IFRS 3 Identify a business

An entity shall determine whether a transaction or other event is a business combination by applying the definition in IFRS 3, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisitionSee also the accounting treatment acquisition of a business or asset(s) 

Guidance on identifying a business combination and the definition of a business are as follows:

The definition of a business: An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as … Read more

Earnings per share

The objective of IAS 33 Earnings per share is prescribing principles for the determination and presentation of earnings per share, so as to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity.

Earnings per share is mostly used in the consolidated financial statements of a group with a parent:

  1. whose ordinary shares or potential ordinary shares are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or
  2. that files, or is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing ordinary shares in a
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Calculating the value of an acquisition

This is a detailed example of calculating the fair value of an acquisition, using a logical step by step approach and realistic assumptions and determinations based on transaction and market data. Identifying and valuing intangible asset(s) is a broad endeavor and requires careful consideration of; factors specific to each business, the transaction structure, identifying the primary income generating asset, determining the discount rates, estimating the useful lives for identified intangibles. Examples of such intangibles include customer contracts, trademarks, brands, etc.

 

The DealFortune, Inc. acquired M&P Company on January 1, 2017. Consideration was $30 million cash plus additional contingent consideration, as follows:

EBITDA

  • Below 1 million: Nil
  • 1.5 – 2.0 million: 2 million
  • 2.0
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Discount rates for intangible assets

An important event in accounting for an acquisition in a Business Combination has become the recognition and measurement of intangible assets, other than goodwill.

In the past the difference between the consideration transferred (transaction, purchase or acquisition price) and the fair value of net assets acquired was simply goodwill in many countries.

With increasing transaction prices for acquiring – not so increased – values of net assets, goodwill as a percentage of the transaction price went sky high. Especially during the internet bubble in the late nineteen-nineties goodwill allocations went through the roof.

In the US long time accounting standards in respect of intangible assets (other than goodwill) exist from the early 1970-ies (see History of intangible assetsRead more

Service Concession Arrangements

Illustrative examples

These examples accompany, but are not part of, IFRIC 12.

Example 1: The grantor gives the operator a financial asset

Arrangement terms Service Concession Arrangements

IE1 The terms of the arrangement require an operator to construct a road—completing construction within two years—and maintain and operate the road to a specified standard for eight years (ie years 3–10). The terms of the arrangement also require the operator to resurface the road at the end of year 8—the resurfacing activity is revenue-generating. At the end of year 10, the arrangement will end. The operator estimates that the costs it will incur to fulfil its obligations will be:

Table 1.1 Contract costs Service Concession Arrangements

IE2 The terms of the Read more

Fair Value of Tangible Assets

In the event of Business Combinations tangible assets (current – non-current) are best valued with the market or income approaches. If adequate data are not available to derive an indication of value through these methods, an appraiser may use the replacement cost method, which adjusts the original cost for changes in the price level to determine its current replacement cost. The current replacement cost is then adjusted due to physical use or functional obsolescence.

Property, Plant and Equipment (PP&E) must be recognized at fair value for current capacity. Accumulated depreciation is not carried forward. An appraiser may use the cost approach, in which a market participant would pay no more for an asset than the amount necessary to … Read more