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In revised IFRS 3, the transaction costs which are directly attributable required to be expensed as incurred in the consolidated accounts. Acquisition-related costs are not assets, so they will be charged to expense (Paul et al., 2008). Before IFRS 3 is revised, the transaction costs were capitalized as part of the business combination which included in goodwill. Under the revised IFRS 3, the consideration transferred is only include amounts paid to obtain control of the acquiree exclude other costs like accounting fees, legal fees, consulting fees and so on. With this change, the consideration paid will be lower in values compared to before IFRS revised. Consideration paid is used when we calculate the goodwill on combination, thus if the consideration paid is lower, goodwill on combination will also be affected. This will indirectly affect the group accounts.
Under revised IFRS 3, contingent consideration in a business combination must be recognized and measured at fair value at the acquisition date and then classify it as either liability or equity. Although payment is not deemed to be probable at acquisition date, it has to be recognized, too. Before IFRS 3 is revised, subsequent change in contingent consideration affect goodwill. Whereas after IFRS is revised, if it gives rise to a liability, subsequent change to fair value will be recognized in profit or loss account which will lead to statement of comprehensive income volatility. If classified as equity, there is no subsequent remeasurement. Contingent consideration will show an impact on the purchase price and any subsequent re-measurement to fair value will affect future earnings or profits.
Before IFRS 3 is revised, the acquisition of a subsidiary in stages was a cost accumulation methodology which is the aggregate cost of the individual transactions. Goodwill was determined on piecemeal basis and then aggregated it. After FRS is revised, it takes into accounts all elements of the business combination transaction at the date of acquisition including any previously-held equity interest by the acquirer. The previously-held equity interest has to remeasure at the acquisition date and recognized the gain or loss arises in profit and loss. There will be a gain recognized in the statement of comprehensive income of the acquirer at acquisition date if the value of stake has increased. Goodwill is calculated as difference between the fair value of the consideration transferred at the date of control and the fair value of the net assets acquired. Before IFRS 3 is revised, if there is an increased in stake after acquisition date which means an enitity purchase a non-controlling interest, additional goodwill will be recognized. After IFRS 3 is revised, it is only treated as an equity transaction. The increase in stake cannot show in additional goodwill.
After IFRS 3 is revised, there are two methods to calculate goodwill which are partial goodwill and full goodwill method. Goodwill on combination is now includes a portion attributable to NCI and NCI can now be measured based on NCI' share of the fair value of the acquiree' identifiable net assets. This is a full goodwill method. Full goodwill method shall increase the reported net assets on the statement of financial position which means that any future impairment of goodwill will be larger. Goodwill impairment testing is also easier to be done under full goodwill method because goodwill does not need to gross up for partly owned subsidiaries.
On January 8, year 2010, MASB also issued a revised FRS 127: Separate Financial Statements. In the amended FRS 127, non-controlling interests are now being considered as part of equity. This means that transactions between non-controlling interests and parent which do not affect control are considered to be movements in equity or in other words, decrease in stake without loss of control shall be treated as an equity transaction.
A disposal or decrease in stake without loss of control can no longer treat as a deemed disposal. It shall be treated as an equity transaction. In addition, any remaining stake must be remeasured to fair value for loss of control. When parent loses control of a subsidiary (total disposal or partial disposal), it derecognizes the assets, goodwill and liabilities of the subsidiary and also NCI on the date of disposal. Any amounts previously recognized in other comprehensive income is reclassified to profit and loss or transfer to retained profits. With loss of control (total disposal or partial disposal), the subsidiary will now become an associate or retain as a simple investment.
IFRS 10: Consolidated financial statements now have a new definition of control. Regardless of the nature of involvement with an entity (investor with investee), an investor shall determine whether it is a parent by assessing whether it controls the investee. Control exists when an investor has power over the investee and exposure or rights to variable returns from its involvement with the investee. Investor also has control when they have the ability to use its power over the investee to affect the amount of the investor's returns. This will result in changes to a consolidated group. To assess control, it requires a complete understanding of an investee's purpose and design, and the investor's rights and exposures to variable returns and also rights and returns held by other investors (Ernst & Young, 2012). This requires input from external sources.
The ultimate Malaysian parent shall present consolidated financial statements that consolidate its investments in subsidiaries when either the parent or the group is a reporting entity or both the parent and the group are the reporting entities. A parent shall prepare consolidated financial statements using uniform accounting policies for transactions and other events in similar circumstances.
IFRS 12: Disclosure of Interests in Other Entities is effective for annual periods beginning on or after 1 January 2013. IFRS 12 is needed to understand the effects of an entity's interests in other entities on its financial position, financial performance and cash flows and also the nature and the risks associated with the entity's interest in other entities. The disclosures include summarized financial information for each of the subsidiaries that have NCI that are material to the reporting entity and also for each individually material joint venture and associate. This disclosure will help users to make assessment on the financial impact. Through this IFRS, we may also know whether any additional procedures and changes to systems are needed to gather information for the preparation of the additional disclosures (Ernst & Young, 2012).
In a nutshell, development in FRS 3, FRS 127, IFRS 10 and IFRS 12 will have an impact on the group accounts.