Page 473 - SBR Integrated Workbook STUDENT S18-J19

Answers

Example 11

Exam focus

Consideration

IFRS 3 Business Combinations says that consideration transferred to achieve
control of a subsidiary should be measured at fair value. For deferred cash
consideration, this will be its present value.

At acquisition, the present value of the deferred consideration was $2.6 million
3
($3m ×1/1.05 ). This increases goodwill, and liabilities, by $2.6 million:

Dr Goodwill $2.6m

Cr Liabilities $2.6m

The discount on the liability should be unwound over the year. A finance cost
of $0.1 million ($2.6m × 5%) should be recorded in profit or loss. This
increases the carrying amount of the liability to $2.7 million:

Dr Finance costs $0.1m

Cr Liabilities $0.1m

Brand

At acquisition, the identifiable net assets of a subsidiary should be
consolidated at fair value. The brand should have been recognised at $10
million. This reduces the value of goodwill at acquisition by $10 million:

Dr Intangible assets – brand $10m

Cr Goodwill $10m

The brand should be amortised over its remaining useful life. Amortisation of
$2 million ($10m/5 years) should be charged to profit or loss, reducing the
carrying amount of the brand to $8 million:

Dr Amortisation expense $2m

Cr Intangible assets – brand $2m

467