Piecemeal (step)

1. Piecemeal (step)
acquisitions
Daniel Kamotho - 2022

2. INTRODUCTION
• A step acquisition occurs when the parent
entity acquires control of subsidiary in stages
(sometimes referred to as piecemeal
acquisition). IFRS 3 states that acquisition
accounting in only applied when control is
achieved i.e., when the investment becomes
a subsidiary.

3. What is a piecemeal acquisition?
• Occurs when an acquirer who has an existing interest in another company
(acquiree) acquires an additional interest in that company which results in a
controlling interest Subsidiary Consolidation
Or
• Occurs when an acquirer who has an existing interest in another company
(acquiree) acquires an additional interest in that company which results in
the company having significant influence Associate equity
accounting

4. Additional
interest
acquired
3 Situations:
1. Previously Held interest (i.e 10%) +
Additional interest (60%) = Control
(Investment to subsidiary)
2. Previously Held interest (i.e 30%) +
Additional interest (60%) = Control
(Association to Subsidiary)
3. Previously Held interest (60%) +
Additional interest (10%) = no change in
control (Subsidiary remains a subsidiary)

5. Where does it fit in?
• Goodwill = A- B
where
A= sum of:
- FV Consideration transferred
- NCI
- FV of previously held equity interests at acquisition date
B= At acquisition net identifiable assets

6. Previously
held interest
(PHI)
At the date
control is
obtained
Determine Fair
value at that date
Remeasure the
PHI to fair value
(NB!! in the
consolidated
books)
Gain/Loss as a
result of re-
measurement (if
any) included in
P/L (Consolidated
books)

7. STEP
ACQUISITION
RESULTING
IN
CONTROL
ACQUISITION
For example, if the fair value at the date of control
acquisition is higher than existing carrying amount, the
following entry is passed (in opposite case, it will be
reversed):
Investment Dr. <Fair value-
Carrying amount>
P&L Cr. <Fair value- Carrying
amount>
If equity shareholding is subsequently increased and control
is achieved, the following adjustments are:
(a) previously held equity
investment is re-measured
to its fair value at the date
control is acquired.
(b) any resulting gain or loss
is recognised in profit or loss
of the parent company.

8. STEP ACQUISITION NOT RESULTING IN CHANGE
OF CONTROL
This is the case where a parent entity acquires further shares in an existing subsidiary. In this case:
(a) goodwill is not re-measured
(b) no gain or loss is recognised
(c) all calculations are based on group and NCI share as at when control was first acquired
(d) any difference between change in NCI and FV of consideration paid is recognised directly in equity.
The entry might be:
NCI Dr. <Decrease in NCI>
Equity (Loss) Dr. <difference>
Cash/Consideration Cr. <Fair value of consideration paid>

9. Example 1 – Investment - Subsidiary
• H Ltd acquired 10% of shares in S Ltd for N$ 750 on 1 January 14.
• S Ltd’s RE at 1 Jan 14 = N$ 2 000
• H Ltd acquired an additional 50% for N$ 9 000 on 1 Jan 18
• S Ltd’s net assets at 1 Jan 18 were fairly valued
• H Ltd measured the investment in S ltd at cost in its separate books
• FV were as follows:
• 1 Jan 18 – N$ 1 600
• NCI is measure at prop. share of net identifiable assets

10. Example 1
TBs of H Ltd and S Ltd on 31 Dec 2018
H Ltd S Ltd
Share Capital 10 000 5 000
RE (1 Jan 18) 13 000 9 000
Operating profit for the year 11 000 6 000
Gain
Investment in S ltd 9 750
Other assets 24 250 20 000

11. Example 1
Step 1. determine whether control obtained and when
Date Interests
Total cumulative
interest Action
01-Jan-
14 10% 10%
No
control
01-Jan-
18 50% 60%Control

12. Example 1
Step 2: Determine the FV of PHI at acquisition date and re-measure if
required
• FV of PHI = 1 600 (given)
• Cost of PHI = 750 (given)
• Fair value adjustment =N$
850 (1600- 750)
• Pro Forma Journal entry
Date Details DR CR
01-Jan-
18
Investment in S Ltd
(SFP) 850
Gain on fair value
adjustment on
investment becoming
subsidiary (P/L) 850

13. Example 1
Step 3: Determine cost of investment
FV of PHI
1 600
Cost of additional
interest 9 000
Cost of investment
10 600
(1600+9000)

14. Example 1
Step 4: AOE
Date Details Share capital Total NCI (40%)
Investme
nt (60%) Goodwill Since RE
01/01/2018 Acquisition 60% 5 000 9 000 14 000 5 600 10 600 - 2 200
31/12/2018
Profit for the
year 6 000 6 000 2 400 3 600
5 000 15 000 20 000 8 000 10 600 - 2 200 3 600

15. Example 1
SPLOCI
H Ltd Group
Consolidated Statement of P/L and OCI
for the year ended 31 Dec 2018
Profit for the year 17 000 11000+6000
Gain on re-measurement 850 (1600-750)
17 850
Attributable to:
NCI 2 400 (AOE)
Owners of parent 15 450

16. Example 1
SCE
HLtd Group
Consolidated Statement of Changes
in Equity
for the year ended 31 Dec 18
Share CapitalRE Total NCI Total Equity
1 Jan 08 opening balance 10 000 13 000 23 000 23 000
Increase in NCI on acquisition of
subsidiary - 5 600 5 600
Total comprehensive income 15 450 15 450 2 400 17 850
Total 10 000 28 450 38 450 8 000 46 450

17. Example 1
SFP
H Ltd Group
Consolidated Statement of Financial Position
as at 31 Dec 18
Other assets 44 250
Goodwill 2 200
Total assets 46 450
Equity
Share Capital 10 000
Retained earnings 28 450
NCI 8 000
Total Equity 46 450

18. Example 2 – Associate to Subsidiary
• H Ltd acquired 25% of the shares in S Ltd for N$ 3 000 on 1
Jan 16
• RE of S Ltd on 1 Jan 16 = N$ 1 000
• H ltd acquired a further 35% for N$ 6 000 on 1 July 18
• Net assets of S Ltd were considered fairly valued on both
dates
• FV of PHI on 1 July 18 = N$ 4 000
• Profit was earned at an even rate during the year
• NCI is measure at the Proportionate share of net
identifiable assets

19. Example 2 – Associate to Subsidiary
• Trial balances at 31 December 18
H Ltd S Ltd
Share Capital 20000 10 000
RE (1 Jan 08) 9 000 2 000
Profit before tax 10 500 1 600
39 500 - 13 600
Investment in S ltd 9 000
Other assets 27 000 13 000
Tax expense 3 500 600
39 500 13 600

20. Example 2
Step 1. determine whether control
obtained and when
Interests Total cumulative interest Action
01-Jan-16 25% 25% Significant influence
01-Jul-18 35% 60% Control

21. Example 2
Step 2: Step 2: Determine the FV of PHI at
acquisition date and re-measure if required
AOE until date of acquisition
Date Details
Share
capital RE Total NCI Investment
Good
will Since RE
01/01/2016 Acquisition 25% 10 000 1 000 11 000 n/a 3 000 n/a -
31/12/2017 Increase 1 000 1 000 n/a 250
Total 10 000 2 000 12 000 n/a 3 000 - 250
Profit (1 June 2018)
(1600-600)*6/12 500 500 125
30/06/2018 Total 10 000 2 500 12 500 n/a 3 000 375

22. Example 2
Step 2: Determine the FV of PHI at acquisition date
and re-measure if required
• FV of PHI on 1 July 18 = N$ 4 000
• Cost of PHI on 1 July 18 = N$ 3 375 (3000+375) (AOE)
• FV adjustment=N$ 625 (4 000 – 3 375)
Date Details DR CR
1 July
2018 Investment in S ltd 375
RE 250
Share of associates profit (P/L) 125
Investment in SLtd 625
Fair value gain (P/L) 625

23. Example 2
Step 3: Determine cost of investment
• FV of PHI 4 000
• Cost of additional interest 6 000
• Cost of investment 10 000 (4 000+6 000)

24. Example 2
Step 4: AOE
Date Details Share capital RE Total NCI Investment Goodwill Since RE
01/01/2016 Acquisition 25% 10 000 1 000 11 000 n/a 3 000 n/a -
31/12/2017 Increase 1 000 1 000 n/a 250
Total 10 000 2 000 12 000 n/a 3 000 - 250
Profit (1 June 20.8) (1600-
600)*6/12 500 500 125
01/07/2018 Total 10 000 2 800 12 800 n/a 3 000 375
01/07/2018 Acq control (60%) 10 000 2 800 12 800 5120 9 000 -1875 375
Fair value adjustment -625 625
31/12/2018 Profit 800 800 200 300
31/12/2018 Total 10 000 3 000 13 000 5 200 9 000 - 2 500 1 300

25. Example 2 - SPLOCI
H Ltd Group
Consolidated Satement of P/L and OCI
for the year ended 31 Dec 2018
Profit before tax 11 300 10 500+ (1 600 *6/12)
Gain on reameasurment 625 (AOE)
Share of profit of associate 125
Profit before tax 12 050
Tax 3 800 3 500 + (600*6/12)
Profit after tax 8 250
Attributable to:
NCI 200 (AOE)
Owners of parent 8 050 (balancing)
8 250

26. Example 2 - SCE
HLtd Group
Consolidated Statement of Changes
in Equity
for the year ended 31 Dec 18
Share Capital RE Total NCI Total Equity
1 Jan 08 opening balance 20 000 9250 (9000+250) 29 250 29 250
Increase in NCI on acquisition of
subsidiary - 5 000 5 000
Total comprehensive income 8 050 8 050 200 8 250
Total 20 000 8 050 37 300 5 200 42 500

27. Example 2 - SFP
HLtd Group
Consolidated Statement of Financial Position
as at 31 Dec 08
Other assets 40 000
Goodwill 2 500
Total assets 42 500
Equity
Share Capital 20 000
Retained earnings 17 300
NCI 5 200
Total Equity 42 500

28. Additional shares acquire in an existing
Subsidiary
• Parent already has control therefore NOT a business combination i.e
IFRS 3 n/a
• Ito IAS 27 changes in parent’s ownership that do not result in a
change of control are accounted for as equity transactions
• Therefore:
• Net identifiable assets of sub are not adjusted to FV
• No goodwill/gain on bargain purchase arises
• Adjustment between the parent and NCI as a result of the additional shares
acquired by the parent is accounted for in Equity

29. Example 3 – Subsidiary remains Subsidiary
• H Ltd acquired 60% of shares in S ltd for N$ 3 900 on 1 July 12
• S Ltd RE on 1 July 12 was N$ 1 000
• All net assets of S ltd were fairly valued at acquisition date
• H Ltd acquired an additional 10% of S ltd’s shares on 1 July 18 for
N$ 1 800
• NCI is measured at their proportionate share of nest identifiable
assets

30. Example 3 – Subsidiary remains Subsidiary
Trial balances at 31 December 2018
Profit of S Ltd was evenly earned through out the year
H Ltd S Ltd
Share capital 10 000 5 000
RE - 1 Jan 18 13 000 9 000
profit for the year 11 000 6 000
34 000 20 000
Investment in S Ltd at cost 5 700
Other net assets 28 300 20 000
34 000 20 000

31. Example 3
Step 1. Determine value of Post acquisition
reserves just before purchase using AOE
Date Details SC RE Total NCI INV (GW) Since RE
Acquisition
reserve
01/07/2012 Acquisition 60% 5 000 1 000 6 000 2 400 3 900 - 300
Increase 8 000 8 000 3 200 4 800
31/12/2017 Total 5 000 9 000 14 000 5 600 3 900 - 300 4 800
30/06/2018 profit (6/12) 3000 3000 1200 1800
5 000 12 000 17 000 6 800 3 900 - 300 6 600
01/07/2018 Purchase 10% - 1 700 1800 - 100
5 000 12 000 17 000 5 100 5 700 - 300 6 600 - 100
31/12/2018 profit (6/12) 3000 3000 900 2100
Total 5 000 15 000 20 000 6 000 5 700 - 300 8 700 - 100

32. Example 3 – SP/L&OCI
H Ltd Group
Statement of Profit/Loss & Other comprehensive income
for the year ended 31 Dec 2018
Profit for the year 17 000 (11000+6000)
Attributable to :
Attributable to the owners of the parent 14 900
NCI 2 100 (AOE)
17 000

33. Example 3 – SCE
H Ltd Group
Statement of Changes in Equity
for the year ended 31 Dec 2018
Equity of H Ltd members
Share capital RE
Acquisition
reserve Total NCI Total Equity
Opening balance 1 Jan 08 10 000 17 800 27 800 5 600 33 400
Additional interest acquired from NCI -100 - 100 -1700 - 1 800
Total comprehensive income 14 900 14 900 2 100 17 000
10 000 32 700
-
100 42 600 6 000 48 600

34. Example 3 – SFP
H Ltd Group
Statement of Financial Position
as at 31 Dec 2018
Assets
Net assets 48 300 (H and S)
Goodwill 300
48 600
Equity
Share capital 10 000
RE 32 700
Other reserves - 100
NCI 6 000
48 600

35. Example - Step Acquisition achieving
Control
The statements of financial positions of two companies, A and B as at 31
December 2011
are as follows: A Ltd B Ltd
Investment 160
Property, plant and equipment 290 222
Current assets 100 80
550 302
Ordinary share capital ($1 shares) 200 100
Retained Earnings 250 122
Long term loans 60 50
Current liabilities 40 30
550 302

36. A acquired 40% of B on 31 December 2006 for $90,000. At this time the
reserves of B stood at $76,000. A further 20% of shares in B was acquired
by A three years later for $70,000. On this date, the fair value of the
existing holding in B was $105,000. B's reserves were $100,000 on the
second acquisition date.
Required:
Produce the consolidated SFP of the A group at 31 December 2011,
assuming that it is a group policy to value the NCI using the proportion of
net asset method.

37. Working 1 -Group Structure
Subsidiary Acquisition Date Direct NCI
B 31.12.2009 40%+20% = 60% 40%
Working 2 - Goodwill, Group Reserves and NCI <
Dr I (Cr) >
Particulars Total
Subsidiary Group
Goodwill NCI Reserves
Equity share capital
B (100,000) (60,000) (40,000)
Pre-acquisition reserves
B (100,000) (60,000) (40,000)
Investments in
B (as given) 160,000 160,000
FV adjustment (Adj 1) 15,000 15,000
Post-acq. Reserves
B (22,000) (8,800) (13,200)
Reserves (Parent)
Retained earnings (250,000) (250,000)
FV adjustment (Adj 1) (15,000) (15,000)
55,000 (88,800) (278,200)
Adjustments DR CR
Investment 15000
Retained earninqs (Parent) 15000
The fair value increase in existing investment: $105,000- $90,000 = $15,000

38. Solution - Step Acquisition achieving Control
A Group
SFP as at 31 December 2011
$ $
PPE $290,000+222,000
512000
Goodwill (W2)
55000 567000
Current assets $100,000+80, 000
180000
747000
Share Capital
200000
Retained earnings (W2)
278200
478200
NCI (W2)
88800 567000
Long term loans $60,000+50,000
110000
Current Liabilities $40,000+30,000
70000
747000

39. Example - Step Acquisition not resulting in change of control
Statements of financial positions of two companies, C and D as at 31 December 2011 are as follows:
C Ltd D Ltd
Investment in D Ltd 400
Property, plant and equipment 600 550
Current assets 100 80
1,100 630
Ordinary share capital ($1 shares) 200 100
Retained Earnings 800 450
Long term loans 60 50
Current liabilities 40 30
1,100 630
Date Proportion acquired Cost of investment
D's Retained
earnings
30-Sep-10 60 250 300
31-Jul-11 20 150 400
Goodwill is calculated on the proportion of net assets method.
Required:
Produce the consolidated SFP of the C group at 31 December 2011, assuming
that it is a group policy to value the NCI using the proportion of net asset
method.

40. Working 1 -Goodwill, Group Reserves and
NCI < Dr I (Cr) >
Particulars Total
Subsidiary Group
Goodwill NCI Reserves
Equity Share Capital
P
(100) (60) (40)
Pre-acquisition reserves
D (300) (180) (120)
Investments in
D (on acquisition date) 250 250
Post-acq. Reserves
D (150) (60) (90)
Reserves (Parent)
Retained earnings (800) (800)
Shareholding Change (Adj 1) 110 40
10 (110) (850)
Working 2 -Group Structure
Subsidiary Acquisition Date Direct NCI
D 30.09.2010 40%+20% = 60% 40%
The current group share is 80% (i.e. 60% + 20%) and NCI is 20%.
Adjustments DR CR
NCI 110000
Equity of parent - Loss 40000
Investment - extra 150000
Decrease in NCI = $40+ 120+60 =$220 I 40% x 20% =$1 1 0

41. Solution - Step Acquisition not resulting in change of Control
C Group
SFP as at 31 December 2011
PPE $600+550 1,150
Goodwill (W2) 10 1160
Current assets $100+80 180
1340
Share Capital 200
Retained earnings (W2) 850
1,050
NCI (W2) 110 1,160
Long term loans $60+50 110
Current Liabilities $40+30 70
1,340