I could not obtain a good understanding on ‘Consideration transferred’ from IFRS 3 Business combinations sub 32 that reads as follows:
The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below:
- the aggregate of:
- the consideration transferred measured in accordance with this IFRS, which generally requires acquisition-date fair value (see paragraph 37);
- the amount of any non-controlling interest in the acquiree measured in accordance with this IFRS; and
- in a business combination achieved in stages (see paragraphs 41 and 42), the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree.
- the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this IFRS.
So that is why I set up this very simple balance sheet of the company Acquiree Co. The acquirer purchases 90% of the shares in Acquiree Co. for a ‘consideration transferred’ of CU81. This means the value of 100% of the business is CU90 (CU81/90%). The acquirer has no stake in Acquiree before acquiring this 90% stake.
Book is the book value as per IFRS in the books of Acquiree Co, Pro forma FV is the resulting acquisition balance sheet recorded by the acquirer as the opening balance in its consolidation (Equity CU 90, NCI 9, acquirer CU 81).
The amount of goodwill acquired is calculated, as per above picture, as follows: Consideration transferred and Goodwill
Consideration transferred (CT) +/+ Fair value Non-controlling interest (10% NCI)
+/+ Fair value at acquisition of acquirer’s previous held equity interest (PE)
-/- Fair value Net assets received (Assets1 -/- Liabilities) (NA)
Let’s check this: Consideration transferred and Goodwill
CU81 (CT) plus CU9 (NCI) plus CU0 (PE) minus CU70 (NA) = CU20 Goodwill
And one more check, Equity Pro forma FV of CU90, acquirer has acquired 90% is CU81, which is the consideration transferred!
But: in Net assets received at the acquisition may be included all types of intangible assets (other than goodwill). such as customer relationships, trade secrets, customer lists/databases, IP, production processes and many more. Consideration transferred and Goodwill