Pre-combination information

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Aady001
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Joined: 04 Dec 2020, 17:06

Pre-combination information

Post by Aady001 »

Hi All,
The query is related to pre-combination information, which is a concept usually applied for common control transactions under business combination, in the local GAAP requirements of some countries.

In the discussion paper of IASB on the business combination for common control, this concept is also discussed, however, some countries are already following it.

My query is if an entity is disclosing pre-combination information in the current and previous year by parking the delta in common control reserve, how the effect of it will be given in the cash flow statement.

Regards
Abhishek
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Marek Muc
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Re: Pre-combination information

Post by Marek Muc »

Please illustrate how this delta arises
Aady001
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Joined: 04 Dec 2020, 17:06

Re: Pre-combination information

Post by Aady001 »

For ex-
A Ltd a newly incorporated entity bought a business from one of its fellow subsidiary with effect from 1 June 2021.

Since its a common control transaction, Management needs to disclose pre-combination information for the year 2020 (full year) and 2021 (Jan to May) for the said business, even though it was with A Ltd.

For 2020, A Ltd will disclose all the corresponding assets and liabilities and the equity (net assets) should ideally be disclosed as common control reserve as disclosing share capital and reserve won't be correct I believe.

For 2021, the Income statement for the period (Jan to May) will also be disclosed and again this notional profit should ideally be adjusted against the common control reserve.

Here it is to be noted that the balance of common control reserve at the end of the year 2021, will become Zero due to the reversal of notional net assets of 2020 and net profit of (Jan to May) as the same cant be carried forward in the next year from 2021 Balance Sheet.

Now at the time of preparing the cash flow statement, ideally the movement of common control reserve should be adjusted against the movement of notional assets and liabilities.

However, since cash flow needs to be started from profit before tax of 12 months, it's not clear how the effect of 5 months profit will get eliminated.

Let me know if you are clear based on the above illustration
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Marek Muc
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Re: Pre-combination information

Post by Marek Muc »

As I understand, you're discussing additional disclosure in explanatory notes, not primary financial statements, right? then there is no need to "reverse" anything in 2021, just prepare the pro-forma information for two full years as if the business combination took effect at the earliest opening balance date
Aady001
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Joined: 04 Dec 2020, 17:06

Re: Pre-combination information

Post by Aady001 »

Hi Marek,
I am discussing additional disclosure in the primary financial statements and not through explanatory notes.
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