Page 308 - F1 Integrated Workbook STUDENT 2018

Chapter 19

Acquisition accounting

2.1 Acquisition accounting

IFRS 3 Business Combinations requires acquisition accounting (the purchase
method) to be used to prepare consolidated financial statements

This requires the following rules to be followed:

 Add the parent and subsidiary assets, parent and subsidiary
liabilities, parent and subsidiary income and parent and subsidiary
expenses.

 The cost of the investment in the parent's books is eliminated
against the share of the subsidiary’s net assets at the acquisition
date, with any resulting goodwill being treated in accordance with
IFRS 3 (revised).

 The share capital and share premium of the parent is always the
share capital and share premium of the group

 Adjustments are made to record the subsidiary’s net assets at fair
value.

 Uniform accounting policies must be used.

 Profit/loss on intra-group transactions must be eliminated (PURP).

 Intra-group balances and transactions must be eliminated.

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