Brad Clark, CA Ivana Cvitanusic, CA

Transcription

1 mmon Transactions Amalgamation Asset acquisition Share acquisition Tax driven reorganizations (Section 85 Rollover) 2

2 In the basic form two companies combine to form a new company, the predecessor companies cease to exist when the successor company is formed This could be achieved as a vertical amalgamation or a horizontal amalgamation Statutory amalgamations are those conducted according to provincial and or federal legislation Do not typically get any fair value increases in an amalgamation for accounting purposes Amalgamations have the potential to be a business combination 3 A Parent B A and B have similar businesses and assets. Management decides to amalgamate the two businesses 4

3 Parent Amal A and B have similar businesses and assets. Management decides to amalgamate the two businesses into Amal. 5 Parent Amal In a horizontal amalgamation, generally all balances in A would be added to the balances of B In a vertical amalgamation, Share Capital of the subsidiary and Investment in Subsidiary of the parent is eliminated 6

4 Parent Amal Wind-up is accounted for similar to a vertical amalgamation Share Capital of the subsidiary and Investment in Subsidiary of the parent is eliminated 7 A B Current assets 1,400 Current assets 800 Non current assets 2,200 Non current assets 1,500 Current liabilities 800 Current liabilities 400 Retained earnings 1,800 Retained earnings 1,020 Share capital 1,000 Share capital 880 8

5 A B Amal CA 1,400 NCA 2,200 CA 800 NCA 1,500 CA 2,200 NCA 3,700 CL 800 RE 1,800 CS 1,000 CL 400 RE 1,020 CS 880 CL 1,200 RE 2,820 CS 1,880 9 Use acquisition method Identify the acquirer Determine the acquisition date (acquisition date is the date the acquirer obtains control of acquiree) Measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values (for example, if debt is acquired, the acquirer records the net present value of the future cash flows related to that debt) Some exceptions to recognition and measurement principle Record goodwill (the excess of consideration paid for identifiable assets acquired and the liabilities assumed Record non-controlling interest 10

6 Parent Buy Parent incorporates Buy with 500 of share capital Buy purchases all the assets of Sell, an unrelated party 11 Parent Buy Net assets purchased will be compared to total consideration to determine the amount of Goodwill Assets will be capitalized based on the amount of consideration paid which would represent FMV 12

7 Acquisition of Assets Assumptions for transaction 2: Fair value of Sell non current assets is 2,000 (book value 1,500) Buy issues 500 of new shares to Parent and long term debt of 1,900 and purchases the net assets of Sell for 2, Sell Buy Current assets 800 Current assets 800 Non current assets 1,500 Non current assets 2,000 Current liabilities 400 Current liabilities 2,300 Retained earnings 1,020 Retained earnings nil Share capital 880 Share capital

8 Total assets 2,800 Total liabilities (400) Net assets 2,400 nsideration (Shares and Debt) 2,400 Goodwill nil 15 Parent Sell Parent purchases all the outstanding shares of Sell from an unrelated party Parent issues 700 of share capital and 1,900 of debt for a purchase price of 2,600 16

9 Parent Sell Parent would record their investment in Sell for the consideration given to the vendor Sell would have no change to its individual entity statements Goodwill and FMV increase to assets recognized on consolidation of financial statements 17 Acquisition of shares Assumptions for transaction 3 Fair value of Sell non current assets is 2,000 (book value 1,500) Purchase 100% of shares of Sell for 2,600 cash. Parent raised the consideration through 700 in new shares and 1,900 in long term debt 18

10 Sell Parent Current assets 800 Current assets unchanged Non current assets 1,500 Non current assets up 2,600 Current liabilities 400 Current liabilities up 1,900 Retained earnings 1,020 Retained earnings unchanged Share capital 880 Share capital up Calculation of Goodwill nsideration 2,600 Net Assets 2,400 Goodwill

11 On consolidation of financial statements: Dr. mmon shares Sell 880 Dr. Retained earnings 1,020 Dr. NCA fair value bump 500 Dr. Goodwill 200 Cr. Investment in Sell 2, Related party transactions Accounting for share and asset purchases from related parties may vary from unrelated parties Increases to FMV may not be recognized Treatment can differ between IFRS and ASPE 22

12 23 Opco Amal Asset Amal rolls capital assets to Asset. deferring tax under Section 85 Amal takes back preferred shares with FMV equal to the FMV of the capital assets and PUC/ACB equal to the elected amount 24

13 25 Opco Amal Asset Assume NBV>UCC Elected amount equals UCC Under GAAP assets must be transferred at their NBV since Amal and Asset are related parties. Difference between NBV and UCC becomes contributed surplus Section 85 Rollover Assumptions for transaction 4 Roll capital assets with net book value of 1000 Capital assets have a UCC of 800 Receive preferred shares with a PUC/ACB of

14 Purchase of assets through Section 85 rollover Dr. Capital assets 1,000 Cr. ntributed surplus 200 Cr. Preferred shares Opco Amal Asset Now assume NBV<UCC Elected amount equals UCC Difference between NBV and UCC is taken out of retained earnings 28

15 Section 85 Rollover Assumptions for transaction 5 Roll capital assets with net book value of 600 Capital assets have a UCC of 1000 Receive debt equal to 500 Receive preferred shares with a PUC/ACB of Purchase of assets from Section 85 rollover Dr. Capital assets 600 Dr. Retained earnings 400 Cr. Debt 500 Cr. Preferred shares

16 Business mbinations IFRS 3 ASPE 1582 A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as 'true mergers' or 'mergers of equals' are also business combinations as that term is used in this IFRS. A business combination is a transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as "true mergers" or "mergers of equals" are also business combinations as that term is used in this Section. 31