Question

Set out below is the summarised statement of financial position of Berlin plc at 1 January 2010 K ASSETS Non-Current Assets Property, plant and equipment 250,000 Current Assets 150,000 Total Assets 400,000 EQUITY AND LIABILITIES Capital and Reserves Share Capital - K5 shares 200,000 Retained Earnings 80,000 280,000 Current liabilities 120,000 Total Equity and Liabilities 400,000 On 1/1/2010 Berlin acquired 100% of the shares of Hanover for K100, 000 and gained control. Required Prepare the statement of financial position of Berlin immediately after the acquisition if: (a) Berlin acquired the shares for cash. (b) Berlin issued 10,000 common shares of K5 (market value K10.). 4. Describe the requirement of IFRS 3 in relation to the revaluation of a subsidiary company's assets to fair value at the acquisition date.

Answer 1

As per IFRS 3 Business combination

This standard applied to the accounting for subsidiaries, jointly controlled entities and associates entities for its financial statements. Consolidated financial statements are the financial statements of a group presented as those of a single entity. Control is the power of financial and operating policies. One group is the one parent company and another subsidiaries. existing stake to be re-measured to fair value at the date of acquisition

In this example Berlin plc acquired 100% stake of K.

Financial statement after acquisition

If acquisition done by cash

B SHARE ISSUED BY BERLIN

C - Requirement of the IFRS 3 in relation to revaluation of subsidiary company assets to fair value at the acquisition date

recognizes and measures the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree, Recognise and measure goodwill and gain from bargain purchase and determine the information which is to be disclose and for the disclosure.

IFRS 3 need the assets and liabilities acquired need to constitute a business, otherwise it’s not a business combination. fixed assets is to be hold by businees for the purpose of producing goods and rendering services. For the purpose of revaluation of assets fair value or market value of the assets to be consider. In the acquisiton we need to consider fair market value for the business assets for the pupose we need to buy or acquire this business or not means if tha fair market value is good we can consider business purchase or acquisition.

Current market price (CMP)

Appraisal method

Selective revaluation

Preliminary considerations

Upward revaluation/Downward revaluation

Successive revaluations