IFRS – Investments in Associates (IAS 28) – Comprehensive Study Notes

Which of the following situations represents significant influence?

Which of the following situations represents significant influence?

A	Cray Co. purchases 25% of the common shares outstanding of Ole Ltd. and can appoint one out of five board members.
B	Cray purchases less than 1% of the common shares outstanding of Klein Ltd.
C	Cray purchases 100% of the common shares outstanding of Santino Ltd. and appoints all five members of the board.
D	Cray purchases 51% of the common shares outstanding of Zay Ltd. and appoints three out of six board members.

Cray Co purchases 25% of the common shares outstanding of ole ltd and can appoint one out of five board members

Which of the following describes how the excess purchase price in the bargain purchase of an associate is initially recognized?

As a gain included in the calculation of Profit and loss

Clementine Inc. purchased 41% of the outstanding common shares of Tangiers Ltd. for $150,000. On the purchase date, Tangiers had net assets of $360,000. The FVs of the assets and liabilities equalled their BVs, except for long-term debt, which had a BV of $400,000 and an FV of $350,000.

What is the value of the goodwill, or bargain purchase that Clementine will record on acquisition, assuming the company reports under IFRS?

The bargain purchase is calculated as follows:

Purchase price		$150,000
Less:
Net BV of Tangiers	$360,000
Percentage acquired	41%	147,600
Acquisition differential		2,400
FV differential on debt ($400,000 − $350,000)	50,000
Percentage acquired	41%	(20,500)
Bargain purchase on acquisition		$(18,100)

(Choice B) Incorrect. The entire net BV of Tangiers has been deducted from the purchase price, rather than just Clementine’s percentage. Incorrect calculation: $150,000 – $360,000 – ($50,000 × 41%) = ($230,500).

(Choice C) Incorrect. The entire FV differential on the debt has been deducted from the acquisition differential, not just Clementine’s portion. Incorrect calculation: $150,000 – ($360,000 × 41%) – $50,000 = ($47,600).

(Choice D) Incorrect. There is an FV differential on the debt because it is a liability and the BV is greater than the FV, so it must be deducted from the acquisition differential, not added. Incorrect calculation: $150,000 – ($360,000 × 41%) + ($50,000 × 41%) = $22,900.

Which of the following describes how an investment in an associate is initially measured under IFRS?

At cost

Which of the following statements regarding FV differentials and goodwill is true?

An asset with an FV greater than its BV will decrease the amount of goodwill calculated in the acquisition differential schedule

Which of the following describes an acquisition differential?

Any difference between the purchase price and the proportionate share of the BV of the associate

Which of the following describes how transaction costs incurred in the purchase of an investment in an associate are accounted for under IFRS?

They must be capitalized or expensed

Which of the following describes When a bargain purchase occurs in the purchase of an associate?

When the price paid to acquire the associate is below the FV of the investors share of the investees identifiable net assets at the acquisition date