IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

408

Wiley IFRS: Practical Impl ementation Guide and Workbook

(e) Goodwill arising on initial investment (25%)

$m 5

Issued equity Revaluation surplus (25% of 6 million) Retained earnings [and 25% of (60 - 20-6) million] (d) above Goodwill Investment in Hand

1.5

8.5 5

(f) Goodwill arising on 45% purchase of shares

$m 9 4.5

Issued equity Revaluation surplus 45% of 10 Retained earnings (45% of 80) Goodwill Investment in Hand

36

0.5

Consolidated Balance Sheet at December 31, 20XS Macti re, a pub lic limited company

$m 260

Property, plant, and equipment (170 + 80 + 10) Goodw ill Current assets (55 + 40)

5.5

95 360.5 120 I 176.5 33 --.2lL 360.5

Issued equity Revaluation surplus (10 - 1.5 - 4.5 - 3)

Retained earnings Minority interest Current liabilities

8. INITIAL ACCOUNTING 8.1 Th e accounting for a business combinat ion initially involves the identification of the fair val– ues to be given to the acquiree' s net assets, contingent liabi lities, and the cost of the acquisition. 8.2 Sometimes the initi al acco unting can be determined only provisionally by the time the first accounts are drawn up after the acquisition. If this is the case, then the acquiring entity should use those pro visional values . However, any adjustments to those provisional values should be made within 12 month s of the acquisition and from the date of the acq uis ition. Any further adj ustments to the values give n to the net assets and contingent liabilities and cos t of the combination after the initial acco unting has been comp leted should be made only to correc t an error, as set out in lAS 8. 8.3 If the benefit of the acquiree' s income tax losses or other deferred tax assets did not satisfy the recognition criteria when the business combination was initially accounted for, the acquirer sha ll recognize that benefit subsequently in acco rdance with lAS 12, III come Taxes. The carry ing value of goodwill should be reduced accord ingly and treated as an expen se in the income state– ment. However, this should not result in the creation of any negative goodwill. Facts l e E, a public limited company, acquired LZE, a public limited company, on December 31, 20X5. LZE has among its net assets customer lists of information in the form of a database, LZE has two such databases: one where the nature of the information is subject to national laws regarding confidentiality and another where the information can be sold or leased. LZE also has contracts for the supply of maintenance services for computer systems. These contracts have another five years left to run. The company insures computer systems against potential disasters, and these contracts are renewable every year. Case Study 5