IFRS with reference to Mergers & Acquisitions

8/7/2019 IFRS with reference to Mergers & Acquisitions

1/30

IFRS with reference toMergers & Acquisitions

byMr.P.Sabapathi


2/30

IFRS


3/30

Indias roadmap to convergenceOn 1.4.2011, India will join the globalaccounting revolution: International

Financial reporting standards(IFRS)On 22 Jan 2010 and 29 March 2010,the Ministry of Corporate Affairs(MCA)issued press release setting out theroadmap for IFRS convergence inIndia.


4/30


5/30

An overview of IFRS-3ScopeMethod of Accounting

Key disclosure requirements


6/30

IFRS3-Business combinations.A Business combination is atransaction or event in which an

acquirer obtains control of one ormore businesses.Transactions sometimes referred toas true mergers or mergers of equals are also businesscombinations.


7/30

Examples of Business combinationsBringing together of separate entitiesor businesses into one reportingentity.One business purchasing the equity of anotherOne business becomes a subsidairy of

anotherTwo entities are legally merged intoone entity


8/30

One entity transfers its net assets toanother entityAn entitys owner transfers theirequity interests to the owners of another entity

A group of former owners of oneequity obtains control of a combinedentity.


9/30

IFRS 3 does not apply toBusiness combinations to form Jointventure

Business combinations involvingentities or businesses under commoncontrolBusiness combinations involving two

or more mutual entities.Business combinations to form areporting entity by contract alone.


10/30

Business combinations under

common control

A

B C D

80%

90%75%


11/30

Definition of Business under IFRS 3An Integrated set of activities andassets that is capable of being

conducted and managed for thepurpose of providing a return directlyto investors or other owners,members or participants.

Inputs Processes- output results ingenerating revenues or lower costs.


12/30

Method of AccountingAll business combinations should beaccounted for using the purchase

method of accounting.


13/30

Steps in applying the acquisition

methodIdentification of the acquirerDetermination of acquisition date

Recognition and measurement of theidentifiable assets acquired, theliabilities assumed and any non-controlling interest in the acquiree

Recognition and measurement of goodwill or a gain from a bargainpurchase.


14/30

Identifying the acquirerWho is an acquirer?Who is an acquiree?

What is control?What are the indicators of control?


15/30

IAS 27 guidance on ControlPolicies and benefitsPresumtion of control

Potential voting rightsSpecial purpose entitiesVenture capital organisations.


16/30

How to identify an acquirer?H olds over 50% of voting rightsPower over>50% of voting rights(by

agreement)Power to govern financial andoperating policiesPower to appoint or remove the

majority of Board of MembersPower to cast a majority of Boardmeetings.


17/30

Determining the acquistion dateThe date on which the acquirer obtainscontrol of the acquiree.The date on which the acquirer legallytransfers the consideration, acquires theassets and assumes the liabilities of theacquiree- closing date.The date that the acquirer commences

direction of operating and financial policiesThe date from which the flow of economicbenefit changes.


18/30

Cost of acquisitionCost of acquisition is the Fair Value of assets given, liabilities assumed and

equity instruments issued and anydirectly attributable costsContingent consideration andsubsequent adjustmentCost of acquisition in a steppedacquisition


19/30

Determining identifiable assets and

liabilitiesRecognise identiable assets/liabilitiesof acquiree e x isting at acquisition

date if:It is probable that future economicbenefits will flow to /resources flowfrom the acquirerCost/fair value can be reliablymeasured.


20/30

Intangible assetsunder

IAS 38an identifiable

Non monetary asset

Without physical substanceIdentifiability criterion is met when an

intangible asset

Is separableArises from contractual or other legalrights.


21/30

Arise from Contractual or legal

rightsPatents, secret formulas, processes orrecipes, operating and broadcastingrightsPictures and photographs, order orproduction backlog, customercontracts

Manufacturing facility, Nuclear powerplant subject to a licenseTechnology patent.


22/30

SeparableCustomer and subscribers listsDepositor relationships

Unpatented technologyDatabases


23/30

List of Intangibles

Contract based

L icensing, royaltyagreements

Service or supplycontracts

Construction permits

Customer-related

Customer lists

Contractual

relationshipsOrder/Production

backlog

Marketing-related

Trademarks and Brands

Trade dress

Internet domain names

Technology-based

Technology

Trade secrets

Databases

Artistic related

Musical works

Video and Audiovisualmaterial


24/30

Contingent liabilitiesMust be acquirees contingent liabilityFair value can be measured reliably

Measured in amounts that a thirdparty would charge to assume thosecontingent liabilities.


25/30

GoodwillG oodwill represents a payment madein anticipation of future economic

benefits from assets are not capableof being individually identified andseparately recognised.


26/30

Accounting forG

oodwillShall not be amortisedShall be tested for impairment

annually or more frequently inaccordance with IAS 36Is measured at cost less accumulatedimpairment losses.Note: Impairment loss of goodwillcannot be reversed in the future.


27/30

Initial(Provisional) accountingInitial accounting completed in 12months of acquisition date

Adjustments to provisional records upto completion date of initialaccounting recognised from theacquisition date.G oodwill cannot be increased aboveits recoverable amount


28/30

Key DisclosuresAmounts recognised for each class of the

acquirees assets, liabilities and contingentliabilities and their carrying amounts underIFRS immediately before the combination.Acquisition datePercentage of voting equity interestsacquiredPrimary reasons for the business

combination and a description of how theacquirer obtained control.Description of the factors that make up thegoodwill recognised


29/30

Disclosure if and e x plain why initialaccounting for a business

combination was determined onlyprovisionallyDetails of contingent liabilitiesrecognisedInformation about the acquireesrevenue and profit or loss.


30/30

Thank you

Date post:	08-Apr-2018
Category:	Documents
Upload:	paramuramesh
View:	222 times
Download:	0 times

IFRS with reference to Mergers & Acquisitions

Documents