14 November 2008
Is consolidation procedure under IFRS is similiar to IGAAP? Is the treatment of pre-acquisition profit and post acquisition profit same under IGAAP and IFRS? Can Profit on Bargain purchase arising from one subsidiary be adjusted against goodwill arising from acquisition of another subsidiary?
15 November 2008
Consolidation procedures under IFRS and I GAAP are mostly same.
However in IGAAP we computed Goodwill as difference between total consideration paid less net asset value.
However under IFRS, we are supposed to first compute the fair value of the net assets recieved. Here we are supposed to also recognise the assets and liabilites which are not existent in the books of acquired subsidiary.
Once the above is done, we are supposed to identify allintangible assets, that we have recieved on account of this acquisition viz. brand, trademarks, customer, etc. and should allocate minimal amount to Goodwill for which we cannot identify intangible assets.
In case there is a negative goodwill i.e. profit on bargain purchase, the same should be routed thru Profit and Loss account in the year of acquistion itself.
Further Profit on bargain purchase on one subsidiary cannot be adjusted against the goodwill of other subsidiary.
Goodwill arising out of acquisition of a subsidiary is to be tested for impairment.
In case you need any further clarifications, pls. let me know.
15 November 2008
Thank you for replying to my query.
Profit on Bargain purchase is accounted only when consolidated financials statements are prepared. So for next financial year when CFS is prepared, again the profit on bargain purchase will arise. How will the same be treated?
Under IGAAP, post acquisition profits and reserves of subsidiary are clubbed along with the Profit and respective reserves. Is the treatment same under IFRS?
15 November 2008
I agree with you that profit on bargain purchase is accounted only when consolidated financial statements are prepared.
However in the first year of acquisition you have to route profit on bargain purchase i.e. negative goodwill as an income in the profit and loss account of the consolidated financial statements.
In the next year since the opening balance of consolidated financial statements will be higher to the extent of this profit on bargain purchase, there will be no need to pass any accounting entry for the same. Hope the same suffices you query. In case you want to have an example for the same, pls. let me know. I will prepare a simple example in excel file and forward it to you.
The treatment of post acquisition profits and reserves are same in the IFRS. However there is a concept of comprehensive income where forex fluctutations and adjustments on revaluation of assets is sone.
If negative goodwill is taken to profit & loss a/c, then it will become a part of free reserves which will be eligible for ditribution of dividend. Can it be distributed?
Whether statement of comprehensive income to be prepared under IFRS now. The standard says that the standard is applicable from 1.1.2009?
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