IFRS 3, Business combinations – A survival guide to the essentials of takeovers, Part III

Athens, February 2018
Chris Ragkavas, BA, MA, FCCA, CGMA
IFRS technical expert, financial consultant.

Sometimes takeovers occur in stages. Investors may not wish to commit outright to a majority shareholding in an investee, but want to “test the waters” for a couple of years and then proceed with obtaining control of the investee. During the interim period, they may acquire an associate shareholding in the investee, e.g. 25%. For associate shareholdings we apply equity accounting.

In simple terms, this means that any post acquisition profits are simply added to the ‘Investment in Associate’ account in the group statement of financial position of the investor and they are also recognized in the investor’s consolidated statement of profit or loss as ‘Share of profit from Associate’.

What is the case in point, is how to treat this 25% balance when the investor increases its shareholding to a controlling one, say to 72%. You guessed it correctly: it is measured at fair value, and added to the consideration paid/exchanged, on acquisition as part of the goodwill calculation.


A acquires 25% of the common shares carrying voting rights of B, on 01/01/2018, for $ 100,000. Until 15/03/2019, B has recognized total profits after tax, of $ 230,000.

A acquires a further 47% of B’s common shares on 16/03/2019, by paying an additional $ 350,000 consideration to the previous owners of the 47% of B’s shares. The fair value of the previously held interest (25%), on the same date, was $ 170,000.

NAV (Net Asset Value) of B on 16/03/2019 was $ 400,000 and the fair value of NCI was $ 179,000.


Between 01/01/2018 and 15/03/2019, A consolidates in its group accounts, its share of post acquisition profits of B, as explained above. This is 25% x $230,000 = $ 57,500. So ‘Investment in associate’ account of A in B on 15/03/2019, equals $ (100,000 + 57,500) = $ 157,500.

On the same date A pays $ 350,000 and obtains control of B. On that date, A remeasures its previously held interest to $ 170,000 and recognizes the difference of $ (170,000-157,500) = $ 12,500 immediately and in full in the group statement of profit or loss, which is attributed in full to the CI.

Goodwill calculation

Consideration and NCI $
Previously held interest at fair value (25%) 170,000
Additionally acquired interest (47%) 350,000
Fair value of NCI (28%) 179,000
Total 699,000
NAV acquired (400,000)
Goodwill arising on acquisition 299,000

All other steps of the acquisition method and its valuation principles, as explained in the previous Parts, remain intact.

Queries, comments, are welcome at: [email protected]

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