Summary: Samenvatting Financial Accounting

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  • Business combinations can have several legal apprearances:

    * Purchase of shares
    * Purchase of net assets
    * Legal mergers
    * Establishment of new entities to control the combining entities
    * Reverse acquisition
  • Voting rights could give power, but there are rights other than voting:

    * Purpose and design (IFRS 10.B5-8)
    * Evidence of practical ability to direct (IFRS 10.B18/21)
    * Special relationships (IFRS 10.B19)
    * Exposure to veriability to return (IFRS 10.B20)
  • Purpose and design (IFRS 10.B5-8)

    Ø involvement and decision made at inception about contracts, risks, opportunities – may indicate that investor has the opportunity to obtain rights that are sufficient to give it power
    Ø Contractual arrangement established at investee’s inception
    Ø Investor’s commitments to continued operation of investee – may increase investor’s exposure to variability of returns and thus increase incentives to obtain rights that are sufficient to give it power 
  • Evidence of practical ability to direct (IFRS 10.B18/21)

    Could be the appointment of key management personnel, directing investee to inter into a significant transaction for investee’s benefit or dominating either nominations process for electing members of investee’s governing body or obtaining of proxies from other holders of voting rights. 
  • Special relationships (IFRS 10.B19)

    Sometimes there will be indications that the investor has a special relationship with the investee, which suggests that the investor has more than a passive interest in the investee.
  • Exposure to variability of returns (IFRS 10.B20) 

    Having a large exposure to variability of returns is an indicator that the investor may have power.
  • Exposure to variability in returns

    Does the entity get exposed to the variable returns from its investment? (IFRS 10.15/16 & B55-57)
  • Ability to use power to affect the returns

    Will the entity able to use power to affect the returns? (IFRS 10.17/18 & B58-72) - link between power and return.
  • What are the two exemption from IFRS 3?

    · Joint arrangements – arrangement in which two or more parties have joint control (IFRS 11)
    · Entities or business under common control – have the same ultimate parent 
  • What are the two kinds of joint arrangements? (IFRS 11.4-7)

    * Joint operations (IFRS 11.15/20)
    * Joint ventures (IFRS 11.16/24)
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