entity a acquires a 60 controlling interest in listed entity b as it has obtained a 611720

Put option and gaining control accounted for as a single transaction

Entity A acquires a 60% controlling interest in listed Entity B. As it has obtained a controlling interest in B, the regulator requires A to offer to purchase the remaining shares of B from all other shareholders of B, paying the same price per share as in the transaction in which A obtained control of B. Entity A makes the offer immediately and the offer period lasts for 30 days. At the end of 30 days, 30% of the other shareholders of B offer their shares. The offer to acquire the remaining 10% of shares held in B expires unexercised.

When considering whether the put option (and acquisition of the 30% tendered) is linked to the acquisition of 60%, in which A gained control, it is relevant that:

• the price per share is fixed and at the same price as paid by A to acquire 60% of B;
• the shareholders of B who own the 30% did not negotiate to receive the offer;
• the offer benefits the shareholders of B (by providing the same opportunity to sell their shares that the shareholder(s) who sold the 60% received);
• although the offer was initiated by A, it stemmed from a regulatory requirement triggered by the acquisition of B (it was not at As discretion to make the offer);
• the offer period is relatively short.

A concludes that the acquisition of 60% and 30% are linked. Therefore, A records the following journal entries:

a) Acquisition of 60% and entering into the put option (granting the offer):

Dr: Net assets (summarised, 100% of fair value of net assets of B, as required by IFRS 3)

Dr: Goodwill (as if A acquired 100% of B)

Cr: Cash transferred (on acquisition date)

Cr: Financial liability (present value of the amount payable on exercise)

b) Accounting for the liability in accordance with IAS 39 (unwinding of the discount during the 30-day period):

Dr: Finance expense

Cr: Financial liability

c) Acquisition of 30% at the end of the 30-day period is accounted for as a reduction of the financial liability:

Dr: Financial liability

Cr: Cash

d) Reversal of the financial liability for the 10% outstanding at the end of the offer period A adjusts the initial purchase price allocation related to B to recognise any non-controlling interest, with an offset to goodwill:

Dr: Financial liability (offer price of 10% of shares)

Cr: Non-controlling interest (either (1) fair value of the non-controlling interest in B or (2) the 10% shareholders proportionate share of the Bs identifiable net assets), measured as of the acquisition date (the date that control was gained, and not the date that the offer expires)

Dr/Cr: Goodwill (difference, if applicable)