Corporate Accounting Aasb3 136 Impairment of Assets Essay

3923 Words Aug 23rd, 2012 16 Pages
Part A (6 Marks)
AASB 3 Business combinations para.14 requires that the acquisition method be used to account for business combinations. This method requires the identification of the acquirer. For example, para.17 states that “an acquirer shall be identified for all business combinations”.
• Provide and explain a list of factors that may assist management to identify the acquiring entity.
• Explain why it is necessary to identify who is the acquirer in a business combination? (Adapted from Leo et al. Case 2, p.395).

Part B (19 Marks)
Sahara Ltd recently adopted the international accounting standards. The management of Sahara Ltd are seeking your advice regarding impairment testing under AASB 136 Impairment of Assets.
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Q.2) Explain why it is necessary to identify who is the acquirer in a business combination? It is necessary to identify the acquirer in a business combination because: * The acquirer is the combining entity that obtains control of the other combining entities or businesses. * To measure the cost of a business combination as the aggregate of:

* the fair values, * at the date of exchange, * of assets given, * liabilities incurred or assumed, and * equity instruments issued by the acquirer, * in exchange for control of the acquiree; * plus any costs directly attributable to the combination.

* To recognise separately, at the acquisition date, the acquiree’s identifiable assets, liabilities and contingent liabilities. * To reassess the identification and measurement of the acquiree’s identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the business combination if the acquirer’s interest in the net fair value of the items recognised exceeds the cost of the combination. Any excess remaining after that reassessment must be recognised by the acquirer immediately in profit or loss.

Part B Sahara Ltd recently adopted the international accounting standards. The management of Sahara Ltd are seeking your advice regarding impairment testing under AASB 136 Impairment of
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