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IFRS issue step acquisition

Forums › Other Accountancy Qualifications Forums › IFRS issue step acquisition

  • This topic has 0 replies, 1 voice, and was last updated 7 years ago by joyous29.
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  • May 30, 2018 at 2:04 am #454729
    joyous29
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    Hello all

    Hoping someone can assist with the below
    I am currently practicing questions and came across step acquisitions.
    I am having issues with calculating the extra 20% purchase – hoping someone can help. QUESTION BELOW

    Molle intends to purchase a controlling interest in another entity, Compound Ltd
    (Compound), which supplies components for Molle’s business, with a target date set
    for the acquisition of 1 July 2018. The directors of Molle are undecided as to whether
    to make an offer for 100% or 80% of Compound’s shares. If only 80% of the shares
    are purchased, Molle’s intention would be to purchase the remaining 20% of the
    shares at a later date. Compound’s current owners are open to a sale, and would be
    willing to enter into an agreement whereby Molle would have an option to purchase
    the remaining shares in Compound within a time period in accordance with a preagreed
    valuation basis.
    Molle expects to pay €8 million for 80% of Compound’s shares (or €10 million for
    100% of the shares) on 1 July 2018. Compound’s net assets are estimated to be €7.6
    million at carrying amount at 1 July 2018. It is estimated that the fair value of
    Compound’s net assets would be €8.4 million at that date, the difference relating to
    depreciable assets with a remaining useful life of 8 years.
    For estimation purposes, the directors are assuming that net assets, fair value and
    proportionate purchase price would rise by 10% if 20% of the shares are purchased at
    a later date.
    Any non-controlling interest would be measured at the proportionate share of the fair
    value of the identifiable net assets of Compound.
    Molle’s directors would like to know the financial reporting consequences for its
    consolidated financial statements at and after the proposed acquisition date of
    Compound, including the key financial reporting differences that would arise between purchasing 100% of Compound’s shares in one transaction, versus purchasing 80% of
    the shares followed by a purchase of the remaining 20% of the shares at a later date.

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