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Dear Chris,
I shall deeply appreciate your help on this case study question that was available in mock exam on ACCA
Question : Which of the following assets of Betteria should be recognised in the consolidated financial statements of Synergetica for the year ended 31 December 20X5?
Relevant paragraph : During the year, Synergetica acquired a subsidiary, Betteria Co for $80 million, when the fair value of Betteria’s net assets was $60 million. Betteria Co had spent $14 million on a new research project and had correctly expensed this to profit or loss. The directors of Synergetica, with the help of Brandonis Co, have reliably assessed the project to have a substantial fair value. Betteria also has a customer list, but Brandonis has said it is unable to measure its fair value reliably
Answer on evaluation at Website : Both research project and customer list
Why Customer list is also included and recognized in consolidated financial statement when there is no measurement possible of its value? Shouldnt only project be recognized??
Regards
Aasif
Hi Aasif,
When we consolidate the subsidiary we are following the rules of IFRS 3 Business Combinations. Within here we are able to recognise the customer list and research project at fair value as the purchaser (the parent) will be paying for these assets as part of its consideration, so if we can reliably measure the fair value of them then they can be recognised in the consolidated/group financial statements.
They would not be recognised in the individual financial statements of the subsidiary as we would be following IAS 38 here and they would not meet the recognition criteria.
Hope that clears it all up.
Thanks
Thank you for your prompt reply and I sincerely appreciate the same. God bless you and team Open Tuition.
I could understand that the total consideration paid is for entire Net assets and hence considered as Business Combination. However in the question, it is specifically asked as which assets should be recognized and hence I am confused with their answer to include both of them.
Sorry for my lack of understanding but specific to above case, isnt measurement one of the fundamental conceptual charecteristic for any asset recognition? If customer list cannot be reliably measured, how can it be recognized?
So if simillar question comes in exam as single option selection, what should be the answer?
I can only assume that the answer is wrong as if there is no fair value to the customer list then it cannot be capitalised. As you mention, measurement is key and if we cannot measure it then we cannot include it.
Thanks.
Thank you Sir..Much appreciated..
Happy Teachers Day to you and all my teachers from Open Tuition…
Have a blessed life
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