Bab 3 Aplikasi Metode Akuisisi 2019

BAB 3
STIE YKPN
YOGYAKARTA PELAPORAN GRUP II:

www.stieykpn.ac..id
APLIKASI METODE
AKUISISI
HAL : 1
Tujuan Pembelajaran
1. Memahami perbedaan laporan keuangan tersendiri dengan

laporan keuangan konsolidasi;
2. Memahami proses konsolidasi berikut kertas kerjanya;
3. Penerapan metode akuisisi dan implikasinya;
4. Bisa menentukan kos/jumlah investasi yang ditransfer
5. Memahami identifikasi investor atau pembeli saham anak;
6. Bisa menentukan dan mengukur aset neto teridentifikasi;
7. Memahami sifat goodwill;
8. Mereview konsep non-controlling interests (NCI) berdasarkan
teori induk dan entitas; dan
9. Memahami jurnal eliminasi/konsolidasi yang berkaitan
penyesuiaan nilai wajar pada tanggal akuisisi dan tahun
berikutnya
Tan & Lee Chapter 3 © 2009 2
Content
1. Introduction
Pendahuluan
2. Proses Konsolidasi
3. Metode akuisisi
4. Determining the amount of consideration transferred
5. Recognition and measurement of identifiable assets, liabilities and
goodwill
6. Accounting for non-controlling interests under IFRS 3
7. Effects of amortization, depreciation and disposal of undervalued
or overvalued assets and liabilities subsequent to acquisition
8. Goodwill impairment tests

Laporan Keuangan Terpisah Vs Konsolidasi
Separate financial Consolidated financial

statements statements
(Legal entity) (Economic entity)
Pengakuan Laba Pendapatan Dividen Bagian Laba
Investasi di Anak dicatat
sebesar: Investment in Subsidiary:
• Kos/Cost (IAS 27) or • Investasi di Anak dieliminasi
dengan aset neto anak (IAS
• sebagai instrumen 27)
Keuangan (IAS 39)
Asset recognition Investment in an Investment in an associate:
associate carried at:
• Metode Ekuitas (IAS 28)
• Cost (IAS 28) or
• As a financial
instrument (IAS 39)

Content
1. Introduction
2. Overview of
Overview of the
the consolidation
consolidation process
process
3. The acquisition method
goodwill

Consolidation Process
Legal entities Economic entity
Parent’s Subsidiaries' Consolidation adjustments Consolidated

Financial + Financial +/- and eliminations = financial
Statements Statements statements
• Consolidation is the process of preparing and presenting the

financial statements of a group as an economic entity
• No ledgers for group entity
• Kertas kerja konsolidasi dibuat untuk:
– Combine parent and subsidiaries financial statements
– Penyesuaian dan eliminasi transaksi antar induk anak
– Alokasi laba untuk non-controlling interests

Intragroup Transactions
• Intragroup transactions are eliminated to:
– Show the financial position, performance and cashflow of the economic (not
legal) entity
– Avoid double counting of transactions
Example:
• Induk jual sediaan ke anak sbs $2M
• Kos sediaan $1M
• Anak jual ke pihak eksternal seharga $3M
Q: What is the journal entry to eliminate intragroup sales transaction?

Consolidation adjustment
Dr Penjualan 2,000,000
Cr HPP/KBT 2,000,000

Intragroup Transactions
Extract of consolidation worksheet

Consolidation
elimination entries
Parent's Subsidiary’s Consol.
and adjustments
Income Income Income Without
Statement Statement Dr Cr Statement elimination
Sales $2,000,000 $3,000,000 2,000,000 $3,000,000 $5,000,000
Cost of
sales (1,000,000) (2,000,000) 2,000,000 (1,000,000) ($3,000,000)
Gross
profit $1,000,000 $1,000,000 $2,000,000 $2,000,000
Note: Without elimination the consolidated sales and cost of sales figures
will be overstated by $2 M.

Content
1. Introduction
2. Overview of the consolidation process
3. The acquisition
The acquisition method
method
goodwill

Kombinasi Bisnis
Where an acquirer
obtains control of
one or more
businesses (IFRS 3
Business App A)
combinations
Examples: IFRS 3 App B:B6

Legal merger Net assets Former
Businesses
of net assets of combining owners of a
become
of acquired entities transferred combining entity
subsidiaries of
businesses into to a newly-formed obtains control
acquirer
acquirer’s books entity of combined entity

Metode Akuisisi
• IFRS 3 requires all business combinations to be accounted for using

the acquisition method
4-step
• The procedures: approach:
IFRS 3:5
Identify the acquirer
Determine the acquisition date
Recognize and measure the identifiable assets acquired

Group the liabilities assumed and any non-controlling
financial interest in the acquiree; and
statements
if acquire
subsidiaries Recognize and measure goodwill or
a gain from a bargain purchase

Identify the Acquirer
• IFRS 3 requires the identification of the acquirer in all circumstances

– Acquirer is the entity that obtains control of another combining entities
– Control is the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities

Additional control criteria under IFRS 3 Appendix B
Based on consideration
Based on entity size Based on dominance
transferred
Acquirer is the entity that: Acquirer is the entity that: Acquirer is the entity:
• Transfers cash or other • Has the largest relative • Whose owners have the
assets or incurs liabilities to voting rights in a combined ability to elect, appoint or
acquire another entity entity remove a majority of
directors
 Issues shares as purchase • Holds the largest minority
consideration voting interest in the • Whose management is
combined entity (if no other dominant in the combined
 Pays a premium over the entity has significant voting entity
fair value of the equity interest)
interest •Who initiates the business
• Is relatively larger in size combination
• Reverse acquisition
– Legal parent is the acquiree and legal subsidiary is the acquirer
– Often initiated by the legal subsidiary
– Has other motive of entering into such an arrangement (eg. Backdoor
listing)
• Exchange of shares in a reverse acquisition

1. Company A (Legal parent) takes Owners of Company B
over shares of Company B from (Legal subsidiary)
owners
2. Company A issues own shares
Company A to owners of Company B as
(Legal parent) purchase consideration
Company B
3. Company B has the power to govern (Legal subsidiary)
the financial and operating policies of the
legal parent
Content
1. Introduction
4. Determining the
Determining the amount
amount of
of consideration
consideration transferred
transferred
goodwill

Menentukan Jumlah yang ditransfer
Yang NW aset NW utang NW ekuitas NW utang

Ditransfer = + + + kontinjensi
ditransfer
• Fair value of the consideration transferred:

– Determined on the acquisition date
– Acquisition date is the date when the acquirer obtains control and not
the date when consideration is transferred

Fair Value of Assets Transferred
or Liabilities Assumed
• If assets transferred or liabilities assumed are not carried at fair
value in the acquirer’s separate financial statements:
– Remeasured gain or loss is recognized in the acquirer’s separate
financial statements
– Remeasured gain or loss is not recognized if the assets or liabilities
remain in the combined entity’s financial statements
• If transfer of monetary assets or liabilities are deferred:

– The fair value will be the present value of the future cashflows
– Eg. Future cash settlement of $1,000,000 is due 3 years later and 3%
interest is levied
Fair value = $1,000,000/ (1+0.03)^3
= $915,142

Fair value of Equity Interests Issued
by the Acquirer
• Nilai wajar ekuitas:
– Harga pasar
– Jika harga pasar tidak tersedia:
• A proportion of acquirer’s fair value or proxied by the fair value of
equity interest acquired, whichever is more reliably measurable

Illustration 1:
Fair Value of Equity Issued
P Ltd memperoleh 100% saham S Co dengan menerbitkan
5,000,000 lembar ke pemasok S Co.
P Ltd S Co
Number of existing shares 10,000,000 2,000,000
Number of new shares issued 5,000,000 -
Market price per share $2.00 -
Fair value of equity $24,000,000 $9,000,000

Illustration 1:
Fair Value of Equity Issued
Q1: P Ltd’s market price is a reliable indicator
Consideration transferred = 5,000,000 shares x $ 2.00

= $10,000,000
Q2: P Ltd’s market price is not a reliable indicator; a proportional

interest in the fair value of P Ltd is a better estimate
Consideration transferred = (5,000,000/15,000,000) x $24,000,000

= $8,000,000
Q3: Fair value of S Co is a better estimate

Consideration transferred = $9,000,000

Fair Value of Contingent Consideration
• Contingent consideration
– Obligation (right) of the acquirer to transfer (receive) additional assets or
equity interests to (from) acquiree’s former owner if specific event
occurs
• Eg. Acquirer gets a refund of a part of the consideration transferred if the
acquiree does not achieve the target profit
– Fair value of the contingent consideration (refund) is added to (deducted

from) consideration transferred

Acquisition-Related Costs
• All acquisition-related costs are expensed off

• Costs of issuing debt are recognized in accordance with IAS 39
– As yield adjustment to the cost of borrowing and are amortized over the
life of the loan
– Journal entry for the payment of debt issuance cost
Dr Unamortized debt issuance costs
Cr Cash
• Costs of issuing equity are recognized in accordance with IAS 32

– A reduction against equity
– Journal entry to record the payment of cost of issuing equity
Dr Equity
Cr Cash

Content
1. Introduction
5.
5. Recognition and
Recognition and measurement
measurement of
of identifiable
identifiable assets,
assets, liabilities
liabilities and
and
goodwill
goodwill

Elimination of Investment Account
What the parent is paying for
Consideration Share of book Share of

transferred value of excess of fair
Goodwill
subsidiary’s + value over +
= net assets at book value of
acquisition identifiable net
date assets
Eliminated against
subsidiary’s share
capital and pre-
acquisition retained
earnings
• Investment account is eliminated

– Substituted with subsidiary’s identifiable net assets and goodwill (residual)
– Avoid recognizing assets in two forms (investment in parent’s balance sheet and
individual assets and liabilities of the subsidiary)

Recognition Principle
Business Combination accounted under the acquisition method
At acquisition date, the acquirer will recognize

subsidiary’s net assets at fair value
To qualify for recognition:
Identifiable net assets must meet the Identifiable net assets must be priced into
definition of an asset or a liability the consideration transferred
Rationale:
There is an effective ”purchase” of the
There has been an exchange transaction
subsidiary’s identifiable assets and
at arm-length pricing
liabilities at fair value

Recognition Principle
Fair value At acquisition date:

differential • Fair value differential
(FV-BV) of will be recognized in
identifiable net the consolidation
assets worksheet
In subsequent years:
• Depreciation/amortization/
Book value of Book value of cost of sale of asset will be
subsidiary’s subsidiary’s based on the fair value
identifiable net identifiable net recognized at the
assets assets acquisition date
recognized in
In separate
consolidated These entries have to be re-
financial
financial enacted every year until
statements
statements disposal of investment

Intangible Assets
• IFRS 3 requires the acquirer to recognize the fair value of an

acquiree’s unrecognized identifiable asset (e.g. intangible asset) in
the combined financial statements
– Justified by the acquisition of the subsidiary by the parent
• To qualify for recognition, the intangible asset must be:

Example:
• Assembled workforce with specialized
knowledge
Or must • Fails to meet the separability
arise from criterion
contractual • Opportunity gains from an operating
or legal lease in favorable market conditions
rights • Meets the contractual-legal
criterion
Contingent Liabilities & Provisions
• Contingent liabilities are recognized if they are:
– Present obligations arising from past events and
– Reliably measurable in their fair value, even if outcome is not probable
(IFRS 3:23)
• Provisions for restructuring & termination cost are recognized if they
are:
Probable
outflow of
Reliably
economic
measurable
resources
Present
constructive or
legal obligations
arising from past
events
Indemnification Assets
• Contractual indemnity
– Provided by the sellers of the acquiree to the acquirer to make good any
loss arising from contingency or an asset or a liability
• Treatment for indemnity

– The acquirer has to recognize an “indemnification asset” at the same
time the indemnified asset or liability is recognized
– The indemnification asset is measured on the same basis as the
indemnified asset or liability
• Eg. An acquiree is exposed to a contingent liability. Based on

probabilistic estimation, the FV of the contingent liability is $100,000.
The seller provides a contractual guarantee to indemnify the
acquirer of the loss.
– In the consolidated balance sheet, contingent liabilities and an
indemnification asset of $100,000 will be recognized at fair value
Deferred Tax Relating to FV Differentials of
Identifiable Assets and Liabilities
• The recognition of fair value differential may give rise to future tax
payable or future tax deduction
– tax effects need to be accounted for if the basis of taxation does not
change in a business combination
– i.e. If original asset is deductible based on book value, the FV
differential will give rise to a temporary taxable/deductible different
FV > Book value of identifiable assets Deferred tax liabilities

FV < Book value of identifiable assets Deferred tax assets
FV < Book value of identifiable liabilities Deferred tax liabilities
FV > Book value of identifiable liabilities Deferred tax assets
• No deferred tax liability is recognized on goodwill

Measurement Period
• IFRS 3 allows adjustments to be made retrospectively to goodwill,

fair value of identifiable net assets and consideration transferred:
– If new information about facts and circumstances existing at acquisition
date arises,
– Within 1 year of acquisition date
• After 1 year, any correction of errors will be deemed as a prior -

period adjustment
• Any change in estimate arising from new information on facts and

circumstances after the acquisition date will be recognized in the
current period and not retrospectively

Goodwill
• A premium that a parent pays to acquire the subsidiary
– Must be recognized separately as an asset
– Determined as a residual
• IFRS 3 allows 2 ways of determining goodwill:
Goodwill = NW yang ditransfer - NW Aset Neto
+ teridentifikasi
NW NCI
+
NW Aset Neto yang ditransfer
sebelumnya
Amount of non- Measured at fair value at acquisition date

controlling interests (include goodwill)
Measured as a proportion of identifiable

assets as at acquisition date

Goodwill
Goodwill
An expectation of Integral to the entity as

future economic a whole, not individually
benefits identifiable or severable
arising from acquisition as a standalone asset

Goodwill
• The “top-down approach” (Johnson and Petrone, 1998) results in
measurement errors in goodwill
Consideration transferred +
Overpayment for an
Amount of non-controlling interests
acquisition or
overvaluation of
consideration
transferred
Identifiable net assets

Measurement and
recognition errors
Goodwill
Above errors impact residual
goodwill
Goodwill
• In a “bottom-up” approach (Johnson and Petrone, 1998), goodwill is
substantiated as follows:
Goodwill
Internally-generated Fair value of

goodwill synergies
“Going concern element” and Generated from the unique

represent the ability of an combination of the acquirer
entity to generate higher rate and acquiree or “combination
of return over its individual goodwill”
assets or “core goodwill”
Gain From a Bargain Purchase
• A gain from bargain purchase arises when:
Fair value of consideration transferred Acquiree’s net
<
+ identifiable assets
Amount of non-controlling interests measured in
+ accordance with
Fair value of the acquirer’s previously IFRS 3
held interest in the acquiree
• The acquirer must re-assess the fair value of identifiable net assets,
consideration transferred and non-controlling interests. If there is no
measurement error:
– The gain will be recognized immediately in the income statement

Content
1. Introduction
goodwill
6. Accounting for non-controlling interest
interestsunder
underIFRS
IFRS33

Non-Controlling Interests’ Share of Goodwill
• IFRS 3 Para 19 allows NCI to be measured in either of two ways
Non-controlling interests
Measured at Fair Measured as a

value at acquisition proportion of identifiable
date (include assets as at acquisition
goodwill) date
(Fair value option)

• Under the fair value option:

– FV is determined by either the active market prices of subsidiary’s
equity share at acquisition date or other valuation techniques
– FV per share of NCI may differ from parent due to control premium paid
by parent
– NCI comprises of 3 items:
Non – controlling
interests
Share of book Share of Share of

value unamortized unimpaired
of net assets FV adjustment
(FV - BV) goodwill

• Under the fair value option:

– Journal entry to record NCI at fair value (re-enacted each year):
Dr Share capital of subsidiary
Dr Retained earnings at acquisition date
Dr Other equity at acquisition date
Dr FV differentials (FV- BV)
Dr Goodwill (Parent & NCI)
Dr/Cr Deferred tax asset/ (liability) on fair value adjustment
Cr Investment in subsidiary
Cr Non-controlling interests (At fair value)

• Under the 2nd option:

– NCI is a proportion of the acquiree’s identifiable net assets
– NCI comprises of 2 items:
Non – controlling
interests
Share of
Share of book value
of net assets unamortized
of FV adjustments
(FV- BV)

• Under the 2nd option:

– Journal entry to record NCI (re-enacted each year):
Dr Share capital of subsidiary

Dr Retained earnings at acquisition date
Dr Other equity at acquisition date
Dr FV differentials
Dr Goodwill (Parent only)
Dr/Cr Deferred tax asset/ (liability) on FV adjustment
Cr Investment in S subsidiary
Non-controlling interests
Cr (NCI % x FV of identifiable net assets)

NCI measured as a
NCI measured at FV proportion of the
acquiree’s identifiable
net assets
Book value of net assets
Fair value – Book value of

net assets
Goodwill

Accounting for Non-Controlling Interests
under IFRS 3
• In consolidation, non-controlling interests have a share of:
 Profit after tax
 Dividends declared
 Share capital
 Retained earnings and other comprehensive income (eg. Revaluation
reserve) at acquisition date
 Change in retained earnings and other comprehensive income from the
date of acquisition to the current period
 Fair value differential of a subsidiary’s net assets at acquisition date
 Goodwill (if the fair value alternative is adopted)

Reconstructing NCI on Balance Sheet
Date of Beginning of End of current

acquisition current year year
NCI have a share of NCI have a share of NCI have a share of

1. Share capital 1. Change in share capital 1. Profit after tax
2. Retained earnings 2. Change in retained 2. Current amortization of
earnings fair value differential
3. Other equity
3. Change in other equity 3. Current impairment of
4. Fair value differentials goodwill
4. Past amortization of fair
5. Goodwill value differential 4. Dividends as a
repayment of profits
5. Past impairment of
goodwill 5. Change in other equity

Allocation to Non-controlling Interests
1. Allocation of the change in equity from date of acquisition to the
current year
• To transfer the NCI’s share of subsidiary’s retained earnings to NCI
Dr Retained earnings (NCI % x in RE from acquisition date to

beginning of current period)
Cr NCI
2. Allocation of current profit after tax to NCI

Dr Income to NCI
Cr NCI

Allocation to Non-controlling Interests
3. Allocation of dividends to NCI
• A realization of residual in a subsidiary
• Reduces the NCI’s stake in the net assets of the subsidiary
• Elimination of dividends as follows:
Dr Dividend income (Parent)

Dr NCI (BS)
Cr Dividends declared (Subsidiary)
4. Can NCI be a debit balance?

• If NCI’s share of losses in a subsidiary > NCI’s existing share of
subsidiary’s net assets:
• NCI will have a debit balance under IAS 27

Analytical check on Non-controlling
Interests’ balance
NCI’s share of:

a) Book value of net assets of subsidiary at
year-end -/+ unrealized profit/loss from
NCI’s balance at
year-end = upstream sale
b) Unamortized balance of FV adjustments at
year-end
c) Unimpaired balance of goodwill at year-
end

Content
1. Introduction
goodwill
7. Effects
Effects of
of amortization,
amortization, depreciation
depreciation and
and disposal
disposal of
of undervalued
undervalued
or
or overvalued
overvalued assets
assets and
and liabilities
liabilities subsequent
subsequentto
to acquisition
acquisition

In Subsequent Years
• At acquisition date, we recognize:
– Fair value of identifiable net assets,
– Intangibles, contingent liabilities, and
– Deferred tax assets or liabilities on the above
• In subsequent years:
– Amortization, depreciation and cost of sales of the acquired assets must be
based on the fair value as at acquisition date
– Since net assets are carried at book value in the separate financial statements,
the subsequent amortization/depreciation/disposal are adjusted in the
consolidation worksheet
– Eg. When an identified asset is sold or depreciated:
BV of expense in (FV- BV) adjustment FV of expense

separate to expense in consolidated
financial + = financial
statements Adjusted in consolidation statements
worksheet
Illustration 2:
Amortization of Fair Value Differentials
• P Co paid $6,200,000 and issued 1,000,000 of its own shares to
acquire 80% of S Co on 1 Jan 20X5
• Fair value of P Co’s share is $3 per share
• Fair value of net identifiable assets is as follows:
Book value Fair value Remaining useful life
Leased property 4,000,000 5,000,000 20 years
In-process R&D 2,000,000 10 years
Other assets 1,900,000 1,900,000
Liabilities (1,200,000) (1,200,000)
Contingent liability (100,000)
Net assets 4,700,000 7,600,000
Share capital 1,000,000

Retained earnings 3,700,000
Shareholders’ equity 4,700,000
Illustration 2:
Additional information:
• Contingent liability of $100,000 was recognized as a provision by
the acquiree in Dec 20X5
• FV of NCI at acquisition date was $2,300,000
• Net profit after tax of S Co for 31 Dec 20X5 was $1,000,000
• No dividends were declared during 20X5
• Shareholders’ equity as at 31 Dec 20X5 was $5,700,000
Q1 : Prepare the consolidation adjustments for P Co for 20X5

Q2 : Perform analytical check on balance of NCI as at 31 Dec 20X5

Illustration 2:
• Consideration transferred = Cash consideration + Fair value
of share issued
= $6,200,000 + (1,000,000 x $3)
= $9,200,000
• Deferred tax liability = 20% x ($7,600,000 - $4,700,000)

= $580,000
• Goodwill = Consideration transferred + NCI – Fair value of net

identifiable assets, after-tax
= $9,200,000 + $2,300,000 – ($7,600,000 - $580,000)
= $4,480,000

Illustration 2:
• P’s share of goodwill = Consideration transferred – 80% x Fair
value of net identifiable assets, after tax
= $9,200,000 – 80% x $7,020,000
= $9,200,000 – $5,616,000
= $3,584,000
• NCI’s share of goodwill = Consideration transferred – 20% x Fair

value of net identifiable assets, after tax
= $2,300,000 – 20% x $7,020,000
= $2,300,000 – $1,404,000
= $896,000

Illustration 2:
Consolidation adjustments for 20X5
CJE 1: Elimination of investment in S
Dr Share capital 1,000,000

Dr Retained earnings 3,700,000
Dr Leased property 1,000,000
Dr In-process R&D 2,000,000
Dr Goodwill 4,480,000
Cr Contingent liability 100,000
Cr Deferred tax liability 580,000
Cr Investment in S 9,200,000
Cr Non-controlling interests 2,300,000

Illustration 2:
CJE 2: Depreciation and amortization of excess of FV over book value
Dr Depreciation of leased property 50,000
Dr Amortization of in-process R&D 200,000
Cr Accumulated depreciation 50,000
Cr Accumulated amortization 200,000
Under dep. by Under amort. by

$50k
Dep exp: $200k
$50,000
Amort exp:
$200,000
Dep. of $200,000 $200,000 Amort. of
leased R&D
property
$0
Based on Based on
Based on FV Based on FV
book value book value
Illustration 2:
CJE 3: Reversal of entry relating to provision for lawsuit
Dr Provision for lawsuit 100,000

Cr Loss from lawsuit 100,000
Note: Contingent liability was already recognized in CJE 1. The
recognition by the acquiree results in double counting; hence this
reversal entry is necessary
CJE 4: Tax effects on CJE 2 & CJE 3
Dr Deferred tax liability 30,000 20% * (200k

+50k -100k)
Cr Tax expense 30,000

Illustration 2:
CJE 5: Allocation of current year profit to non-controlling interests (NCI)
Dr Income to NCI 176,000

Cr NCI 176,000
Net profit after tax 1,000,000

Excess depreciation (50,000)
Excess amortization (200,000)
Reversal of loss from lawsuit 100,000
Tax effects on FV adjustments 30,000
Adjusted net profit 880,000
NCI’s share (20%) 176,000

Illustration 2:
NCI balance:
NCI at acquisition date (CJE 1) $2,300,000
Income allocated to NCI for 20x5 (CJE 5) 176,000
NCI as at 31 Dec 20x5 $2,476,000

Illustration 2:
Q2 : Perform an analytical check on the balance of NCI as at 31 Dec 20X5
Non – controlling
interests
Share of book Share of Share of

value unamortized unimpaired
of net FV
assets adjustment goodwill
$5,700,000 x 20% ($1,000,000 x 19/20 x $896,000 = $2,476,000

+ 80% x 20%) +
+
= $1,140,000
($2,000,000 x 9/10 x
80% x 20%) =
$440,000
Content
1. Introduction
goodwill
8.
8. Goodwill impairment
Goodwill impairment tests
tests

Goodwill Impairment Test
• IAS 36: Goodwill has to be reviewed annually for impairment loss
– Reviewed as part of a cash-generating unit (CGU)
• CGU is the lowest level at which the goodwill is monitored for internal
management purposes and
• Not larger than a segment determined under segment reporting
– Goodwill will be allocated to each of the acquirer’s CGU, or group of
CGUs

1. Carrying amount:
– Net assets of the cash-generating unit
– It includes entity goodwill attributable to parent and NCI
2. Recoverable amount:
– Higher of FV less cost to sell (an arms-length measure), or
• Uses market based inputs in the pricing mechanism
– Value in use
• Uses internal or entity-specific input to determine the future cash flows
3. If carrying amount > recoverable amount

– Impairment loss is allocated to goodwill
– Then to other assets in proportion to their individual carrying amounts
– Impairment once made is not reversible, as it may result in the
recognition of internally-generated goodwill which is prohibited under
IAS 38
Steps for impairment test
Determine the carrying amount of the CGU
Determine the recoverable amount of the CGU
Recoverable amount: Higher of fair value or value in use
If carrying amount ≤ If carrying amount ≥

recoverable amount recoverable amount
Allocate impairment loss

No impairment loss to goodwill first and
balance to other net assets
NCI as a proportion of
NCI at FV at acquisition
identifiable net asset at
date
acquisition date
Includes NCI’s share of Excludes NCI’s share of
Goodwill on consolidation
goodwill goodwill
Goodwill is allocated to Goodwill has to be grossed
cash-generating unit without up to include NCI’s share
Carrying amount of cash- further adjustment
generating unit Notionally adjusted goodwill
= Recognized goodwill/
parent’s interest
Impairment loss is shared
Impairment loss is borne
between parent and NCI on
Impairment loss only by parent as goodwill
the same basis on which
for NCI is not recognized
profit or loss is allocated

Conclusion
• All business combinations are accounted for using the acquisition

method:
– Consideration transferred = Fair value of (assets transferred + liabilities
incurred + equity interests issued by acquirer + contingent
consideration)
– Investment account is eliminated and substituted with:
• Subsidiary’s identifiable net assets; and
• Goodwill
– Goodwill = Fair value of (consideration transferred + non-controlling
interests + acquirer’s previously held interest in the acquiree) –
Acquiree’s recognized net identifiable assets

Conclusion
• In consolidation:
– All intragroup balances and transactions are eliminated
– Non-controlling interests have a share of:
 Profit after tax
 Dividends declared
 Share capital
 Retained earnings and other comprehensive income (eg. Revaluation
reserve) from acquisition date to current period
 Fair value differential of a subsidiary’s net assets at acquisition date
 Goodwill (if the fair value alternative is adopted)
– In the subsequent years, amortization, depreciation and cost of sales of
the acquired assets are based on fair value as at acquisition date

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BAB 3

YOGYAKARTA PELAPORAN GRUP II:

1. Memahami perbedaan laporan keuangan tersendiri dengan

Tan & Lee Chapter 3 © 2009 3

Separate financial Consolidated financial

Tan & Lee Chapter 3 © 2009 4

Tan & Lee Chapter 3 © 2009 5

Legal entities Economic entity

Parent’s Subsidiaries' Consolidation adjustments Consolidated

• Consolidation is the process of preparing and presenting the

Tan & Lee Chapter 3 © 2009 6

Q: What is the journal entry to eliminate intragroup sales transaction?

Tan & Lee Chapter 3 © 2009 7

Extract of consolidation worksheet

Tan & Lee Chapter 3 © 2009 8

Tan & Lee Chapter 3 © 2009 9

Examples: IFRS 3 App B:B6

Tan & Lee Chapter 3 © 2009 10

• IFRS 3 requires all business combinations to be accounted for using

Determine the acquisition date

Recognize and measure the identifiable assets acquired

Tan & Lee Chapter 3 © 2009 11

• IFRS 3 requires the identification of the acquirer in all circumstances

Tan & Lee Chapter 3 © 2009 12

Additional control criteria under IFRS 3 Appendix B

• Exchange of shares in a reverse acquisition

Tan & Lee Chapter 3 © 2009 15

Yang NW aset NW utang NW ekuitas NW utang

• Fair value of the consideration transferred:

Tan & Lee Chapter 3 © 2009 16

• If transfer of monetary assets or liabilities are deferred:

Tan & Lee Chapter 3 © 2009 17

Tan & Lee Chapter 3 © 2009 18

Tan & Lee Chapter 3 © 2009 19

Consideration transferred = 5,000,000 shares x $ 2.00

Q2: P Ltd’s market price is not a reliable indicator; a proportional

Consideration transferred = (5,000,000/15,000,000) x $24,000,000

Q3: Fair value of S Co is a better estimate

Tan & Lee Chapter 3 © 2009 20

– Fair value of the contingent consideration (refund) is added to (deducted

Tan & Lee Chapter 3 © 2009 21

• All acquisition-related costs are expensed off

• Costs of issuing equity are recognized in accordance with IAS 32

Tan & Lee Chapter 3 © 2009 22

Tan & Lee Chapter 3 © 2009 23

Consideration Share of book Share of

• Investment account is eliminated

Tan & Lee Chapter 3 © 2009 24

Business Combination accounted under the acquisition method

At acquisition date, the acquirer will recognize

Tan & Lee Chapter 3 © 2009 25

Fair value At acquisition date:

Tan & Lee Chapter 3 © 2009 26

• IFRS 3 requires the acquirer to recognize the fair value of an

• To qualify for recognition, the intangible asset must be:

• Treatment for indemnity

• Eg. An acquiree is exposed to a contingent liability. Based on

FV > Book value of identifiable assets Deferred tax liabilities

• No deferred tax liability is recognized on goodwill

Tan & Lee Chapter 3 © 2009 30

• IFRS 3 allows adjustments to be made retrospectively to goodwill,

• After 1 year, any correction of errors will be deemed as a prior -

• Any change in estimate arising from new information on facts and