Business Combination- Settlement of debt

[AQS]

Hello Members,

Have question on purchase consideration paid on business combination. We are looking to acquire an unlisted entity (Acquiree) by issuing our shares. Acquire has share holders loan which they want to settle before entering into this deal.

My understanding is, if this would be a third party i.e. Bank loan & we settle that loan then that would not be a part of business consideration & should be accounted for separately (IFRS 3 para 51) since this is not part of the consideration transferred to the vendor in exchange of control of the acquiree.

But in case of existing shareholders of acquiree the related loan should be part of consideration related to business combination since this is paid to acquire control of acquiree.

Thoughts?

Thanks

[Marek Muc]

Does this mean that your company will repay the loan upon entering into the deal? Or the acquiree will repay the loan using its own funds before the deal?

[AQS]

We will repay the loan before entering into deal.

Thanks

[AQS]

or you can say this is one of deal's condition that we (the acquirer) settle shareholders loan upon entering into deal.
Thanks

[Marek Muc]

then it's part of the consideration,
consideration will be higher but correspondingly you'll acquire net assets of higher value (i.e. without the debt)

[AQS]

thanks Marek!