It is expected that the acquiring business will gain future economic benefits as a result of acquiring the assets of the entity and its goodwill as those assets are now under its control, and the factors that generated the goodwill in the first place are likely to continue. Note that in some cases this does not happen and the goodwill is written down as impaired in financial statements of the acquiring entity.
As can be seen above, goodwill meets the definition of an asset in the framework
Bargain purchase
A bargain purchase is a business combination in which the net fair value of the identifiable assets acquired and liabilities assumed exceeds the aggregate of the consideration transferred, the non-controlling interests and the fair value of any previously-held equity interest in the acquiree.
A bargain purchase might happen, for example, in a business combination that is a forced sale in which the seller is acting under compulsion. However, the recognition and measurement exceptions for particular items, as discussed in chapter 8, might also lead to the recognition of a gain (or a change in the amount of a recognised gain) on a bargain purchase.
Accounting for a bargain purchase gain
If, after applying the requirements in section 10.3.2 below, it is determined that the acquisition is a bargain purchase, the acquirer recognises the resulting gain in profit or loss on the acquisition date. The gain is attributed to the acquirer.
Reassessment required prior to recognising a bargain purchase gain
An acquirer’s initial calculations under IFRS 3(2008) may indicate that the acquisition has resulted in a bargain purchase. Before recognising any gain, the Standard requires that the acquirer should reassess whether it has correctly identified all of the assets acquired and all of the liabilities assumed. The acquirer should recognise any additional assets or liabilities that are identified in that review.
The acquirer is then required to review the procedures used to measure the amounts that IFRS 3(2008) requires to be recognised at the acquisition date for all of the following:
(a) the identifiable assets acquired and liabilities assumed;
(b) the non-controlling interest in the acquiree, if any;
(c) for a business combination achieved in stages, the acquirer’s previously-held equity nterest in the acquiree; and
(d) the consideration transferred.
The objective of the review is to ensure that the measurements appropriately reflect consideration of all available information as of the acquisition date.
(c) Window dressing is the act of showing a better position in the financial statements that actually exists. It is a form of creative accounting and while the financial statements may have been prepared in accordance with accounting standards, there is bias in the way the figures are presented. If the intention is to deceive stakeholders, then the practice of window dressing is
unethical.
Aims of window dressing
The aim is to improve the FS and show them in a more favourable light than they should be. It can be used to hide liquidity problems or to make the FS look better to present to lenders of finance. It can also be used to make the accounts look better to encourage investors.
