Business Combinations & the Acquisition Method

An acquirer pays consideration for a controlling stake and a noncontrolling interest remains. What two errors most often distort the goodwill figure?

Total consideration in a business combination is less than the fair value of the identifiable net assets acquired. How is the difference recognized, and to whom is it attributed?

An investor has full power to direct an investee's relevant activities but is contractually capped at a fixed return regardless of performance. Under IFRS 10, does it control the investee?

A lender can veto the borrower's sale of major assets, and a franchisor caps the franchisee's pricing and advertising. Do these rights give control of the investee?

Under IFRS 3's acquisition method, which single event fixes the date on which the acquiree's identifiable assets and liabilities are measured at fair value?

An acquirer pays legal and advisory fees, plus costs to issue shares, to complete a combination. How is each treated, and what is the effect on goodwill?

An investor has the present right to direct an investee's relevant activities but has never yet exercised it. Does it have power for IFRS 10 purposes?

Consideration in a combination includes shares issued, a promise to pay cash in two years, and an earn-out. At what amount is each included in the consideration transferred?

The acquiree internally developed patent rights it expensed and never capitalized. On consolidation, does the acquirer recognize them separately, or do they fall into goodwill?

What two conditions must both hold for a transaction to fall within IFRS 3 as a business combination, and what treatment applies if either fails?

In a reverse takeover, one company issues the shares to effect the deal but the combined entity ends up controlled by the other side. Which entity is the accounting acquirer?

An acquirer buys a development-stage operation with assembled inputs and processes but no revenue yet. Does it qualify as a business under IFRS 3, and why does the answer matter?

An acquired customer contract cannot be sold on its own. Can it still be recognized separately from goodwill?

An entity acquires a group of assets that does NOT meet the definition of a business. How is the cost allocated, and can goodwill arise?

An acquiree faces a lawsuit where an outflow is possible but not probable. Standalone IAS 37 would not recognize a liability — does the acquirer recognize it in the combination?

An investor owns more than 50% of an investee's voting shares, but a third party holds convertible bonds that would convert into majority votes. Who controls the investee?

A parent holds under 50% of an investee's voting shares. Name a circumstance that can still give it control, triggering consolidation rather than the equity method.

Contrast a purchase of net assets with a purchase of shares: who you deal with, what happens to the acquiree's books, and whether you consolidate.

In which form of combination do the two companies' books merge directly, and when does the combining happen only through consolidation?

What is a statutory amalgamation, and why is a one-survivor amalgamation essentially just a purchase of net assets?

IFRS 3 mandates the acquisition method for every combination. What are its core steps, and why does identifying the acquirer drive the numbers?

An acquirer incurs costs to issue the shares and the debt that fund a combination. How is each treated, and how does that differ from professional fees?

An acquirer plans, but is not yet obliged, to shut an acquiree activity and lay off staff after closing. Are those expected costs a liability at the acquisition date?

IFRS 13 names three techniques for estimating fair value in a combination. What input does each — market, cost, income — rely on?

A combination can be done by buying the target's net assets directly or by buying enough of its voting shares. How does the acquirer's own bookkeeping differ between the two routes?

Some argue a combination creates a brand-new entity, so both sides' net assets should be revalued to fair value. What is that method, and why doesn't practice use it?

Buying a majority of a target's voting shares leaves two separate legal companies standing. Why are consolidated statements then required, and what do they portray?

A parent sells inventory to its subsidiary during the year. Why doesn't that sale show up in the consolidated income statement?

When consolidation eliminations and adjustments are made, does the parent or the subsidiary post them into its own accounting records?

A parent's consolidated statements look healthy, but one of its subsidiaries is quietly failing. What limitation of consolidation does this expose, and who is better served by separate-entity statements?

Why does a parent's consolidated balance sheet often show a much higher debt-to-equity ratio than its separate-entity balance sheet, and why is that arguably more useful?

Under ASPE, must a private enterprise consolidate a subsidiary the way IFRS 10 requires?

Under ASPE a parent elects the cost method for a subsidiary, but that subsidiary's shares happen to trade in an active market. What must it report instead?

An earn-out promises the seller extra cash if the target hits future profit targets. How is that contingent consideration measured at the acquisition date?

Two earn-outs: one will be settled in cash, the other by issuing a fixed number of shares. Why are they classified differently, and which one is remeasured after acquisition?

Within a year of the acquisition the parent gathers new information that changes the earn-out's value. Does the adjustment hit earnings or goodwill?

A company has built a valuable brand and reputation over decades. Can it put the resulting goodwill on its balance sheet?

How is acquired goodwill tested for impairment, and in what order is an impairment loss absorbed within a cash-generating unit?

How does IFRS 13 define the fair value used throughout acquisition accounting — is it an entry price or an exit price?

What actually separates a friendly business combination from an unfriendly (hostile) one, and where does the tender offer sit in each?

What is push-down accounting under ASPE, and what disclosure does electing it trigger?

An investor already holds a 30% equity-method stake, then buys more shares and gains control. What happens to the carrying value of the originally held 30%?

A private operating company wants a stock-exchange listing but wants to skip the exchange's normal listing process. How can a reverse takeover deliver this?

An investor buys the shares (and thus control) of a company that holds only a portfolio of assets and liabilities, not a business. Does it consolidate, and can goodwill arise?

What is the overall disclosure objective for a business combination under IFRS 3, and what are the core items an acquirer must disclose?

Payment for a combination can be cash or shares. How does the medium of payment point to which company obtains control?

A target's board wants to fend off a hostile bid. Match each classic defence to how it works: poison pill, Pac-Man, white knight, selling the crown jewels.

When judging whether an acquired set of assets and activities is a 'business,' does it matter how the seller ran it or how the buyer intends to use it?

A preferred shareholder's returns rise and fall with the investee's performance. Does that exposure to variable returns hand it control under IFRS 10?

Two investors each have the unilateral right to direct different relevant activities of the same investee. Which one has power under IFRS 10?

An investor holds only 40% of an investee — the largest single block — while the other 60% is widely dispersed and passive. Can it consolidate?

Does temporary control still trigger consolidation, and which events genuinely signal that control has been lost?

What are the three structurally different ways one company can obtain control over another company's net assets?

Why can goodwill arise only when an actual business is acquired, and what does it economically represent?