Business Combination and Impairment Loss Theory Question

1. List two indicators which can assist in assessing which entity is the acquirer in a business combination. (2 Marks)

* entity that obtains control of the other business

* entity that acquires net assets of the other business

* Acquires more than 50% of that entity's voting rights.

* power to appoint or remove the majority of members of board of directors



Define control. (1 Mark)

* Control is the power to govern the financial and operating policies of a business so as to obtain benefits from its activities.



3. Name two types of business combination which are not covered by the provisions of IFRS3. (2 Marks)

* the formation of a joint venture

* the acquisition of an asset that does not constitute a business

* a combination of entities or businesses under common control



When should an entity conduct an impairment test?

Every year for intangible assets with indefinite useful lives. 

Other assets only require testing if there is a possibility that that asset is impaired



How are directly attributable acquisition related costs accounted for? Why?

(1 Mark)

-They are treated as expenses by the acquirer hence they are DR as cash is CR when the expense is paid off.



In accounting for a business combination assets and liabilities acquired and assets and equity given up are measured at fair value on acquisition date. Does this mean that goodwill is also measured at fair value on that date? (1 Mark)

No. After initial recognition goodwill is measured at cost less any accumulated impairment losses.



How is an impairment test undertaken?

By comparing the carrying amount of the CGU (cash generating unit) with it's recoverable amount. 

The recoverable amount is the higher of it's fair value and it's value in use.



Fred Walker the accountant for Tamarind Ltd is attempting to record the company's recent acquisition of PawPaw Ltd. However, he is unable to determine if the acquisition date is 1 November 2012 or 14...