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CHAPTER 2 BUSINESS COMBINATIONS - PART 2.pptx

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CHAPTER 2 BUSINESS COMBINATIONS - PART 2.pptx

  1. 1. 2019 ZEUS VERNON B. MILLAN LECTURE AID ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2)
  2. 2. Chapter 2 BUSINESS COMBINATIONS (Part 2) LearningObjectives • Account for business combinations (a) accomplished through share-for-share exchanges, (b) achieved in stages, and (c) achieved without transfer of consideration. • Explain the “measurement period” in relation to business combinations. • Distinguish what is part of a business combination and what is part of a “separate transaction.” • Account for settlement of pre-existing relationship between an acquirer and an acquiree. ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)
  3. 3. Share-for-share exchanges • The consideration transferred in a business combination accomplished through a mere exchange of equity interests between the acquirer and the acquiree (or its former owners) is measured at the acquisition-date fair value of the acquiree’s or acquirer’s equity interests, whichever is more reliably determinable. ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)
  4. 4. Business combination achieved in stages • A business combination achieved in stages occurs when an investor acquires additional shares from an investee which it had previously held equity interest and the additional shares purchased results to the investor obtaining control over the investee. • Accounting for a business combination achieved in stages : 1. Remeasure the previously held equity interest in the acquiree at its acquisition-date fair value; and 2. Recognize the gain or loss on the remeasurement in: • Profit or loss – if the previously held equity interest was classified as FVPL, Investment in Associate, or Investment in Joint Venture. • Other comprehensive income – if the previously held equity interest was classified as FVOCI. ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)
  5. 5. Business combination achieved without transfer of consideration • In a business combination in which no consideration is transferred, the acquirer substitutes the acquisition-date fair value of its interest in the acquiree for the acquisition-date fair value of the consideration transferred to measure goodwill or a gain on a bargain purchase. ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)
  6. 6. Measurement period • If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. • If new information is obtained during the measurement period which provides evidence of facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date. • The measurement period shall not exceed one year from the acquisition date. ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)
  7. 7. Determining what is part of the business combination transaction • A transaction that is arranged primarily for the benefit of the acquirer or the combined entity rather than primarily for the benefit of the acquiree or its former owners before the combination is likely to be a separate transaction. Thus, the portion of the transaction price is excluded from the consideration transferred when applying the acquisition method. ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)
  8. 8. APPLICATION OF CONCEPTS ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN) PROBLEM 3: FOR CLASSROOM DISCUSSION
  9. 9. QUESTIONS???? REACTIONS!!!!! ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)
  10. 10. END ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)

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