420 / 488
408
Wiley IFRS: Practical Impl ementation Guide and Workbook
(e) Goodwill arising on initial investment (25%)
Issued equity
Revaluation surplus (25% of 6 million)
Retained earnings [and 25% of (60 - 20-6) million] (d)
above
Goodwill
Investment in Hand
(f)
Goodwill arising on 45% purchase of shares
$m
5
1.5
8.5
5
Issued equity
Revaluation surplus 45% of 10
Retained earnings
(45% of 80)
Goodwill
Investment in Hand
$m
9
4.5
36
0.5
Consolidated Balance Sheet at December 31, 20XS
Macti re, a pub lic limited company
Property, plant, and equipment (170
+
80
+
10)
Goodw ill
Current assets (55
+
40)
Issued equity
Revaluation surplus (10 - 1.5 - 4.5 - 3)
Retained earnings
Minority interest
Current liabilities
$m
260
5.5
95
360.5
120
I
176.5
33
--.2lL
360.5
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.
Case Study 5
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.