Advanced Financial Accounting Chapter 3 Group Reporting II

Advanced Financial Accounting: Chapter 3 Group Reporting II Tan, Lim & Lee Chapter 3 © 2015 1

Learning Objectives 1. 2. 3. 4. 5. 6. 7. Understand the difference between investor’s separate financial statements and the consolidated statements; Understand the differences and similarities in various mode of business combinations; Appreciate the acquisition method and its implications; Know how to determine the amount of consideration transferred; Understand the identification of the acquirer; Know how to recognize and measure identifiable net assets, liabilities and goodwill in accordance to IFRS 3; and Understand the nature of goodwill. Tan, Lim & Lee Chapter 3 © 2015 2

Content 1. Introduction 2. Overview of the consolidation process 3. Business combinations 4. Determining the amount of consideration transferred 5. Recognition and measurement of identifiable assets, liabilities and goodwill 6. Conclusion Tan, Lim & Lee Chapter 3 © 2015 3

Introduction Separate financial statements (Legal entity) Governing rules and regulations Possible exemptions for presentation Tan, Lim & Lee Chapter 3 Consolidated financial statements (Economic entity) In accordance with corporate regulations In accordance with IFRS 10 No exemption IFRS 10 allowed for exemptions by a parent if it’s : § A wholly owned or partially owned subsidiary; § Debt or equity instruments not traded in public; § Did not file financial statements for purpose of issuing instruments to public; and § Ultimate parent produces consolidated financial statements. © 2015 4

Separate Vs Consolidated Financial Statement Separate financial statements (Legal entity) Income recognition Consolidated financial statements (Economic entity) Dividends Share of profits Investment in a subsidiary carried at: • Cost (IAS 27) or • As a financial instrument (IFRS 9) Investment in a subsidiary: • Investment is eliminated and subsidiary’s net assets are added to the parent (IFRS 10) Asset recognition Investment in an associate carried at: • Cost (IAS 28) or • As a financial instrument (IFRS 9) Tan, Lim & Lee Chapter 3 © 2015 Investment in an associate: • Equity method (IAS 28) 5

Content 1. Introduction 2. Overview of the consolidation process 3. Business combinations 4. Determining the amount of consideration transferred 5. Recognition and measurement of identifiable assets, liabilities and goodwill 6. Conclusion Tan, Lim & Lee Chapter 3 © 2015 6

Consolidation Process Legal entities Parent’s Financial Statements + Subsidiaries' Financial Statements Economic entity +/- Consolidation adjustments and eliminations = Consolidated financial statements • Consolidation is the process of preparing and presenting the financial statements of a group as an economic entity • No ledgers for group entity • Consolidation worksheets are prepared to: – Combine parent’s and subsidiaries financial statements – Adjust or eliminate effects of intra-group transactions and balances – Allocate profit to non-controlling interests Tan, Lim & Lee Chapter 3 © 2015 7

Intragroup Transactions • Intragroup transactions are eliminated to: – Show the financial position, performance and cash flows of the economic (not legal) entity. – Avoid double counting of transactions within the economic entity. Example: • Parent sold inventory to subsidiary for $2 M • The original cost of inventory is $1 M • Subsidiary eventually sold the inventory to external parties for $3 M Q: What is the journal entry to eliminate intragroup sales transaction? Consolidation adjustment Dr Sales Cr Cost of sales Tan, Lim & Lee Chapter 3 © 2015 2, 000, 000 8

Intragroup Transactions Extract of consolidated worksheet Parent's Income Statement Sales $2, 000 Subsidiary's Income Statement $3, 000 Consolidation elimination entries and adjustment Dr 2, 000 Cr Consolidated income Without statement elimination $3, 000 $5, 000 Cost of sales (1, 000) (2, 000) 2, 000 (1, 000) ($3, 000 ) Gross profit $1, 000, 000 $2, 000, 000 Note: Without elimination the consolidated sales and cost of sales figures will be overstated by $2 M. * The consolidation process will be discussed in greater detail in Chap 4. Tan, Lim & Lee Chapter 3 © 2015 9

Content 1. Introduction 2. Overview of the consolidation process 3. Business Combinations 3. The acquisition method 4. Determining the amount of consideration transferred 5. Recognition and measurement of identifiable assets, liabilities and goodwill 6. Conclusion Tan, Lim & Lee Chapter 3 © 2015 10

Business Combinations Business combinations Where an acquirer obtains control of one or more businesses (IFRS 3 App A) Examples: IFRS 3 App B: B 6 Legal merger of net assets of acquired businesses into acquirer’s books Tan, Lim & Lee Chapter 3 Businesses become subsidiaries of acquirer © 2015 Net assets of combining entities transferred to a newly-formed entity Former owners of a combining entity obtains control of combined entity 11

Business Combinations • Business combinations may take different forms ; however two characteristics are present: Acquirer has control of business acquired Target of acquisition is a business • 3 main attributes of control • Power over acquiree • Exposure or rights to variable returns of acquiree • Ability to use power to affect acquiree’s returns. • 2 vital characteristics of a business (IFRS 3) • Integrated set of activities and assets • Capable of being conducted and managed to provide returns (i. e. dividends) to investors and other stakeholders. Business combinations involving entities under common control is outside of scope of IFRS 3 Tan, Lim & Lee Chapter 3 © 2015 12

The Acquisition Method • IFRS 3 requires all business combinations to be accounted for using the acquisition method from the perspective of an acquirer. • An acquirer can obtain control in an acquiree through: 1. Acquisition of assets and assumption of liabilities of acquiree § Include assets and liabilities not previously recognised by acquiree: contingent liabilities, brand name, in-process R&D etc. 2. Acquisition of controlling interest in the equity of acquiree § Deemed to be effective acquisition of assets and assumption of liabilities of acquiree § Control over an acquiree in substance means that acquirer has control over net assets of acquiree § Effects: (2) accounted for as if they are effects of (1) 3. Combination of (1) and (2)* § Effects: Accounted for as if they are effects of (1) Tan, Lim & Lee Chapter 3 © 2015 13

The Acquisition Method • The procedures: Identify the acquirer 4 -step approach: IFRS 3: 5 Determine the acquisition date Group financial statements if acquire subsidiaries Recognize and measure the identifiable assets acquired the liabilities assumed any non-controlling interest in the acquiree; and Tan, Lim & Lee Chapter 3 Recognize and measure goodwill or a gain from a bargain purchase © 2015 14

Identify the Acquirer • IFRS 3 requires the identification of the acquirer in all circumstances – Acquirer is the entity that obtains control of another combining entities – Concept of control is based on IFRS 10 but the standard may not always conclusively determine the identity of the acquirer. – IFRS 3 Appendix B provides additional criteria to identify controlling acquirer. Tan, Lim & Lee Chapter 3 © 2015 15

Identify the Acquirer Additional control criteria under IFRS 3 Appendix B Based on consideration transferred Based on entity size Based on dominance Acquirer is the entity that: Acquirer is the entity: • Transfers cash or other assets or incurs liabilities to acquire another entity • Whose owners hold the largest relative voting rights in a combined entity • Whose owners have the ability to elect, appoint or remove a majority of directors § Issues shares as consideration to acquire shares of another entity • Whose owners hold the largest minority voting interest in the combined entity (if no other entity has significant voting interest) • Whose management is dominant in the combined entity § Pays a premium over the fair value of the equity interest Tan, Lim & Lee Chapter 3 • Which is larger in size © 2015 • Who initiates the business combination 16

Identify the Acquirer – Reverse Acquisition • Reverse acquisition – Legal parent is the acquiree and legal subsidiary is the acquirer – Often initiated by the legal subsidiary – Motive for entering into such an arrangement often to seek a backdoor listing • Exchange of shares in a reverse acquisition 1. Company A (Legal parent) takes over shares of Company B from owners Company A (Legal parent) 2. Company A issues own shares to owners of Company B as purchase consideration 3. Company B has the power and ability to affect the returns of the legal parent after the share exchange Tan, Lim & Lee Chapter 3 Owners of Company B (Legal subsidiary) © 2015 Company B (Legal subsidiary) 17

Identify the Acquirer – Reverse Acquisition Example On 1 July 20 x 5, P (private), arranged to have all its shares acquired by L (public listed). The arrangement required L to issue 20 million shares to P’s shareholders in exchange for the existing 6 million shares of P. Existing shareholders of L owned 5 million of L. After the issue of 20 million L shares, P’s shareholders now owned 80% (20 million shares out of a total of 25 million shares) of the issued shares of the combined entity. L’s shareholders owned 20% of the shares in the combined entity after the share issue. P’s shareholder act in concert to exercise control over the combined entity. L’s shareholders (5 million shares) 80% 20% P’s shareholders (20 million shares) L 100% P Tan, Lim & Lee Chapter 3 © 2015 18

Content 1. Introduction 2. Overview of the consolidation process 3. Business combinations 4. Determining the amount of consideration transferred 5. Recognition and measurement of identifiable assets, liabilities and goodwill 6. Conclusion Tan, Lim & Lee Chapter 3 © 2015 19

Determine the Amount of Consideration Transferred Consideration transferred* • = Fair value of assets transferred + Fair value of liabilities incurred + Fair value of equity interests issued by acquirer to former owners + Fair value of contingent consideration *Fair value (FV) of the consideration transferred: – Determined on the acquisition date – Acquisition date is the date when the acquirer obtains control and not the date when consideration is transferred – Acquisition-related costs are not included Tan, Lim & Lee Chapter 3 © 2015 20

Fair Value of Assets Transferred or Liabilities Assumed • If assets transferred or liabilities assumed are not carried at fair value in the acquirer’s separate financial statements: – Remeasure in fair value and recognize gain or loss in the acquirer’s separate financial statements – Remeasured gain or loss is not recognized if the asset or liabilities remain in the combined entity’s financial statements • If transfer of monetary assets or liabilities are deferred, the time value of money should be recognized: – The fair value will be the present value of the future cash outflows – Eg. Future cash settlement of $1, 000 is due 3 years later and 3% interest is levied Present value to be recognised = $1, 000/ (1+0. 03)^3 = $915, 142 Tan, Lim & Lee Chapter 3 © 2015 21

Fair value of Equity Interests Issued by the Acquirer • Fair value of equity interests issued is measured: – (1) By market price (e. g. published quoted prices of shares) – (2) With reference to either the acquisition date fair value of the acquirer OR acquiree, whichever is more reliable. (For example, if market price is not available or not reliable for the acquiree, use the fair value of the acquirer) • Illustration of (2) Issues X number of shares Acquirer Owners of Acquiree Conveys A number of shares to acquirer Total number of shares after issue: Y Gains control over acquiree FV of acquirer’s equity: $Z Acquiree FV of equity issued is either: • X/Y multiplied by $Z; or • A/B multiplied by $C Tan, Lim & Lee Chapter 3 © 2015 22

Illustration 1: Fair Value of Equity Issued P Ltd acquires 100% of S Co through an issue of 5, 000 shares to the owners of S Co. Number of existing shares 10, 000 2, 000 Number of new shares issued 5, 000 - Market price per share $2. 00 - Fair value of equity 30, 000 9, 000 Tan, Lim & Lee Chapter 3 © 2015 P Ltd S Co 23

Illustration 1: Fair Value of Equity Issued Situation 1: P Ltd’s market price is a reliable indicator Consideration transferred = 5, 000 shares x $ 2. 00 = $10, 000 Situation 2: Fair value of S Co is a better estimate Consideration transferred = $9, 000 Explanation: Since P Ltd is acquiring 100% of S Co, the fair value of the equity (FV of S Co. as a whole including the implicit goodwill) acquired by P is $9 million. Tan, Lim & Lee Chapter 3 © 2015 24

(old power point)Illustration 1: Fair Value of Equity Issued Q 1: P Ltd’s market price is a reliable indicator Consideration transferred = 5, 000 shares x $ 2. 00 = $10, 000 Q 2: P Ltd’s market price is not a reliable indicator; a proportional interest in the fair value of P Ltd is a better estimate Consideration transferred = (5, 000/15, 000) x $30, 000 = $9, 000 Q 3: Fair value of S Co is a better estimate Consideration transferred = $9, 000 Tan & Lee Chapter 3 © 2009 25

Fair Value of Contingent Consideration • Contingent consideration – Obligation (right) of the acquirer to transfer (receive) additional assets or equity interests to (from) acquiree’s former owner if specific event occurs • Eg. Event A: acquirer gets a refund of part of the consideration transferred if the acquiree does not achieve the target profit • Fair value of contingent consideration or refund will change as new information arises – Fair value of the contingent consideration has to be estimated (For event A) is deducted from consideration transferred – Fair value of contingent consideration is adjusted retrospectively as a correction of error if events after acquisition reveal information that was missed or misapplied during the acquisition date Tan, Lim & Lee Chapter 3 © 2015 26

Acquisition-Related Costs • All acquisition-related costs are expensed off • Costs of issuing debt are recognized in accordance with IAS 39 – As yield adjustment to the cost of borrowing and are amortized over the tenure of the loan – Journal entry for the payment of debt issuance cost Dr Unamortized debt issuance costs Cash Cr • Costs of issuing equity are recognized in accordance with IAS 32 – A reduction against equity – Journal entry to record the payment of cost of issuing equity Tan, Lim & Lee Chapter 3 Dr Equity Cash Cr © 2015 27

Content 1. Introduction 2. Overview of the consolidation process 3. Business combinations 4. Determining the amount of consideration transferred 5. Recognition and measurement of identifiable assets, liabilities and goodwill 6. Conclusion Tan, Lim & Lee Chapter 3 © 2015 28

Recognition Principle Business Combinations are accounted under the acquisition method Requirement: At acquisition date, the acquirer will recognize acquiree’s net assets at fair value Underlying assumption: There has been an exchange transaction at arm-length pricing Tan, Lim & Lee Chapter 3 © 2015 There is an effective ”acquisition” of the subsidiary’s identifiable assets and liabilities at fair value 29

Recognition Principle • Identifiable net assets (INA) must comply with two conditions to qualify for recognition: – (1) INA must meet the definition of an asset or a liability – (2) INA must be priced into the consideration transferred and not a separate stand-alone transactions • Concept of separate transactions: – Transaction that is entered into for the benefit of acquirer rather than acquiree – Pre-existing relationship with acquiree – for e. g. as a supplier – the payment for the goods is separate from the consideration transferred – However, certain pre-existing relationship can be classified as “reacquired rights” and should be recognized as an intangible asset on the basis of the remaining contractual term of the contract – for e. g. Reacquiring franchised rights granted to acquiree Tan, Lim & Lee Chapter 3 © 2015 30

Recognition Principle Fair value differential Book value of subsidiary’s identifiable net assets Fair value of subsidiary’s identifiable net assets At acquisition date: • Fair value differential will be recognized in the consolidation worksheet In subsequent years: • Depreciation/amortization/ cost of sale of asset will be based on the fair value recognized at the acquisition date These entries have to be reenacted every year until the disposal of investment Tan, Lim & Lee Chapter 3 © 2015 31

Classification of Identifiable Assets or Liabilities • Classification of identifiable assets or liabilities is made with respect to: 1. Information; 2. Conditions; and 3. Corporate policies existing as at acquisition date Example: Bond investment Classified as Availablefor-sale securities Under acquiree’s financial statements Tan, Lim & Lee Chapter 3 © 2015 Reclassified as held-tomaturity according to acquirer’s group policy Under consolidated financial statements 32

Intangible Assets • IFRS 3 requires the acquirer to recognize the fair value of an acquiree’s unrecognized identifiable asset (e. g. intangible asset) in the consolidated financial statements – Rationale: the acquisition event justifies recognition of intangible assets – Do not provide guidance on measurement of fair value of the recognized intangible asset • To qualify for recognition, the intangible asset must either: 1. Be Separable (“Separability criterion”) OR 2. Arises from contractual or other legal rights (“Contractual-legal criterion”) Example of intangible assets: Brand names and customer relationships – When Heineken acquired APB; it acquired the iconic Tiger Beer Brand. Tan, Lim & Lee Chapter 3 © 2015 33

Intangible Assets Are these considered intangible assets? × No: Firm-specific and integrated with acquiree × (Fails separability criterion) Assembled workforce with specialized knowledge Potential contracts or contracts under × No: Fails separability or contractualnegotiation legal criterion Opportunity gains from an operating lease in favorable market conditions ü Yes: Meets the contractual-legal criterion Customer and subscriber lists of acquiree ü Yes: Meets the separability criterion (show evidence of exchange transactions for similar types of lists) Tan, Lim & Lee Chapter 3 © 2015 34

Contingent Liabilities & Provisions • Contingent liabilities are recognized by acquirer if they are: – Present obligations arising from past events and – Reliably measurable, even if outcome is not probable (IFRS 3: 23) • Example: Provisions for restructuring & termination costs are recognized if they are: Probable outflow of economic resources Reliably measurable Present constructive or legal obligations arising from past events Tan, Lim & Lee Chapter 3 © 2015 35

Indemnification Assets • Contractual indemnity – Provided by the former owners of the acquiree to the acquirer to make good any subsequent loss arising from contingency or an asset or a liability • Treatment for indemnity – The acquirer has to recognize an “indemnification asset” at the same time the indemnified asset or liability is recognized – The indemnification asset is measured on the same basis as the indemnified asset or liability • Example: An acquiree is exposed to a contingent liability. Based on probabilistic estimation, the FV of the contingent liability is $100, 000. The former owners provide a contractual guarantee to indemnify the acquirer of the loss. – In the consolidated balance sheet, the acquirer recognizes contingent liabilities and an indemnification asset of $100, 000 at FV Tan, Lim & Lee Chapter 3 © 2015 36

Deferred Tax Relating to FV Differentials of Identifiable Assets and Liabilities • The recognition of fair value differential may give rise to future tax payable or future tax deduction – tax effects need to be accounted for because the basis for taxation does not change in a business combination – i. e. The excess of fair value over book value of identifiable net assets will give rise to a taxable temporary difference and vice versa. FV > Book value of identifiable assets Deferred tax liabilities FV < Book value of identifiable assets Deferred tax assets FV < Book value of identifiable liabilities Deferred tax liabilities FV > Book value of identifiable liabilities Deferred tax assets • No deferred tax liability is recognized on goodwill as goodwill is a residual Tan, Lim & Lee Chapter 3 © 2015 37

Non-controlling interests • Non-controlling interests (NCI) arises when acquirer obtains control of a subsidiary but does not have full ownership of voting rights. • In a business combination, NCI are recognized by the acquirer as equity based on the following equation – Rationale: To represent outside interests’ share in the net assets of the acquiree Assets Carrying amount of acquirer’s assets + Acq date FV of acquiree’s identifiable assets + Goodwill Tan, Lim & Lee Chapter 3 - Liabilities Carrying amount of acquirer’s liabilities + Acq date of FV of acquiree’s identifiable liabilities © 2015 = Equity Acquirer’s equity + NCI share of equity of acquiree 38

Non-controlling interests • IFRS 3 allows NCI at acquisition date to be measured at either: – Fair value; or – The present ownership instruments’ proportionate share in the recognized amount of identifiable assets Fair value method Proportionate share of identifiable assets method • Obtain a reliable measure of fair value of NCI (e. g. quoted price in active market) • Applies present ownership interests held by NCI to the recognized amounts of identifiable net assets to determine initial amount of NCI • In absence of quoted price, use valuation techniques to value • If NCI have potential ordinary shares, NCI (e. g. peer companies’ they should be measured at fair value valuation or appropriate assumptions) Tan, Lim & Lee Chapter 3 © 2015 39

Goodwill • A premium that an acquirer pays to achieve synergies from business combination – Must be recognized separately as an asset – Determined as a residual • IFRS 3 allows 2 ways of determining goodwill: Goodwill = Fair value of noncontrolling interests Fair value of consideration transferred + Fair value of non-controlling interests + Fair value of the acquirer’s previously held interest in the acquiree - Acquiree’s recognized net identifiable assets measured in accordance with IFRS 3 Measured at fair value at acquisition date (include goodwill) Measured as a proportion of identifiable assets as at acquisition date Tan, Lim & Lee Chapter 3 © 2015 40

Goodwill Depends on reliable measurement of consideration transferred, NCI, previously held equity interests and identifiable net assets Tan, Lim & Lee Chapter 3 Integral to the entity as a whole, not individually future economic benefits identifiable or severable arising from acquisition as a standalone asset An expectation of © 2015 41

Goodwill • The “top-down approach” (Johnson and Petrone, 1998) results in measurement errors in goodwill Overpayment for an acquisition or overvaluation of consideration transferred Consideration transferred + Fair value of non-controlling interests Identifiable net assets Measurement and recognition errors The above errors should not be included as part of “goodwill” Tan, Lim & Lee Chapter 3 Goodwill © 2015 IFRS 3 suggests that the “one-year “measurement period” is important to rectify measurement and recognition errors to ensure the accuracy and “purity” of goodwill 42

Goodwill • In a “bottom-up” approach (Johnson and Petrone, 1998): Goodwill Internally-generated Goodwill (Core Goodwill) Fair value of synergies (Combination goodwill) • “Going concern element” and represent the ability of acquiree to generate higher rate of return than from its individual assets Tan, Lim & Lee Chapter 3 • Generated from the unique combination of the acquirer and acquiree • FV of the group > than sum of FV of individual entities © 2015 43

Illustration 1: Goodwill Illustration 1 On 1 July 20 x 1, P purchased 1. 5 million shares from S Co’s existing owners. Total number of shares issued by S Co was 2 million. A reliable FV of S Co’s share was $10/share. P Co was obligated to pay an additional $1 million to vendors of S Co if S Co maintained existing profitability over the subsequent two years from 1 July 20 x 1. It was highly likely that S Co would achieve this expectation and the fair value of the contingent consideration was assessed at $1 million. FV of NCI as at 1 July 20 x 1 was $5 million. Assume a tax rate of 20% Additional information of S Co. • Book value of net assets: $3, 650, 000 • FV of net assets : $14, 350, 000 • FV less book value (net assets): $10, 700, 000 • Share capital: $2, 000 • Retained earnings: $1, 650, 000 Tan, Lim & Lee Chapter 3 © 2015 44

Illustration 1: Goodwill • Tan, Lim & Lee Chapter 3 © 2015 45

Gain From a Bargain Purchase • A gain from bargain purchase arises when: Fair value of consideration transferred + Fair value of non-controlling interests + Fair value of the acquirer’s previously held interest in the acquiree < Acquiree’s net identifiable assets measured in accordance with IFRS 3 • In essence, a windfall gain to acquirer • The acquirer must re-assess the fair value of identifiable net assets, consideration transferred and non-controlling interests. If there is no measurement error: – The gain will be recognized immediately in the income statement Tan, Lim & Lee Chapter 3 © 2015 46

Measurement Period • IFRS 3 allows adjustments to be made retrospectively to “provisional amounts” relating to goodwill, fair value of identifiable net assets and consideration transferred if: – New information about facts and circumstances existing at acquisition date arises, – Within 1 year of acquisition date (“Measurement period”) • Events and circumstances arising after acquisition date does not lead to measurement period adjustments • Adjustments only allowed because of incorrect or incomplete information available as at acquisition date but was missed or misapplied • After measurement period (1 year), any correction of errors will be deemed as a prior - period adjustment (IAS 8) • Exception: Any change in estimate arising from information on new events and circumstances arising after acquisition date will be recognized in the current period • Example: acquirer may fail to obtain information on all contracts of acquiree as at acquisition date Tan, Lim & Lee Chapter 3 © 2015 47

Measurement Period – Summary Error: Discovery of info on facts and circumstances existing as of acquisition date Acquisition date Change in estimate: Circumstances arising after acquisition date Tan, Lim & Lee Chapter 3 Retrospective change: Adjust goodwill, fair value of identifiable net assets, fair value of NCI as if the accounting was completed on acquisition date Prospective change: no correction of goodwill, fair value of identifiable net assets or fair value of NCI © 2015 Any correction of error after end of measurement period requires prior period item disclosures 12 months End of measurement period 48

Conclusion • All business combinations are characterized by three conditions: 1. Existence of acquirer 2. Acquirer has control over an acquiree 3. Acquiree is a business • Many modes of business combinations: – Acquirers acquires net assets of the business (Consequence: Assets and liabilities acquired recognized in the acquirer’s legal entity financial statements) – Acquirer acquires control over the equity of the acquiree (Consequence: acquirer and acquiree retain separate legal identities but economically, these entities belong to same group) – Regardless of form, economic substance of combination is the same and acquisition method should be applied Tan, Lim & Lee Chapter 3 © 2015 49

Conclusion • Acquisition method – Identify acquirer with reference to the control criteria of IFRS 10 – Recognize and measure identifiable net assets at fair value at acquisition date – Goodwill is a residual figure and is determined on a “top-down” approach § May include recognition and measurement errors and identifiable elements • Measurement period – Acquirers are allowed a 12 month measurement period to correct and revise the following on a retrospectively basis: 1. Provisional amounts of goodwill 2. Fair value of identifiable net assets 3. Fair value of Non-controlling interests 4. Fair value of previously held interests Tan, Lim & Lee Chapter 3 © 2015 50