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Tom has purchased all the share capital of Jerry during the year.
Which TWO of the following items would Tom take into account when calculating the fair value of the net assets acquired in accordance with IFRS 3 Business Combinations?
A – A contingent liability dependent on the outcome of a legal case which has been provided for in Jerry’s financial statements
B – A provision required to cover costs of re-organising Jerry’s departments to fit in with Tom’s structure
C – A warranty provision in Jerry’s financial statements to cover costs of commitments made to customers
D – Goodwill included in Jerry’s statement of financial position, this related to an unincorporated business that Jerry had acquired eight years agoAnswer A & C.
Hello Sir, for this question I got the answer right however I am a bit confused about D because I thought that the purchased goodwill wasn’t omitted?
Would be grateful if you could clarify. Thank you.Hi,
Yes, your understanding is correct in that we ignore the purchased goodwill in calculating the net assets acquired but I think it is the way the question is phrased that is catching you out. It says “take into account” and technically we are not taking into account the value of the purchased goodwill when calculating the fair value of net assets, we are just ignoring it and so not including it.
Thanks
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