Goodwill or bargain on acquisition

Goodwill or bargain on acquisition – in short

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed.

If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargain purchase.

Business combinations

Business combinations are accounted for using the acquisition method. Cost of an acquisition is measured at the fair value of the assets given and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities assumed in a business combination (including contingent liabilities) are measured initially at their fair values at the acquisition date. There are no non-controlling interest in the Group’s subsidiaries.

The Dorolco acquisition – On xx October 202x Dorco Loan PLC acquired 100% of the Dorolco operations, by acquiring 100% of all voting shares in the legal entities now part of this Group.

Assets acquired and liabilities assumed – Because the holding companies established in structuring the Dorolco acquisition have been incorporated on behalf of this transaction, the opening balance sheet as at xx October 202x shown in the Consolidated Financial Statements as comparatives to the balance sheet as at 31 December 202x is the balance sheet at incorporation date. Shares issued were paid on acquisition date, except for the share option plan shares issued at closing date (1,000,000 shares issued, of which as at 31 December 202x 155,000 were not yet granted and paid up).

Disclosures regarding fair value accounting at date of acquisition are provided as disclosures in the notes to each significant asset and liability accounted for in the balance sheet as at 31 December 202x.

Summary of purchase consideration and cash flows

There is no contingent consideration liability involved in the transaction. The transaction cash flows on acquisition date were as follows:

Analysis of cash flows

Transaction costs of the acquisition are included in cash flows from operating activities and in profit or loss in administrative expenses.

Net cash acquired with the subsidiary are included in cash flows from investing activities and cash and cash equivalents in from xx October 202x onwards.

Transaction costs attributable to issuance of shares are included in cash flows from financing activities, transaction costs attributable to the long-term loans issued (subordinated loan and senior debt) are included in the effective interest calculation of these loans and in operating activities.

Assets acquired and liabilities assumed

The fair values of identifiable assets and liabilities assumed of the Dorolco operations as at the acquisition date were:

On an overall basis as part of the transaction €877,000 has been recorded. Due to the significant difference in profitability between Segment A and Segment B, this resulted in a residual goodwill amount for Segment A and a bargain on acquisition for Segment B. Goodwill has been capitalised and goodwill is recognised in profit or loss (administrative expenses).

Only finished goods manufactured and purchased for resale are valued at sales prices less costs to sell (comprising estimated sales and distribution costs, a reasonable profit on sales costs and holding costs) as part of the acquisition. This valuation at acquisition has returned to regular valuations at costs incurred in purchasing or manufacturing finished goods within the reporting period. The fair value of other inventory components equals the carrying amount due to the short term nature of these items (raw materials and work-in-progress production) or the accounting policy (work-in-progress construction contracts recognised as revenue (and profit) over time).

The fair value of trade and other receivables equal the carrying amount due to the short term nature.

The determination of fair va1ue of the assets acquired and liabilities assumed in the acquisition of the Dorolco operations, is consistent with the definition of fair value and the fair value measurement principles described in IFRS 13. Where applicab1e further information regarding the assumptions made determining fair values is disclosed in the notes specific to that asset or liability.

Fair value measurement

The determination of fair value of the assets acquired and liabilities assumed in the acquisition of the Dorolco operations, is consistent with the definition of fair value and the fair value measurement principles described in IFRS 13.

The Group defines the following different levels of fair value:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).
• Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).
• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

Fair value measurement of assets and liabilities is only applied using Level 2 and Level 3 Inputs, as follows:

Intangible assets

Intangible assets (excluding goodwill) are valued at fair value at acquisition date and consist of:

• Brand name – valued using the relief from royalty method, that estimates value by reference to the hypothetical royalty payments that would be saved through owning the asset, as compared to with licensing the asset from a third party. The valuation model used a WACC over a period of 10 years.
• Customer relationships – valued at present value or earnings attributable to the subject intangible asset (liability) after providing for the proportion of earnings that attributed to returns for contributing assets. The valuation model used a WACC over a period of 10 years.

The intangible assets comprise goodwill and the Dorolco brand name as intangibles with indefinite economic lives and non-contractual customer relationships assets. The movements in intangible assets are as follows: