Prepared By: Dyan Nicole M. Francisco, CPA

Accounting for Business Combination L2
Lesson 2: Stock Acquisition
In Stock acquisition, the acquirer issue consideration in exchange for the ownership of
stocks (shares) in the acquired company (acquiree). Normally, the acquirer will own
majority of the outstanding shares of the acquiree (more than 50%).
It is presumed that if an entity owns the majority of shares of another entity, control
exists. In a stock acquisition, the acquirer is known as the “Parent” while the acquiree is
known as the “subsidiary”. After the business combination, both the parent and the
subsidiary will continue to exist and operate as a separate legal entity.
What is a subsidiary?
The most common type of controlled entity is a subsidiary. A subsidiary is a corporation

that is controlled by a parent company that owns, usually, a majority of the voting
shares/rights of the subsidiary. Since stockholders elect a corporation’s board of
directors, holding most of the shares enables the parent company to control the
composition of the subsidiary’s board.
Acquisition Method
1. Identify the acquirer;

2. Determine the acquisition date;
3. Recognizing and Measuring the Identifiable Assets Acquired, Liabilities Assumed,
and Any Non-Controlling Interest in the Subsidiary.
Consideration Transferred xx
Non-Controlling Interest xx
Less: FV of Net Assets of the Subsidiary xx
Goodwill / Gain on Bargain Purchase xx
Prepared by: Dyan Nicole M. Francisco, CPA 1

NON-CONTROLLING INTEREST
IFRS 3 allows an accounting policy choice, available on a transaction-by-transaction

basis, to measure noncontrolling interest (NCI) either at:
• NCI’s PROPORTIONATE SHARE OF NET ASSETS OF THE SUBSIDIARY (PARTIAL

GOODWILL METHOD)
Fair value of net assets of subsidiary xx

Multiplied by Non-controlling interest ownership x%
NCI @ Proportionate Share of Net Asset of Subsidiary xx
• FAIR VALUE (FULL GOODWILL METHOD)
Consideration Transferred (exclusive of control premium) xx

Divided by ownership percentage acquired by parent x%
Multiplied by Non-controlling interest ownership x%
NCI @ Fair Value xx
**Under full goodwill method, the NCI shall be measured

at higher between fair value of NCI and its proportionate
share in the FV of net asset of subsidiary.
FAIR VALUE OF NET ASSETS OF SUBSIDIARY
Fair value of identifiable assets of subsidiary xx

Less: Fair value of liabilities of subsidiary xx
Fair Value of Net Assets of Subsidiary xx
4. Recognizing and Measuring Goodwill or Gain from Bargain Purchase

STEP ACQUISITION
It is a business combination achieved in stages, also called step acquisition, the
acquirer shall remeasure its previously held equity interest in the acquiree at its
acquisition date – fair values and recognize the resulting gain or loss, if any, in profit or
loss or other comprehensive income, as appropriate.
Non-Controlling Interest xx
Previously held equity interest in the subsidiary xx
Less: FV of Net Assets of the Subsidiary xx
Goodwill / Gain on Bargain Purchase xx
Divided by ownership percentage acquired by acquirer x%
Multiplied by previously acquired interest percentage x%
FV of Previously held equity interest in the subsidiary xx
Control Premium
The consideration transferred by the acquirer to the acquiree may include “control
premium”, an amount in excess of the actual fair value of interest purchased. Control
premium will be accounted for as follows:
• Always part of purchase price (consideration transferred)

• It is excluded in the computation of non-controlling interest

Measurement Period
If the initial accounting for business combination can be determined only provisionally
by the end of the first reporting period, the business combination is accounted for using
provisional amounts. Adjustments to the provisional amounts, and the recognition of
newly identified assets and liabilities, must be mad within the ‘measurement period’
where they reflect new information obtained about facts and circumstances that were
in existence at the acquisition date.
When will measurement period ends?

• Acquirer receives the information it was seeking about the facts
and circumstances that existed as of the date of acquisition; or
• Within one year from the date of acquisition
Within Beyond
Measurement Measurement
Period Period
1. FV of Net Identifiable Asset Affect Goodwill/ Profit or loss
Gain on Bargain
Purchase
2. Contingent Consideration – Financial
Liability
a. If change in contingent
consideration is due to additional Affect Goodwill/
information obtained by acquirer Gain on Bargain Profit or loss
about facts and circumstances Purchase
that is already existing at date of
acquisition
(Measurement period adjustment)
b. If change is a result of subsequent Classified as assets or liabilities
event after acquisition date a. As a financial instrument within
(Not measurement period scope of PFRS 9 it shall be
adjustment) measured at FV, gain or loss shall
• Reaching the milestone on be accounted either P/L or OCI.
R&D project.
• Reaching the specified b. Not within scope of PFRS 9, should
share price. be account under PAS 37 or other
• Meeting the earning target appropriate PRFS.
3. Contingent Consideration – Equity To issue additional shares of stock:
(APIC) Contingent consideration is not
remeasured regardless if within or
beyond remeasurement period, and
subsequent settlement is an equity
adjustment to share premium.

Prepared By: Dyan Nicole M. Francisco, CPA

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Accounting for Business Combination L2

Lesson 2: Stock Acquisition

The most common type of controlled entity is a subsidiary. A subsidiary is a corporation

1. Identify the acquirer;

Prepared by: Dyan Nicole M. Francisco, CPA 1

IFRS 3 allows an accounting policy choice, available on a transaction-by-transaction

• NCI’s PROPORTIONATE SHARE OF NET ASSETS OF THE SUBSIDIARY (PARTIAL

Fair value of net assets of subsidiary xx

• FAIR VALUE (FULL GOODWILL METHOD)

Consideration Transferred (exclusive of control premium) xx

**Under full goodwill method, the NCI shall be measured

FAIR VALUE OF NET ASSETS OF SUBSIDIARY

Fair value of identifiable assets of subsidiary xx

4. Recognizing and Measuring Goodwill or Gain from Bargain Purchase

Prepared by: Dyan Nicole M. Francisco, CPA 2

• Always part of purchase price (consideration transferred)

Prepared by: Dyan Nicole M. Francisco, CPA 3

When will measurement period ends?

Prepared by: Dyan Nicole M. Francisco, CPA 4

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