Question
If,in the event of a business combination, a company complies with the requirements of IFRS 3 and accounts for such business combination by applying the
If,in the event of a business combination, a company complies with the requirements of IFRS 3 and accounts for such business combination by applying the acquisition methd, four steeps need to be executed,i.e:
The acquirer is identified.
The acquisition date is determined.
The identifiable assets, liabilities assumed, and non-controlling interests are measured and recognised, and
The goodwill or gain on bargain purchase is recognized and measured.
Required:
Discuss in detail the acquisition method if the following scenario is considered with appropriate illustrations: Parent (Pty) Ltd (Parent) purchases 60% of the issued Class A shares of Sub (Pty) Ltd (Sub) through a once-off cash payment on 1 April 2021. Parent was very keen to obtain this interest in Sub, owing to its logistical position which would enable it to increase its customer base, as the two companies produce products in the same market segment. After a due diligence, the fair value of the identifiable net assets of Sub was determined at N$5 000 000 on 1 MArch 2021, and N$4 800 000 on 1 April 2021. The Fair value of the consideration was N$3 400 000.In terms of an agreement with the former owners of Sub, Parent took control of the business of Sub on 1 March 2021 in terms of a written agreement.From that date Parent controlled all the assets and assumed responsibility for all the obligations of Sub. Every Class A share entitles the holder to one voting right on the AGM. Sub (Pty) Ltd does not have any other class of equity shares. The relevant activities of Sub (Pty) Ltd is controlled through resolutions taken at the AGM. There are no other arrangements that could alter decision making. (20 marks)
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