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IFRS 3 Business Combinations and IAS 38 Intangible Assets govern how companies should account for and disclose their goodwill an - Coursework Example

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IFRS 3 Business Combinations and IAS 38 Intangible Assets govern how companies should account for and disclose their goodwill an

For instance, all payments made to acquire a business must be recorded at fair value at the date of acquisition. And the contingent payments need to be classified as ‘debt’ which is measured sequentially through the income statement. All costs pertaining to acquisitions are expensed. IAS 38 This standard prescribes accounting policies for treating intangible assets that are not supervised in particular by any other standard. A firm can only recognize an intangible asset if it meets some specific standard requirements. This standard also guides in measuring the amount at which to report the intangible asset and specific disclosure requirements related to that intangible asset. IAS 38 (amendments) IAS 38 (Intangible assets) amendments are a part of annual improvement process of IASB that were published in April 2009. This amendment provides guidance for measuring the fair value of any intangible that is acquired through a business combination. It allows making a single group of all relevant intangibles that have similar economic lives. Charles Stanley Group PLC Introduction Charles Stanley Group PLC, (along with their subsidiaries) is in the investment business. They are headquartered and operate in UK. Last year Matterley Asset Management (Fund Management Company) joined CSG. This company (CSG) is registered as a public company on London Stock Exchange. Accounting Policy Charles Stanley Group PLC follows International Financial Reporting Standards (IFRS). IFRS 3 (Business Combination) As of the year ended 31 March 2010, there was no acquisition but on 1 October 2008, CSG acquired Griffiths and Armor (Financial Services) Ltd. The purchase amount of about ? 3.0 million was taken care of with cash payables on date of completion which is ? 1.4 million. The outstanding balance was paid in two equal ? 8.0 million installments on 30 September 2009 and 30 September 2010. There were no material amendments made to the book value of Griffiths and Armor Ltd before acquiring them. After acquisition till 31 March 2009, losses were ? 41,000. If CSG had undergone this acquisition on 1 April 2008 instead of October 2008 financial stats would have been different. Total revenue would have been ? 102.9 million and profit would have been ? 7.0 million. Analysis The goodwill amount is approximately 4 times greater than the net asset value of the Griffin & Armor (Financial services) Ltd. This implies that the CSG is not relying on the company’s worth of the net assets but the projections regarding G&A’s business. The CSG has highly optimistic, as well as, aggressive is highly optimistic. Recommendation It would be better for the firm to rely on numerical data to make solid projections about its financials. If the goodwill is well justified (4 times the net asset value) then more explicit explanation of calculations could be useful. Charles Stanley Group PLC Charles Stanley Group PLC Business Combination 2010 (Charles Stanley Group PLC, Annual report 2010) Charles Stanley Group PLC Charles Stanley Group PLC Business Combination 2010 (Continued) (Charles Stanley Group PLC, Annual report 2010) Charles Stanley Group PLC IAS 38 (Intangibles) Charles Stanley Group has complied with all necessary IFRS requirements regarding the Business combinations. Even if the most recent acquisition was not in the current year but still the application of IAS 38 applied retroactively. None of the intangible assets (as shown in the figure below) is or ...Show more

Summary

Introduction IFRS 3 IFRS 3 deals with reporting of an entity when it incorporates a business combination. A business combination is bringing together of several businesses under one reporting unit. Normally there is an acquirer which acquires various other acquirees…
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IFRS 3 Business Combinations and IAS 38 Intangible Assets govern how companies should account for and disclose their goodwill an essay example
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