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IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities : IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities outlines the accounting when an acquirer obtains control of a business (e.g. an acquisition or merger). Such business combinations are accounted for using the ‘acquisition method’, which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date.

Liabilities

  • Inventories include assets for sale in the ordinary course of business, being produced for sale, or to be consumed in production
  • Measured at the lower cost and estimated selling price less costs to complete and sell
  • Cost is determined using:
    • specific identification is required for large items
    • option to choose FIFO or weighted average for others
    • LIFO is not permitted
  • Inventory cost includes costs to purchase, costs of conversion, and costs to bring the asset to present location and condition
  • Inventory cost excludes abnormal waste and storage, administrative, and selling costs
  • If a production process creates joint products and/or by-products, the costs are allocated on a consistent and rational basis
  • A manufacturer allocates fixed production overheads to inventories based on normal capacity
  • Standard costing, retail method, and most recent purchase price may be used only if the result approximates actual cost
  • Impairment – write down to net realisable value .

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities : The objective of this IFRS is to improve the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects. To accomplish that, this IFRS establishes principles and requirements for how the acquirer:

  1. Recognises and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree;
  2. Recognises and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and
  3. Retermines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

This IFRS applies to a transaction or other event that meets the definition of a business combination. This IFRS does not apply to:

  1. the formation of a joint venture.
  2. the acquisition of an asset or a group of assets that does not constitute a business. In such cases the acquirer shall identify and recognise the individual identifiable assets acquired (including those assets that meet the definition of, and recognition criteria for, intangible assets in IAS 38 Intangible Assets) and liabilities assumed. The cost of the group shall be allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. Such a transaction or event does not give rise to goodwill.
  3. a combination of entities or businesses under common control (paragraphs B1–B4 provide related application guidance).

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities : The revised IFRS 3 and SFAS 141(R) carry forward without reconsideration the primary conclusions each board reached in IFRS 3 (issued in 2004) and FASB Statement No. 141 (SFAS 141, issued in 2001), both of which were titled Business Combinations. The conclusions carried forward include, among others, the requirement to apply the purchase method (which the revised standards refer to as the acquisition method) to account for all business combinations and the identifiability criteria for recognising an intangible asset separately from goodwill.

This Basis for Conclusions includes the reasons for those conclusions, as well as the reasons for the conclusions the boards reached in their joint deliberations that led to the revised standards. Because the provisions of the revised standards on applying the acquisition method represent a more extensive change to SFAS 141 than to the previous version of IFRS 3, this Basis for Conclusions includes more discussion of the FASB’s conclusions than of the IASB’s in the second phase of their respective business combinations projects.

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities : The IASB and the FASB concurrently deliberated the issues in the second phase of the project and reached the same conclusions on most of them. The table of differences between the revised IFRS 3 and SFAS 141(R) (presented after the illustrative examples) describes the substantive differences that remain; the most significant difference is the measurement of a non-controlling interest in an acquiree (see paragraphs BC205–BC221). In addition, the application of some provisions of the revised standards on which the boards reached the same conclusions may differ because of differences in:

  1. other accounting standards of the boards to which the revised standards refer. For example, recognition and measurement requirements for a few particular assets acquired (eg a deferred tax asset) and liabilities
    assumed (eg an employee benefit obligation) refer to existing IFRSs or US generally accepted accounting principles (GAAP) rather than fair value measures.
  2. disclosure practices of the boards. For example, the FASB requires particular supplementary information or particular disclosures by public entities only. The IASB has no similar requirements for supplementary information and does not distinguish between listed and unlisted entities.

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities : The FASB’s 1999 Exposure Draft proposed that a business combination should be defined as occurring when one entity acquires net assets that constitute a business or acquires equity interests in one or more other entities and thereby obtains control over that entity or entities. Many respondents who commented on the proposed definition said that it would exclude certain transactions
covered by APB Opinion No. 16 Business Combinations (APB Opinion 16), in particular, transactions in which none of the former shareholder groups of thecombining entities obtained control over the combined entity (such as roll-ups, put-togethers and so-called mergers of equals). During its redeliberations of the
1999 Exposure Draft, the FASB concluded that those transactions should beincluded in the definition of a business combination and in the scope of SFAS 141. Therefore, paragraph 10 of SFAS 141 indicated that it also applied to business combinations in which none of the owners of the combining entities as a group retain or receive a majority of the voting rights of the combined entity.However, the FASB acknowledged at that time that some of those business combinations might not be acquisitions and said that it intended to consider in another project whether business combinations that are not acquisitions should be accounted for using the fresh start method rather than the purchase method.

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities : The IASB also reconsidered the definition of a business combination. The result was that the IASB and the FASB adopted the same definition. The IASB observedthat the IFRS 3 definition could be read to include circumstances in which there may be no triggering economic event or transaction and thus no change in an economic entity, per se. For example, under the IFRS 3 definition, an
individual’s decision to prepare combined financial statements for all or some of the entities that he or she controls could qualify as a business combination. The IASB concluded that a business combination should be described in terms of an economic event rather than in terms of consolidation accounting and that the
definition in the revised standards satisfies that condition.

IFRS Average cost of the combination to the identifiable assets liabilities and contingent liabilities

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