Home » BUSINESS COMBINATION, CONSOLIDATION

Consolidation After Merge

27 August 2010 1,907 views 6 Comments

If  company (A) has a subsidiary(b) during acquisition no goodwill was recognized  then the subsidiary (b) was merged with another company resulted for change it’s capital structure , so the Investment of (A) at (b) is now greater than it’s share of  new capital of (b) is the difference recognized as goodwill or what

please Help

Related Posts

  1. Consolidation- disposal of subsidiary
  2. Consolidation of net loss position
  3. Question about goodwill
  4. loss making subsidiaries – consolidation
  5. Financial Statement Consolidation
  6. Is offsetting of positive goodwill against negative goodwill allowed in consolidation?
  7. Retained losses on Investment in subsidiary
  8. Sale of subsidiary
  9. Consolidation – Goodwill related questions
  10. Entries – Consolidation of financial statements
1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading ... Loading ...

6 Comments »

  • ifrslist
    ifrslist said:

    Conslidation After Merge – http://www.ifrslist.com/2010/08/conslida...
    via Twitoaster

    # 27 August 2010 at 3:18 am
  • Mladek said:

    Are you sure you are trying to apply IFRS?

    Seems to me the issues you are concerned about have more to do with legislated (“national GAAP”) standards than IFRS.

    Under IFRS goodwill arises only when one business purchases another business. It is the difference between the purchase price and the fair value of the acquired business’s net assets (assuming the former is greater).

    Based on your description, it does not seem an acquisition (as understood by IFRS) occurred and thus no goodwill can be recognized.

    # 27 August 2010 at 7:56 am
  • patriciawalters said:

    Here is what I understand from your description.

    Parent company P acquires controlled subsidiary S either paying exactly the fair value of the assets and liabilities acquired or paying less and recording a gain on a bargain purchase. Either way no Goodwill was recognized on acquisition of S1.

    Next, you have S “merging” with another company C. “Merging” has no meaning in IFRS so we need to understand what the transaction really was and will likely depend on whether C is also controlled by P or not.

    So, I cannot address your question without the following information.

    (1) Is C another subsidiary of P or an entity that is not under the common control of P?

    (2) Did S acquire C or did C acquire some percentage of S? The issue is whether P still controls S and/or the new entity S+C.

    When you respond, I’ll try to help.

    Regards
    Patricia Walters

    # 27 August 2010 at 10:03 pm
  • yahya mohamed (author) said:

    Dear patriciawalters
    Can you help me and tell me both cases and under which paragraph of which IFRS
    And thanks

    # 28 August 2010 at 1:30 am
  • patriciawalters said:

    If C is an external business not under common control of P:

    (1) S acquires AND controls C and compensation transferred exceeds the fair value of the identifiable assets and liabilities acquired, then S recognizes goodwill (GW) as an asset which will become part of the GW reported by P in the consolidated financial statements. The acquisition is accounted for under IFRS 3 (2008).

    (2) If C is an entity under common control of P, such transactions are scoped out of IFRS 3. Accounting for common control transactions were added as a research project to the board’s agenda in 2007. I personally don’t see their addressing this until after the convergence projects are completed.

    However, it does not seem reasonable to me to create a new asset simply by rearranging the various parts of P.

    Remember, in consolidation, the assets and liabilities of the subsidiaries (after elimination of intercompany transactions and balances) are what appear in the consolidated financial statements plus the equity accounts of the parent and any resulting minority interests. The equity accounts of the subsidiaries are eliminated as they are only the assets – liabilities.

    Finding specific paragraph citations is an extremely time-consuming task. I will leave that to you. IFRS 3 appendix B does include guidance on determining whether the transaction is a common control transaction.

    Patricia Walters

    # 29 August 2010 at 1:30 pm
  • Mladek said:

    If company A has a subsidiary b and no goodwill, that means company A, sometime in the past, acquired what was then an independent company b (or possibly a “division” b that used to belong to some other company).

    That was then.

    Now, as far as IFRS is concerned, Ab is a consolidated whole and no longer (unlike under many “national GAAPs”) two separate and distinct legal entities.

    Thus, there are only two ways that, under IFRS, subsidiary b can later be “merged” with some other entity.

    One, it can be sold to company C.

    In this case, it is no longer part of the Ab consolidated group and its capital structure is no longer of any concern to A.

    Two, A can acquire another subsidiary (c).

    In this case, if A paid more for c than c’s net assets, goodwill would arise. If A then decided to “merge” b and c into a single cash generating unit (or consider them a group of cash generating units) per IAS 36.80, the goodwill generated during the acquisition of c would be allocated to cash generating unit bc.

    What you seem to be, on the other hand, suggesting is that no external acquisition(s) occurred and company A simply reorganized its own internal structure.

    For example, A “merged” subsidiary b (a separate legal entity) to another subsidiary (also a separate legal entity) leading to a “change in capital structure” and “goodwill” as per the accounting legislation (“national GAAP”) mandatory in most countries (ex USA / UK).

    The problem is, from an IFRS perspective, these legalistic considerations are irrelevant.

    Therefore, it is not even possible to cite paragraphs that would, under IFRS, tell you how to do something that, from an IFRS perspective, cannot be done.

    I am not saying that these operations would not have any impact on the IFRS report.

    If, for example, this “change in capital structure” altered the consolidated group’s tax obligations, ability to pay out dividends, ability to repurchase stock, etc., IFRS would require disclosure of these facts.

    What I am saying is that while formal, legalistically driven changes in capital structure are very common at entities required to (in addition to IFRS) apply “national GAAP”, they are not consistent with the way IFRS approaches financial reporting.

    Or, put another way. Since, unlike legislated standards, IFRS applies to the consolidated group (the parent plus all its subsidiaries and all the subsidiaries’ subsidiaries and all the subsidiaries’ subsidiaries’ subsidiaries, etc.) regardless of legal structure , the issues you seem to be concerned with have nothing at all to do with IFRS (but I already said that in my first post).

    Then again, since your description is the exact opposite of clear and complete, I may have misunderstood the issues.

    If so, please provide a clear, step-by-step description of the transactions you are trying to recognize (as per IFRS) and I’ll try to make heads and tails of them.

    BTW, it this “goodwill” was generated by an intra-group “merger”, this would be in direct violation of IAS 38.48, which states: Internally generated goodwill shall not be recognised as an asset.

    # 30 August 2010 at 7:35 am

Leave your response!

You must be logged in to post a comment.