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Junior Philippine Institute of Accountants

Discussion Reviewer in Advanced Accounting


Business Combination

Disclaimer: This handout is not meant to replace the prescribed book of the college. No part of
this handout may be reproduced or sold for personal gain without permission from the preparers
but may be reproduced for academic purposes only.

Special thanks are dedicated to all of the professors and students, in the UST-AMV College of
Accountancy, and to God.

Preparers: Edilmar R. Fontanilla , CPA


Mark Stephen A. Asido, CPA

Sources: IFRS 3 – Business Combination


IFRS 10 – Consolidated Financial Statements
IAS 39 – Financial Instruments, Recognition and Measurement
IFRS 9 – Financial Instruments
Intermediate Accounting vol. 2 – Empleo and Robles
Advanced Accounting vol. 2 – Dayag
Theory of Accounts vol. 2 - Valix
UST-AMV College of Accountancy Professors

Definition of Terms (IFRS 3 – Business Combination):

1. Acquiree - The business or businesses that the acquirer obtains control of in a business
combination

2. Acquirer - The entity that obtains control of the acquiree

3. Acquisition date - The date on which the acquirer obtains control of the acquiree.

4. Business combination - A transaction or other event in which an acquirer obtains control


of one or more businesses. Transactions sometimes referred to as “true mergers” or
“mergers of equals” are also business combinations as that term is used in this IFRS.

5. Contingent Consideration - 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 also may give the acquirer the right to the return of previously
transferred consideration if specified conditions are met.

6. Fair value - is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date.

7. Non-controlling interest - The equity in a subsidiary not attributable, directly or


indirectly, to a parent

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Junior Philippine Institute of Accountants
Discussion Reviewer in Advanced Accounting
Business Combination

MODES OF BUSINESS COMBINATION:

1. Merger. This is where an acquirer wholly purchases a company. As a result, the acquiring
company will remain as a LEGAL entity while the acquired company will be totally
dissolved.

This can be viewed as (A+B=A), where A is the acquirer and B is the acquiree.

2. Stock Acquisition. This mode of business combination is where the acquirer purchases
certain shares of a company for the purpose of obtaining control.

According to IFRS 10 (Consolidated Financial Statements), an investor controls an investee


when it is exposed, or has rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the investee.

According to US GAAP, an entity obtains control when it holds more than 50% over the
investee company. Thus, a parent-subsidiary relationship exists. However, there can be no
both entities having control in each other. It must be settled among the entities who has the
controlling interest and if it cannot be settled, IFRS 11 (Joint Arrangement) will apply.

(Note: A 100% stock acquisition is not a merger. In a 100% stock acquisition, the legal entity of
the acquiree will still remain unlike in a merger where the acquiree is dissolved after acquisition.)

TABLE 1.1 Comparison between Merger and Stock Acquisition

Merger Stock Acquisition


Nature of entity Acquirer – Legal Entity/Surviving Parent – Legal Entity/Separate Entity
Company Subsidiary – Legal Entity/Separate Entity
Acquiree – Dissolved Entity Consolidation – Single Entity

Nature of Business Purchase of Net Assets Purchase of Stocks


Combination
Eliminating Entries Books of the subsidiary Working Papers

DATE OF ACQUISITION
COST OF INVESTMENT

The cost of investment is the consideration given to the owners of the acquired company for the
purchase of net assets (Merger) or stocks (Stock Acquisition) of the acquiree, this amount may
include a control premium in case of a stock acquisition. It may comprise of one or a combination
of the following:

1. Price paid in cash;


2. Noncash assets (At fair market value)
3. Shares of stocks (at the fair market value of shares of the acquirer)
4. Bonds (IFRS 9 will apply)
a. If FVPL or FVOCI – at Fair Value of the bonds
b. If AC – at Amortized Cost
5. Contingent Consideration
Note: Contingent Consideration is different to a contingent liability but it can be in
a form of cash, noncash, stocks, bonds etc.

When the cost of investment is determined, this shall be compared with the fair value of the net
assets of the acquiree. The acquiree’s assets and liabilities are acquired at its fair value and it
should be IDENTIFIABLE.

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Junior Philippine Institute of Accountants
Discussion Reviewer in Advanced Accounting
Business Combination

The fair value of identifiable assets of the acquiree should include, assets that are not yet
recorded in the books but determined that it has a fair value at the date of acquisition and
it should NEVER include the Goodwill recorded in the books. This is because, goodwill unlike
intangible assets, lacks identifiability. Also, any contingent assets shall NOT be considered as
part of the fair value of identifiable net assets. The fair value of liabilities may, however, include
Contingent liabilities.

(Note: Net Identifiable assets is different from identifiable assets.)

MERGER

Any difference of the Cost of Investment and the Fair value of the identifiable net assets of the
acquiree is attributable to Goodwill or Gain on Acquisition (Gain on Bargain Purchase). This
goodwill or gain on acquisition may be adjusted further during the measurement period.

Note: In a merger, the goodwill from business combination is recorded in the books of the
surviving company and not in the working papers. The old books of the acquiree will be closed
and all the assets and liabilities (at fair value) of the dissolve entity will be recorded in the books
of the acquiring company.

Illustration:

On January 1, 2017, POGO CAT Corporation acquired the net assets of SUSHI CAT Company for
P900,000. The acquirer also issued 100,000, P10 par common stock and bonds of 10% P700,000.
In addition, the acquirer will pay the acquiree a consideration of P930,000 when the revenue for
the year exceeds P2,000,000. There is 40% probability that this consideration will be paid. The fair
value of the common stock of POGO CAT and SUSHI CAT are P14 and P12.5, respectively. The
book values and fair values of the acquirer and acquiree immediately before the business
combination are presented below:

POGO CAT Corporation SUSHI CAT Company


Book Value Fair Value Book Value Fair Value
Cash P2,020,000 P2,020,000 P335,000 P335,000
Trade and Other Receivables 454,000 530,000 360,000 380,000
Merchandise Inventory 570,000 630,000 441,000 456,000
Building, net 1,905,000 1,985,000 1,420,000 1,235,000
Land 790,000 P820,000 750,000 833,000
Goodwill 250,000 - 170,000 -
Total Assets P5,989,000 P3,476,000

Trade and Other Payables P450,000 P510,000 P540,000 P540,000


Contingent Liabilities - P240,000 - 327,000
Common Stock, P10 par 1,800,000 1,200,000
Additional Paid-in Capital 2,550,000 970,000
Retained Earnings 1,189,000 766,000
Total Liabilities and Equity P4,489,000 P3,476,000

In this problem, we should first determine the COST OF INVESTMENT which will be computed
as follows:

Price Paid P900,000


Shares of Stocks (100,000 x P14) 1,400,000
Bonds at face value 700,000
Contingent consideration (P930,000 x 40%) 372,000
Total P3,372,000

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Junior Philippine Institute of Accountants
Discussion Reviewer in Advanced Accounting
Business Combination

This amount will be compared to the fair value of the net identifiable assets acquired on which
excess will be attributable to a goodwill/(gain on acquisition) as the case may be. Take note that
the assets considered is at its fair value and should exclude goodwill. The liabilities, on the other
hand, should also be recorded at fair value and even the contingent liability will also be
considered. Note that the amount of cash in the books are always equal to its fair value.

The fair value of the net identifiable assets are computed as follows:

Cash P335,000
Trade and other receivables 380,000
Merchandise Inventory 456,000
Building, net 1,235,000
Land 833,000
Less:
Trade and other payables (540,000)
Contingent Liability (327,000)
FAIR VALUE OF IDENTIFIABLE NET ASSETS P2,372,000

As a result, the business combination resulted at a goodwill of P1,000,000 (P3,372,000 –


P2,372,000). This amount will be reported as a non-current asset in the books of the surviving
company. If the business combination resulted at a gain on acquisition, such amount will be
taken to profit and loss in the Statement of Comprehensive income which will be eventually closed
to the retained earnings. However, in the scenario, it resulted in a goodwill and the entries in
books will be as follows:

Trade and other Receivables 380,000


Merchandise Inventory 456,000
Building, net 1,235,000
Land 833,000
Goodwill 1,000,000
Cash (P335,000-P900,000) 565,000
Trade and other payables 540,000
Contingent Liability 327,000
Common Stock 1,400,000
Bonds 700,000
Estimated Liability for Contingent Consideration 372,000

ACQUISITION RELATED COSTS

According to IFRS 3, Acquisition-related costs are costs the acquirer incurs to effect a
business combination. Generally, acquisition-related costs are expensed in the periods which the
costs are incurred and the services are received. But in exception, cost to issue debt and equity
securities share be recognized in accordance with IAS39 and IFRS 9.

The following are examples of acquisition-related costs.

1. Directly attributable costs – these costs include professional fees paid to accountants,
legal consultations and other fees for services to effect the business combination such as
finder’s fee and brokerage fees. To be quickly reminded of the examples, these can be
costs for services that are attributable to persons who are not necessarily employees of
the company. These cost are treated as an EXPENSE.

2. Indirectly attributable costs – these costs includes general and administrative expenses
which are, from the term itself, not directly related to the business combination. These
costs are normally salaries of employees, depreciation expenses and other normal
company expenses. The cost are also EXPENSED.
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Junior Philippine Institute of Accountants
Discussion Reviewer in Advanced Accounting
Business Combination

3. Cost to issue equity securities (Share Issuance Costs) – these costs includes costs that
are necessary for the issuance of securities which may include cost of registering stocks,
cost of printing, issuing stock certificates and other related transaction costs as
referred to IAS39 and IFRS 9.

*In the new interpretation of the Philippine Interpretations Committee (PIC), these costs
are treated in the following order:

1. Debit to APIC from previous issuance


2. Debit to APIC from sources other than the previous issuance
3. Retained Earnings.

4. Cost of registering and issuing debt securities –these include adviser’s fee, underwriting
costs and brokerage fees. These costs are treated as bond issue costs.

MEASUREMENT PERIOD

During the measurement period, the provisional amounts and the goodwill or gain on
bargain purchase recognized at the date of acquisition shall be retrospectively adjusted as long
as the following criteria are satisfied.

1. The measurement period shall not exceed one (1) year from the acquisition date.
2. The reasons for the changes in the provision are facts and information already existing
(also known as old or existing events) at the acquisition date.

Note: But once that the changes in the provisional amounts happened after one (1) year from
acquisition date or the reason of the changes are pertinent to facts and information that are
inexistent (NEW EVENTS) from the acquisition date, the treatment of these changes are reflected
in the profit or loss.

Examples of new events are as follows:

1. Achievement of certain revenue or profit;


2. Achievement of a market share and other economic achievements;
3. Amortization of bonds if the contingent consideration are in the form of bonds or other
financial liabilities in amortized cost;
4. Changes in the fair value in cases of contingent consideration in form of stocks or bonds
measured at fair value.

Note: Mere changes due to errors of estimation of contingent consideration are NOT
considered as new events. However, such changes should be retroactively adjusted in the
goodwill or gain on acquisition arising from business combination. An example of this is when an
entity measured a contingent consideration in form of bonds at amortized cost. Normally an entity
cannot initially determine the exact rate to be used. In this case, the entity might estimate a
temporary effective rate and since it is just an estimation, this might change over a period of time.
Such changes will be considered as old events.

Note: The goodwill or gain on acquisition may change several times as long as it satisfies the
criteria as mentioned above.

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Junior Philippine Institute of Accountants
Discussion Reviewer in Advanced Accounting
Business Combination

STOCK ACQUISITION

As far as the topic is concerned, the consideration given up to effect the business combination in
a stock acquisition is the same as the consideration given in a merger as previously discussed. But
in a stock acquisition, as the term itself, is the purchase of the stocks to gain control over an entity.
Note that in a stock acquisition, the parent acquires stocks from the shareholders of the
subsidiary and not directly from the company. If the acquired company issued shares to the
acquirer resulting to a control of the purchaser, the effect is a reverse acquisition. As a result, the
purchaser gained control over the company.

To start with a stock acquisition, the following must be determined:

1. The acquiring company and the company whose stock are being acquired;
2. The date of acquisition;
3. The control the acquirer gained as a result of the stock acquisition.
4. The fair value of the net identifiable assets.
5. The method of measuring goodwill and non-controlling interest.

METHOD OF MEASURING GOODWILL AND NON-CONTROLLING INTEREST

1. Full-Goodwill Approach or Fair Value Option – in this method, goodwill will be


recognized and allocated in the part of the non-controlling interest.
2. Partial-Goodwill Approach or Proportionate Basis of Goodwill – the goodwill/(gain on
acquisition) will only allocated to the controlling interest.

If the problem is silent, the Full-Goodwill Approach is used whenever it is applicable. But there are
instances that the Full-Goodwill approach is inapplicable. According to IFRS 3, paragraph 32, the
acquirer shall recognize goodwill as of the acquisition date measured as the excess of the
(a) over (b):

a. The aggregate of:


1. Consideration transferred
2. Non-controlling interest
b. Fair value of the net assets

And if the amount of the Fair value of net assets is in excess of the aggregate amount of the
consideration transferred and the non-controlling interest, the business combination will result
into a gain on acquisition:

Note: In the separate allocation of goodwill, the amount of the fair value of the net assets
attributable to the controlling interest can be in excess of the consideration transferred, but, the
fair value of the net assets attributable to the non-controlling interest can NEVER be in excess of
the FV of the non-controlling interest.

If the company resulted into a gain on acquisition, no part of the gain shall be allocated to the
non-controlling interest.

Reason: The parent acquires the subsidiary because the acquired company has worth to the
acquiring company. Thus, we should never assess the fair value of the non-controlling interest
lower than the fair value of the net assets attributable to the non-controlling interest.

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Junior Philippine Institute of Accountants
Discussion Reviewer in Advanced Accounting
Business Combination

Case 1: To further illustrate, assume that JN Corporation acquired MM Company at a price of


P4,000,000 for a 80% interest in the company. The fair value of the net identifiable assets of MM
amounts to P3,000,000.

In this case, the fair value of the non-controlling interest is not given and it is silent on what
measurement approach is used. Then we should use the Fair value approach if possible and
assume an amount of the fair value of non-controlling interest from the consideration transferred.

Controlling Interest(80%) Non-controlling Interest (20%) Total


Consideration 4,000,000 1,000,000 (5M x 20%) 5,000,000
transferred and (4M / 80%)
FVNCI
FV of Net 2,400,000 (3M x 80%) 600,000 (3M x 20%) 3,000,000
Assets
Goodwill 1,600,000 200,000 2,000,000

You will notice that the assumed fair value of non-controlling interest is not lower than the fair
value of the net assets attributable to the non-controlling interest. Therefore, the amount of the
fair value of the non-controlling interest is valid.

Total Goodwill from business combination: 2,000,000


Amount of non-controlling interest: 1,000,000
Assume further that the company uses the proportionate basis in measuring the goodwill and
the FV of NCI.

Controlling Interest(80%) Non-controlling Interest(20%) Total


Consideration 4,000,000 600,000 4,600,000
transferred and
FVNCI
FV of Net 2,400,000 (3M x 80%) 600,000 (3M x 20%) 3,000,000
Assets
Goodwill 1,600,000 0 1,600,000

You will notice that the goodwill is only attributable to the controlling interest in case of partial
goodwill approach.
Total goodwill from business combination: 1,600,000
Amount of non-controlling interest: 600,000

Case 2: Assume that JN Corporation acquired MM Company at a price of P4,000,000 for a 80%
interest in the company. The fair value of the net identifiable assets of MM amounts to P3,000,000.
The fair value of the non-controlling interest as of the date of acquisition amounts to P650,000.

Controlling Interest(80%) Non-controlling Interest(20%) Total


Consideration 4,000,000 650,000 4,650,000
transferred and
FVNCI
FV of Net 2,400,000 (3M x 80%) 600,000 (3M x 20%) 3,000,000
Assets
Goodwill 1,600,000 50,000 1,650,000

There is no need to assume a fair value of non-controlling interest because it is already determined
as of the date of acquisition.
Total goodwill from business combination: 1,650,000
Amount of non-controlling interest: 650,000

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Junior Philippine Institute of Accountants
Discussion Reviewer in Advanced Accounting
Business Combination

Assume further that the company uses the proportionate basis in measuring the goodwill and the
FV of NCI.

Controlling Interest(80%) Non-controlling Interest(20%) Total


Consideration 4,000,000 600,000 4,600,000
transferred and
FVNCI
FV of Net 2,400,000 (3M x 80%) 600,000 (3M x 20%) 3,000,000
Assets
Goodwill 1,600,000 0 1,600,000

We will still refer to the method used by the entity despite the determined fair value of non-
controlling interest.

Case 3: Assume that JN Corporation acquired MM Company at a price of P4,000,000 for a 80%
interest in the company. The fair value of the net identifiable assets of MM amounts to P3,000,000.
The fair value of the non-controlling interest as of the date of acquisition amounts to P550,000.

In this scenario, we cannot use the given fair value of the non-controlling interest because it is
lower than the fair value of the net assets attributable to the non-controlling interest. Always be
reminded that there should never be a negative goodwill attributable to the non-controlling
interest. Even if the company will use the fair value approach, it is inappropriate in this scenario.
Therefore we should use the proportionate approach.

Controlling Interest(80%) Non-controlling Interest(20%) Total


Consideration 4,000,000 600,000 4,600,000
transferred and
FVNCI
FV of Net 2,400,000 (3M x 80%) 600,000 (3M x 20%) 3,000,000
Assets
Goodwill 1,600,000 0 1,600,000

Important: In every problem, always and all the time, check if the fair value attributable to the
non-controlling interest exceeds in the amount of the fair value of net asset.

Case 4: Assume that JN Corporation acquired MM Company at a price of P4,000,000, including a


P500,000 control premium, for a 80% interest in the company. The fair value of the net identifiable
assets of MM amounts to P3,000,000.

Control premium – the excess amount over the market acquisition price that the buyer is willing
to pay in order to gain control.

It should be accounted for as part of the controlling interest only, therefore we should avoid
allocating any part of this control premium in accounting for the fair value of the non-controlling
interest. If we will assume an amount of the non-controlling interest, we should exclude the
amount of the control premium in the consideration transferred.

Controlling Interest(80%) Non-controlling Interest(20%) Total


Consideration 4,000,000 875,000 4,875,000
transferred and [(4,000,000-500,000)/80% x 20%]
FVNCI
FV of Net 2,400,000 (3M x 80%) 600,000 (3M x 20%) 3,000,000
Assets
Goodwill 1,600,000 275,000 1,875,000

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Junior Philippine Institute of Accountants
Discussion Reviewer in Advanced Accounting
Business Combination

If the amount of the control premium in already excluded in the consideration transferred, the
whole P4,000,000 will be considered in assuming the fair value of the non-controlling interest.

Case 5: Assume that JN Corporation acquired MM Company at a price of P4,000,000, including a


P500,000 control premium, for a 80% interest in the company. The fair value of the net identifiable
assets of MM amounts to P4,500,000.

Controlling Interest(80%) Non-controlling Interest(20%) Total


Consideration 4,000,000 900,000 4,900,000
transferred and
FVNCI
FV of Net 3,600,000 (4.5M x 80%) 900,000 (4.5M x 20%) 4,500,000
Assets
Goodwill 400,000 0 400,000

In this scenario, we cannot use the assumed fair value of non-controlling interest of P875,000
because it is lower than the fair value of net asset attributable to the non-controlling interest.
Therefore, we will use the proportionate approach.

STEP ACQUISITION

Business combination may be achieved in stages. When a transaction results into gaining of
control from no control, because of additional stocks purchased, the event is considered to be a
step acquisition. For example, an investment in equity securities or an investment in associate
becomes an investment in subsidiary by purchasing additional stocks of the subsidiary.

According to IFRS 3, paragraph 42, 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 recognize the resulting gain or loss, if any, in profit or loss or other comprehensive income,
as appropriate.

To illustrate further, these are two independent scenarios when a company gains control over an
entity in a step acquisition.

Case 1: From investment in equity securities to investment in subsidiary

Pause Corporation acquires 15% of Stop Company for P500,000 on January 1, 2017. After 5
months, Pause acquired an additional 55% interest for P2,750,000. The fair value of the 30% non-
controlling interest as of this date amounts to P1,600,000. The fair value of the net assets of Stop
Company amounts to P4,500,000.

In this scenario, the business combination has effected from the purchase of additional stocks for
another 55% interest. The P500,000 equity security will be remeasured to P750,000
(P2,750,000/55% x 15%) before the business combination. The gain of P250,000 will be taken
to profit or loss if the equity security previously held is measure as fair value through profit or loss.
But if it is measured previously at fair value through other comprehensive income, the gain is
taken into other comprehensive income.

Page 9 of 11
Junior Philippine Institute of Accountants
Discussion Reviewer in Advanced Accounting
Business Combination

The determination of goodwill are as follows:

Controlling Controlling Non-controlling Total


interest 55% interest 15% interest 30%
Consideration 2,750,000 750,000 1,600,000 5,100,000
transferred, previous
equity instrument and
FVNCI
Fair value of net assets 3,150,000 1,350,000 4,500,000
Goodwill 350,000 250,000 600,000

Case 2: From investment in associate to investment in subsidiary.

Pause Corporation has an investment in associate on January 1, 2017 with a book value of
P2,400,000. This equity investment represents 25% interest from Stop Company. On March 1,
2017, Stop company declared and gave Pause Corporation a dividend of P250,000. On July 1,
2017, Pause Corporation acquired stocks and gained another 35% interest of Stop Company for
P3,850,000 and a business combination took place. The net income of Stop Company for the 6-
month period amounts to P1,500,000. The fair value of net assets of Stop Company as of the
business combination amounts to P10,000,000 while the fair value of the non-controlling interest
is P4,200,000.

The investment in associate should be adjusted first to its updated book value as of July 1, 2017.
The computation are as follows:

Investment in Associate
Beginning balance 2,400,000 250,000 Dividends received
Share in Profit (1,500,000 x 25%) 375,000
Adjusted book value 2,525,000

The adjusted book value will be remeasured to the fair value of P2,750,000 (P3,850,000/35% x
25%). The difference of P225,000 will be taken into the profit and loss portion of the statement of
comprehensive income.
The goodwill from business combination should be therefore computed as follows:

Controlling Controlling Non-controlling Total


interest 35% interest 25% interest 40%
Consideration 3,850,000 2,750,000 4,200,000 10,800,000
transferred, previous
equity instrument and
FVNCI
Fair value of net assets 6,000,000 (10M x 60%) 4,000,000 (10M x 40%) 10,000,000
Goodwill 600,000 200,000 800,000

INITIAL ELIMINATING ENTRIES PERTINENT TO A STOCK ACQUISITION


The purpose of eliminating entries in the working papers during a business combination by stock
acquisition is to consolidate the companies for the presentation of the consolidated financial
statements. The eliminating entries are as follows:

1. To eliminate the equity of the subsidiary

Share Capital xx
Share Premium xx
Retained Earnings xx
Investment in Subsidiary xx Based on control
Non-controlling interest xx percentage
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Junior Philippine Institute of Accountants
Discussion Reviewer in Advanced Accounting
Business Combination

2. To adjust the book value of the net asset of the subsidiary to its fair value

Adjustment of an understated asset xx


Adjustment of an overstated liability xx
Adjustment of an understated liability xx
Adjustment of an overstated asset xx
Investment in subsidiary xx Based on control
Non-controlling interest xx percentage

3a. To recognize a goodwill on business combination.

Goodwill xx
Investment in subsidiary xx Based on the
Non-controlling interest xx
attributable goodwill

3b. To recognize a gain on acquisition (gain on bargain purchase

Investment in subsidiary xx
Gain on Acquisition xx

ENTITIES REQUIRED TO PRESENT A SET OF CONSOLIDATED FINANCIAL STATEMENTS

The standards did not enumerate directly the entities that are required to present consolidated
financial statements, however they have enumerated the conditions when not to present a set of
consolidated financial statements.

According to IFRS 10, (Business Combination), paragraph 4, an entity that is a parent shall
present consolidated financial statements. This IFRS applies to all entities, however, a parent
need not present consolidated financial statements if it meets all the following conditions:

1. The parent is a wholly-owned or partially-owned subsidiary of another entity and all its
other owners.
2. The debt or equity instruments are not traded in a public market.
3. The parent did not file, nor is it in the process of filing, its financial statements with a
securities commission or other regulatory organization for the purpose of issuing any class
of instruments in a public market; and
4. The entity has an ultimate parent or any intermediate parent that is produces financial
statements that are available for public use and comply with IFRSs, in which subsidiaries
are consolidated or are measured at fair value through profit or loss in accordance
with the IFRS.

Note: According to IFRS 10, paragraph 4B, a parent that is an investment entity (e.g Dealer of
securities) shall not present consolidated financial statements if it is required, in accordance with
paragraph 31 of this IFRS, to measure all of its subsidiaries at fair value through profit or loss.

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