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AASB 3 Appendix A:
Business:
an integrated set of activities and assets that is capable of being conducted and
managed for the purpose of providing a return in the form of dividends, lower costs or
other economic benefits directly to investors or other owners, members or
participants
Business combination:
A transaction or other event in which an acquirer obtains control of one or more
businesses
Consider inputs, processes and outputs
Only in a business combination can goodwill be present.
2.
Acquisition date is the date on which the acquirer obtains control of the acquiree.
Important because on this date:
the fair values of the identifiable assets acquired and liabilities assumed are
measured.
the fair value of the consideration transferred is measured
the goodwill or gain on bargain purchase is calculated.
7.
AASB 3 para 5:
1.
2.
3.
4.
8.
PRACTICE QUESTIONS
Question 10.1
NEW LTD DAY LTD
Acquisition analysis:
Net fair value of identifiable assets and liabilities acquired:
Land
Plant
Inventory
Cash
$350 000
290 000
85 000
15 000
740 000
Accounts payable
Loans
20 000
80 000
100 000
$640 000
Net assets
Consideration transferred:
100 000 shares at $6.50 each
Goodwill = $650 000 - $640 000
$650 000
$10 000
Dr
Dr
Dr
Dr
Dr
Cr
Cr
Cr
350 000
290 000
85 000
15 000
10 000
20 000
80 000
650 000
$640 000
$600 000
$40 000
Dr
Dr
Dr
Dr
Cr
Cr
Cr
Cr
350 000
290 000
85 000
15 000
20 000
80 000
600 000
40 000
QUESTION 10.6
TROUT LTD DORY LTD
A.
Net fair value of identifiable assets and
liabilities of Dory Ltd
Consideration transferred
Goodwill
=
=
=
=
=
$175 000
100 000 shares x $1.90
$190 000
$190 000 - $175 000
$15 000
Dr
Dr
Dr
Dr
Dr
Cr
Cr
Cr
Cr
50 000
20 000
5 000
125 000
15 000
15 000
8 000
2 000
190 000
B64 (i)
B.
See paragraphs 45-50 of AASB 3 in relation to initial accounting determined provisionally.
At 31 December 2014, the provisional amounts must be used as per journal entries in (A.) on
the previous page. Note the disclosure required by paragraph B67 of AASB 3.
In 2015 as per paragraph 45, the carrying amount of the plant must be calculated as if its fair
value at the acquisition date had been recognised from that date, with an adjustment to
goodwill.
If the plant had a 5-year life from acquisition date, Dory Ltd would have charged depreciation
for 1 month in 2014. Extra depreciation of $100 is required, calculated as
1/5 x 1/12 x $6 000.
The adjusting entry at 1 March 2015 is:
Plant
Goodwill
(Adjustment for provisional accounting)
Retained earnings (1/1/14)
Accumulated depreciation
(Adjustment to depreciation due to
provisional accounting)
Dr
Cr
6 000
Dr
Cr
100
6 000
100
If depreciation has been calculated monthly for 2015, further adjustments would be required.
C.
Net fair value of identifiable assets and
liabilities of Dory Ltd
Consideration transferred
Gain on bargain purchase
=
=
=
=
=
$175 000
100 000 shares x $1.70
$170 000
$175 000 - $170 000
$5 000
Cash
Furniture & fittings
Accounts receivable
Plant
Accounts payable
Current tax liability
Provision for annual leave
Gain on bargain purchase
Share capital
(Acquisition of business)
Dr
Dr
Dr
Dr
Cr
Cr
Cr
Cr
Cr
50 000
20 000
5 000
125 000
15 000
8 000
2 000
5 000
170 000
REVIEW QUESTIONS
1.
3.
4.
5.
6.
7.
PRACTICE QUESTIONS
QUESTION 11.1
TAMBO LTD
If recoverable amount is $510 000, then there is an impairment loss of $30 000.
Assuming the inventory is carried at the lower of costs and net realisable value, the allocation
of the impairment loss is as follows:
Factory
Land
Equipment
(a)
Carrying
Amount
Proportion
Allocation
of Loss
$210 000
150 000
120 000
$480 000
21/48
15/48
12/48
13 125
9 375
7 500
30 000
196 875
140 625
112 500
If the fair value less costs of disposal of the land is $140 000, then the journal entry to
record the impairment loss is:
Impairment loss
Accumulated depreciation and
impairment losses factory
Land
Accumulated depreciation and
impairment losses equipment
(Allocation of impairment loss)
(b)
Net Carrying
Amount
Dr
30 000
Cr
Cr
13 125
9 375
Cr
7 500
If the fair value less costs of disposal of the land is $145 000, then the land cannot be
written down to an amount below that figure. Hence the maximum impairment loss
allocable to land is $5 000. The extra $4 375 must be allocated to the other assets.
Carrying
Amount
Factory
Equipment
$196 875
112 500
$309 375
Proportion
Allocation
of Loss
2 784
1 591
4 375
Net Carrying
Amount
194 091
110 909
Dr
30 000
Cr
Cr
15 909
5 000
Cr
9 091
QUESTION 11.5
HAY LTD
Hebel
$660 000
15 000
675 000
720 000
_____0
Hawker
$540 000
15 000
555 000
500 000
(55 000)
Hillston
$420 000
15 000
435 000
400 000
(35 000)
675 000
500 000
400 000
The carrying amounts of the divisions add to $1 575 000. Together with the SRC, the total is
$1 591 000. This is less than the total recoverable amount of $1 620 000. Hence there is no
need to write down the assets of the SRC. However, the assets of the Hawker and Hillston
Divisions must be written down:
Hawker Division:
Head Office
Land
Plant
Carrying
Amount
15 000
140 000
210 000
365 000
Proportion
15/365
140/365
210/365
Allocation
of Excess
2 260
21 096
31 644
55 000
Net Carrying
Amount
118 904
178 356
Dr
Cr
52 740
21 096
Cr
31 644
Hillston Division:
Head Office
Land
Plant
Carrying
Amount
15 000
80 000
190 000
285 000
Proportion
15/285
80/285
190/285
Allocation
of Excess
1 842
9 825
23 333
35 000
Net Carrying
Amount
70 175
166 667
Dr
Cr
Cr
33 158
9 825
23 333
The total impairment loss allocated to the head office is $4 102 (i.e. $2 260 + $1 842).
This is allocated across the assets of the head office:
Head Office
Land
Plant
Carrying
Amount
10 000
35 000
45 000
Proportion
10/45
35/45
Allocation
of Excess
912
3 190
4 102
Net Carrying
Amount
9 088
31 810
Dr
Cr
Cr
4 102
912
3 190