460 Chapter 7 PFRS for Small and Medium-Size ~ Business Combination and Goodwill 'd Entities (SMEs) - Bu: Scope This section 's applicable to all business combinations, as defined in the standard. Furthermore Or Sopsequont ees Gecount the business combination and subsequently, ing for goodwill at the time of fe peciicn specif Gly excludes combinations of entities or businesses under common contros joint vent pas ; Pe ames ork Mures and the acquisition of a group of assets that does not constitute Definition A business combination is the bring : Treacinelal reporting entity bringing together of separate entities or busi ne A business is an integrated set ra ool Of activities and assets conducted and managed for the ee Of Providing a return to investors or lower costs or other economic benefits directly and proportionately to policyholders or participants. Furthermore, a business generally Consists of pmo ans opplied to those inputs and resulting outputs that are or will be used to goodwill is present in a transt f activities or assets, the transterred set is presumed to be @ business rere oo Identifying the acquirer The acquirer is the combining entity that obtains control of the other combining entities or businesses. Cost of a business combination The cost of a business combination is the a + The fair values of the assets given, liabil issued by the acquirer plus Any costs directly attributable to the business combination , egate of: ; ities incurred or assumed, and equity instruments Contingent consideration When a business combination agreement provides for un adjustment to the cost of the business combination contingent on future events, the acquirer includes the estimated amount of the adjustment in the cost of the combination at the acquisition date if the adjustment is probable and can be measured reliably. If the potential adjustment is not recognized at acquisition date, but subsequenily becomes probable and can be measured reliably, the additional consideration is treated as an adjustment to the cost of the combination. Allocating the cost of a business combination The acquiree's identifiable assets and liabilities and any contingent liabilities that can be measured reliably are recognized at their acquisition date fair values. Any difference between the cost of the business combination and the acquirer's interest in the net fair value of the ideniifiable assets, liabilities and contingent liabilities must be accounted for as goodwill (or negative goodwill). Recognition of assets and liabiljties z ; - The following criteria must be satisfied for the acquirer to recognize the acquiree's identifiable gssets ond liabilities and any provisions for contingent liabilties at the acquisition date: . Assets other than an intangible asset — the future economic benefits must be probable and the fair value can be measured reliably: . Liability other than a provision for contingent liability — the outflow of resources must be probable and the fair valve can be measured reliably Intangible asset or provision for contingent liability — the fair value can be measured reliably‘Business Combinations Statutory Mergers and St latutory Consoli provisional accountin: 2Consolidations BL girospective adju: Retrprration may peenis to Provisional amou Spply 10 adjustments to the wo,l2 months mergcoanized i Of th acquisi becomes probable and the ; c combinati ion date, Thi Brscussion under Contingent eee elably combination cuistion date, This ime tit does nol gent comer MERSUFEG SUBSEQUENT oo future events which quisition date. (See initial accounting for a business Measurement of goodwill oe Ie to I) Goodwill is initial overthe acquirer's interest Tas Gost Being the exces jiobilities recognized. fe nel foirvalue of the idenliinole ro le assets, siness combination liabilities and contingent iter initial recognition, goodwill is m Cognition, goodwill is mea: Mieimulated impakment loser © MeCsured at cost less accumulated amortization and " ization or Goodwill is amortized in acc i -ordance with the principles of amortization of intangible assets in section 18. if areliable estimat i So years late of the useful life of goodwill cannot be made the life is presumed, tailed requirements in relation to impai r auirements in relation to impairment testing of goodwill ore contained in Section 27, This includes the requirement that th i i Th cies ne Impaien: 1@ Acquirer test it for impairment where there is an indication Definition of goodwill Goodwill is defined as ‘future economic ber it of being individually identified and Tepawtely rocognee. oer zs Wl re neh cae Non-controlling interests Where the acquirer obtains less than a 100% interest in the acquit ing i : r obtc h .quiree, a non-controlling interest (NCI) in the acquiree is recognized at the NC's proportion of the net ‘Gentiioble assets, fiobilties and provisions for contingent liabiities of the acquires at their atripules fair values at Hoe Yate of acquisition; no amount is included for any goodwill relating to the NCI. Bargain purchase Aa acess arises where the acquirer's interest in the net foir value of ne acquiree's identifiable assets, liabilities and provisions for contingent liabilities exceeds the cost of the combination. The standard recognizes that this is sometimes referred to os ‘negative goodwill’. Where such an excess arises, the acquirer mus . Reassess the identification and measurel ‘and provisions for contingent liabilities an combination on «Recognize immediately in profit or loss any excess remaining otter that reassessment Areas covered in Full IFRS but not in IFRS for SMEs include: ; ts. and liabilities (re-measurement period). . Subsequent adjustments to asse!s. ¢ Deferred tax recognized after initial purchase accounting. Non-controlling interests. + Step acquisitions. ; eR snes combination achieved without the trans ment of the acquirée's assets, liabilities ‘d the measurement of the cost of the sfer of consideration. Indemnification assets. Re-acquired rights. shared-based payments. Employee benefits.462 Chapt ts \Es Business Combination — Full PFRSs versus PFRS for SMI FRS for SMEs Some of the key differences between Full PFRSS (F-PFRS) and P (SMEs) of business combinations are as follows: tem Definition and terminology 1. Business combination 2. Contingent Consideration 3. Costs incumed in a business combination Direct costs Indirect costs Costs to issue and register stocks Costs fo issue debs 4. Recognizing and measur- ing assets acquired and Ii- abilities assumed on initial recognition Identifiable Intangit 5. Exceptions to recognition or measurement principles, or both, on initial recognition Contingent liabilities 6. Accounting Method Term Used Measuring goodwill) bargain purchase gain Valuation of goodwill E-PERS is a tronsaction or other event in which an acquirer obtains control of one or more businesses.” * Initially recognized as part of the consideration transterted. + Non-occurrence of a fu- ture event (e.g. not meeting earnings targel) is nof con- sidered to be a measure- ment period adjustment - therefore not adjusted against goodwill. Expensed Expensed Debited to APIC/Share Premium Debited to BIC Recognized separately from Oodwill if itis either contrac- jual or separable Recognize only where there is present obligation that crises from past events and its fair value can be measured reli- ably. Acquisition Method Options: 1. Full fair Value (Fuli Goodwill) 2. Proportionate share of identifiable net assets (par- tial Goodwill) Cost less impairment losses SMES ‘bringing together separate en- ‘ptingid josnesses into one re- porting entity’ + Initially recognized in the cos of ine combination ony it {Sheets probability and ‘rell- ‘ably measurable" criteria. . ture event does nat oc- cull then ony adjustments to the cost of the busienss com- bination are made against goodwill Capitalized Expensed Debited to APIC/Share Premium Debiied to BIC Requires recognition if their fair value can be measured reli- ably Requires recognition of possible obligations if their fair value can be measured reliably. Purchased Method Proportionate share of identifi- cad net assets (Partial Good: Cost less impairment lo: ir sses ond amortization {life should be pre- sumed to be 10 years)