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.
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Hey Mike:
There is this para in my book regarding operating leases (which the subsidiary holds) on acquisition, and Im not quite sure if I get what the book is saying:
“ifrs 3 requires that if a subsidiary (acquiree) is the lessee for an operating lease, the aquirer (parent) must recognise an intangible asset or a liability at acquisition, to the extent that the terms of the lease are more favourable (intangible asset) or less favourable (liability) than current market rates for similar operating leases.”
Um….could you plz explain this breifly?
Thanks!
SK
Hi Sk
Is this not just another way of saying that assets / liabilities taken over at acquisition should be recognised at fair value?
ie we need to compare the apparent value of the operating lease ( that is the value of the terms of the lease – how do you calculate that?!! ) with the market value / going rate of similar leases. If the subsidiary is in an operating lease situation which is either favourable or disadvantageous when compared with market rates of similar asset leases, then a fair value adjustment should be recognised
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