Combined Business - IFRS 3

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Augusto Stellato

Senior consultant

25 Points Posted on 21 August 2009

Hi there.

This is my first post ever. In fact I´m from Brazil a country that is moving forward to reach IFRS conversion (full conversion will be at dec/2010).

My question is: how to calculate or how to input into a financial statement a business combination that is calculated by "proportionate share of the aquiree´s identifiable net assets" when this acquired is a non-controlling interest?

ex. Company A has acquired 80% interest (NCI) of company B. At that moment (FY 09) company B has on its FS:

- share capital of $ 20.000 - total retained earnings of $ 30.000.

On the next FY (FY 10) company B has on its FS:

- share capital $ 20.000 - retained earnings $ 40.000 - other reserves $ 6.000.

In the end of FY 10 what would be the amount recognized on the company A.

Kind regards.

Augusto.

Replies (5)

CA. Amit Daga

Finance Controller CA. CS. CFA. CIFRS.

7375 Points Posted on 21 August 2009

In the year company A need to recognise 80% of 60 k which is 48lk. If 6k is not for any specific purpose than another 4.8 k he need to recognise

Augusto Stellato

Senior consultant

25 Points Posted on 22 August 2009

Hi Amit.

I'm sorry but I did not get. How did you reach those amounts. Could you please explain it to me?

Anyway, thanks for your prompt answer.

Guest

Posted on 22 August 2009

USD 60000 is nothing but share capital of USD 20000+ retained earning of USD 40000.

C.A Rohit Gambhir

C.A

271 Points Posted on 22 August 2009

The Company A has acquired 80% Non Controlling Interest in Company B in FY 09.

As per IFRS 3 prior to attaining control in the acquiree company , the investment must be accounted for according to IAS 39, IAS 28 or IAS 31 as appropriate.

Considering the application of IAS 39 appropriate in the given case, during FY 09 the investment must be accounted for at 80% of ( share capital of B $20000 + retained earnings of $ 30000 ) i.e $40000 should be recognised as Investment - Fair Value through Profit & Loss account. Subsequently during FY 10 since the value has gone up and the fair value in FY10 is 80% of ( 20000+40000+6000) = $52800, hence $52800 - $40000 = $12800 should be recognised in the income statement and investment increased accordingly. Again it is assumed that $6000 is a General Purpose Reserve.

Pls note the accounting will get changed on attaining control in Company B.