acquires 80% of TC for CU150.

Identifiable assets 250
Less : liabilities assum ed (50)
Net asset 200
An independant consultant determines that the fair value of the 20% NCI in TC is CU42.
Calculation of bargain purchase if NCI are measured at fair value

Identifiable net asset acquired 200
Less : consideration paid (150)
fair value of NCI (42)
Bargain purchase 8
AC would record its acquisition of TC in its consolidated financial statements as follows:

Dr Identifiable assets acquired 250
Cr Cash 150
Cr Liabilities assumed 50
Cr Gain on the bargain purchase 8
Cr Non-controlling interest 42
Calculation of bargain purchase if NCI are measured at their proportionate share

Identifiable net asset acquired 200
% held by AC 80%
AC's interest
consideration
in TC's net
paid
asset 160
Less : consideration paid (150)
Bargain purchase 10
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APPENDIX C – IMPAIRMENT OF GOODWILL
In this example, we assume that subsidiary S acquired by parent P (appendix A) is a cash-generating unit
(CGU).
At the end of 20X3, subsidiary S is tested for impairment.
At this date:
Parent P determines that the recoverable amount of S is 1,100
The carrying amount of S’s identifiable net assets is 800 (PPE : 700 less Liabilities : 100)
Goodwill is 440 if NCI have been measured under the proportionate share method or 500 if NCI
have been measured at fair value (see appendix A)
The impairment tests under the two methods are as follows:
* If an entity measures NCI as its proportionate interest in the identifiable net assets of a subsidiary at the acquisition
date, goodwill attributable to NCI is included in the recoverable amount of the related cash-generating unit but is not
recognised in the parent’s consolidated financial statements. As a consequence, an entity shall gross up the carrying
amount of goodwill allocated to the unit to include the goodwill attributable to non-controlling interest. This adjusted
amount is then compared with the recoverable amount of the unit to determine whether the cash-generating unit is
impaired (IAS 36, appendix C, C4).
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APPENDIX D – ASSOCIATE BECOMES A SUBSIDIARY
This example is an extract from Deloitte’s guide “Business combinations and changes in ownership
interests”11
C acquired a 75% controlling interest in D in two stages.

In 20X1, C acquired a 40% equity interest for CU40,000. C classified the interest as an associate. At
the date that C acquired its interest, the fair value of D's identifiable net assets was CU80,000. From
20X1 to 20X6, C equity accounted for its share of undistributed profits totalling CU5,000 and
included its share of an IAS 16 revaluation gain of CU3,000 in OCI. Therefore, in 20X6, the carrying
amount of C's interest in D was CU48,000
In 20X6, C acquired a further 35% equity interest for CU55,000. C identified net assets of D with a
fair value of CU110,000. C elected to measure NCI at fair value of CU30,000. On the date of
acquisition, the previously-held 40% interest had a fair value of CU50,000
In 20X6, C will include CU2,000 in profit or loss, being :

Fair value of previously-held interest 50,000
Less : carrying amount under IAS 28 (48,000)
2,000
The revaluation gain of CU3,000 previously recognised in OCI is not reclassified to profit or loss because it
would not be reclassified if the interest in D were disposed of.
In 20X6, C will measure goodwill as follows:
Consideration paid 55,000
Fair value of NCI 30,000
Fair value of previously-held interest 50,000
Sub-total 135,000
Less : fair value of net assets of acquiree (110,000)
25,000
11
Available from Deloitte’s www.iasplus.com website
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APPENDIX E– ACQUISITION OF NON-CONTROLLING INTERESTS
This example is an extract from Deloitte’s guide “Business combinations and changes in ownership
interests”
In 20X1, A acquired a 75% equity interest in B for cash consideration of CU90,000. B’s identifiable net
assets at fair value were CU100,000. The fair value of the non-controlling equity interest was CU28,000.
Goodwill, on two alternative bases for measuring NCI at acquisition, is calculated as follows:
NCI @ % of NCI @
net assets fair value
CU CU
Fair value of consideration 90,000 90,000
Non-controlling interests 25,000 28,000
115,000 118,000
Less : Fair value of net assets (100,000) (100,000)
Goodwill 15,000 18,000
In the subsequent years, B increased net assets by CU20,000 to CU120,000. This is reflected in the
carrying amount within equity attributed to NCI as follows:
In 20X6, A then acquired the 25% equity interest held by NCI for cash consideration of CU35,000. The
adjustment to equity will be:
NCI @ % of NCI @
net assets fair value
CU CU
Fair value of consideration 35,000 35,000

Less : Carrying amount of NCI (30,000) (33,000)
Negative movement in parent equity 5,000 2,000
As indicated in IFRS3 (BC218), the reduction in equity is greater where the option was taken to measure
NCI at acquisition date as a proportionate share of the acquiree’s identifiable net assets. The treatment has
the effect of including the non-controlling interest’s share of goodwill directly in equity. This outcome will
always occur where the fair value basis is greater than the net asset basis at acquisition date.
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APPENDIX F – BARGAIN PURCHASE IN THE STARTER KIT
This appendix presents how the previous example (appendix B) would be handled in the Starter Kit.
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APPENDIX G – ASSOCIATE BECOMES A SUBSIDIARY

(IN THE STARTER KIT)
This appendix presents how the example shown in appendix D could be handled in the Starter Kit.
The balance included in parent company (C)‘s package for year 20X6 is as follows :
The impact of the acquisition of a further 35% equity interest in D on the consolidated balance sheet can be
presented as follows:

recognise a net profit on "disposal" of the previously held interest
remeasure net identifiable assets to fair value
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declare goodwill
Consolidated balance sheet after manual journal entries and consolidation process:
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APPENDIX H – JOINT-VENTURE BECOMES A SUBSIDIARY
YEAR 20X1
In 20X1, Parent company P pays CU500 for 50% of joint-venture A.
Net assets of A are as follows:
Carrying
amount Fair value
PPE 500 800
Liabilities 100 100
Net assets 400 700
Goodwill calculation
Consideration paid 500 (i)
Fair value of A's net assets 700
% 50%
Parent's share in A's net assets 350 (ii)
Goodwill 150 (i) - (ii)
Consolidated statement of financial position

Assuming that parent company’s separate statements include investment in A for CU500, cash for 1,500
and issued capital for 2,000
Goodwill (A) 150 Capital (parent company) 2,000
PPE (A at 50%) 400 Liabilities (A) 50
Cash (parent company) 1,500
Total assets 2,050 Total equity & liabilities 2,050
YEAR 20X3
Consolidated statement of financial position before operation
Assuming that A’s accumulated retained earnings from 20X1 to 20X3 are 200 (P’s share = 100), resulting in
an increase in cash of 200 (P’s share = 100)
PPE (A at 50%) 400 Retained earnings (A) 100
Cash (A at 50%) 100 Liabilities 50
Cash (parent company) 1,500
In 20X3, Parent P acquires the shares of A previously held by co-venturer for CU800. On the date of
acquisition, the previously-held 50% interest has a fair value of CU800.
Net assets of A are as follows:
Carrying amount Fair value

PPE 800 1,000
Cash 200 200
Less : Liabilities (100) (100)
Net assets 900 1,100
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According to IFRS3, P shall recognise a net profit on the revaluation of its previously held interest in A:
Fair value of previously-held interest 800
Less : carrying amount (600) = 150 + 400 + 100 - 50
200
Goodwill is calculated as follows:
Consideration paid 800
Fair value of previously-held interest 800
Sub-total 1,600
Less : fair value of A's net assets -1,100
500
The statement of financial position after operation is as follows:
PPE (A ) 1,000 Retained earnings (P) 300 (including net profit of 200)
Cash (A) 200 Retained earnings (A) 0
Cash (parent company) 700 Liabilities 100
The variation between before and after operation can be explained as follows:
Opening "Disposal of JV" Acq. of subsidiary After operation
Goodwill 150 (150) 500 500
Investments in A 800 (800)
PPE 400 (400) 1,000 1,000
Cash 1,600 (100) (600) 900
Total assets 2,150 150 100 2,400
Capital (P) 2,000 2,000
Retained earnings (P) 300 300
including net income of 200
Retained earnings (A) 100 (100) 0
Liabilities 50 (50) 100 100
Total equity & liabilities 2,150 150 100 2,400
In the Starter Kit

In the Starter Kit, manual journal entries are necessary to:
recognise a net profit on "revaluation" of the previously held interest
remeasure A’s net identifiable assets to fair value
® TM
Version 3
declare goodwill
reclassify elimination of investments from flow F92 to flow F04
Consolidated balance sheet after manual journal entries and consolidation process:
® TM

IFRS3V3

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Business combinations II

Revised IFRS 3 & IAS 27

Impacts on SAP® BusinessObjectsTM

Document Author: Enterprise Performance Management

B. New rules for business combinations and scope changes.......................................5

B.1. Business combinations.............................................................................................. 5

C. Applying these rules in the Starter Kit......................................................................12

C.1. Scope changes in Financial Consolidation................................................................12

D. Other changes in IFRS 3 and IAS 27.........................................................................21

D.1. Acquisition costs ......................................................................................................21

Appendix A – Goodwill calculation (example)............................................................................ 22

Appendix B – Bargain purchase (example) ............................................................................... 23

Appendix C – Impairment of goodwill ........................................................................................ 24

Appendix D – Associate becomes a subsidiary ......................................................................... 25

Appendix E– Acquisition of Non-Controlling Interests................................................................ 26

Appendix F – Bargain purchase in the Starter Kit ...................................................................... 27

Appendix G – Associate becomes a subsidiary (in the Starter Kit)............................................. 29

Appendix H – Joint-venture becomes a subsidiary .................................................................... 31

A.2. Revised IFRS 3 and IAS 27: summary of major changes

A.3. Main impacts on the starter kit

B. New rules for business combinations and scope

B.1. Business combinations

B.1.2. Acquisition method of accounting

determining the acquisition date

B.1.2.1. Identifiable assets acquired and liabilities assumed

B.1.2.2. Non-controlling interests

B.1.2.3. Goodwill or bargain purchase

See example in appendix A.

B.1.3. Measurement period

B.1.4. Impairment of goodwill

B.1.5. Business combinations achieved in stages

associate becoming a joint-venture (see B.1.5.2)

joint-venture becoming a subsidiary (see B.1.5.3)

B.1.5.1. Associate becomes a subsidiary

(a) Recycling other comprehensive income

goodwill (or bargain purchase) is measured as follows :

B.1.5.2. Associate becomes a joint-venture

B.1.5.3. Joint-venture becomes a subsidiary

Same as previously explained for an associate becoming a subsidiary (see B.1.5.1).

B.2. Subsequent changes

As a consequence, we assume that accumulated other comprehensive income has to be re-allocated

B.2.2. Loss of control

B.2.2.1. Disposal of the entire interest in a subsidiary, joint-venture or associate

B.2.2.2. Partial disposals

When it does not result in a loss of control, see B.2.1.

Both are recognised in the income statement.

Partial disposal of a joint-venture which becomes an associate, see B.2.2.2

C. Applying these rules in the starter kit for IFRS

C.1. Scope changes in SAP BusinessObjects Financial Consolidation

C.1.1. Consolidation engine

options set in the category scenario,

configured calculation rules.

C.1.1.1. Consolidation scope

Financial interest, ownership interest and consolidation rate

C.1.1.2. Category scenario

C.2.1. Incoming entities

C.2.1.1. Remeasuring net identifiable asset to fair value

C.2.1.2. Booking goodwill

direct share method vs group share method

C.2.1.3. Bargain purchase

C.2.2. Step acquisitions

C.2.2.1. Change in method – equity method to full consolidation

As regards a change from equity method to full consolidation, it means that: