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Questions and Answers
What method must be used for accounting for business combinations according to PFRS 3?
What method must be used for accounting for business combinations according to PFRS 3?
Which term is NOT used when referencing the accounting method for business combinations under PFRS 3?
Which term is NOT used when referencing the accounting method for business combinations under PFRS 3?
Which method is synonymous with the acquisition method as prescribed by PFRS 3?
Which method is synonymous with the acquisition method as prescribed by PFRS 3?
What is a primary characteristic of the acquisition method used in business combinations?
What is a primary characteristic of the acquisition method used in business combinations?
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What is a key distinction of the acquisition method compared to the other methods?
What is a key distinction of the acquisition method compared to the other methods?
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Study Notes
Accounting for Business Combinations under PFRS 3
- The correct method for accounting for business combinations under PFRS 3 is the acquisition method.
- This method is specifically outlined in PFRS 3, not the purchase method, buy method, or combination method as alternatives.
- The acquisition method, under PFRS 3, requires recognizing all identifiable assets, liabilities, and contingent liabilities acquired and all equity instruments issued in exchange for the consideration transferred.
- The method focuses on the acquisition of control over an entity, and not just the purchase of its assets.
- PFRS 3 requires assets and liabilities acquired to be measured at fair value on the acquisition date.
- The difference between the fair value of the identifiable net assets acquired and the consideration transferred is recognized as goodwill or a gain.
- Goodwill is an intangible asset that represents the excess of the purchase price over the fair value of the net assets acquired.
- Intangible assets resulting from the business combination, if any, are also recognised individually on the balance sheet after considering their fair value.
- The purchase consideration, including any non-cash consideration, must be used to calculate the initial measurement of investment in the acquiree.
- The accounting for the business combination will differ if the acquirer subsequently loses control over the acquiree.
- PFRS 3 rules apply regardless of whether the acquisition method is applied to wholly owned subsidiaries, jointly owned subsidiaries or jointly controlled entities.
- The acquisition method is distinguished by its focus on the acquisition of control, using fair value measurements, and the subsequent recognition of goodwill or a gain.
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Description
This quiz tests your knowledge on the acquisition method for accounting business combinations under PFRS 3. Understand the key principles, including the recognition and measurement of assets and liabilities, as well as the calculation of goodwill. Dive into the specifics of fair value assessments and control acquisition.
