IAS 16 & Business Combinations

[Jack2357]

Hi.

I assumed when a company undertook an acquistion/business combination and with it came plant equipment under IFRS they recorded the gross value of the plant equipment acquired (i.e. as if they acquired new assets) and added the accumulated depreciation of the acquired assets to accumulated depreciation balance. Hope that makes sense?


J

[Marek Muc]

Hi,

no, it works the other way around, see here:

https://ifrscommunity.com/knowledge-bas ... iabilities

M.

[Jack2357]

Thank you. This seems to run against what I have seen for publicly listed companies. For example take Elis's acquisition of Berendsen, a large €2bn acquisition. Under footnote 6.3 OTHER PROPERTY, PLANT AND EQUIPMENT on page 241. Gross PPE goes from €1.9bn to €4bn (after consolidation) and accumulated depreciation goes from €1.0bn to €2.2bn.

(https://www.corporate-elis.com/sites/de ... cument.pdf).

[Jack2357]

I wonder why they do this? As I have seen it with several other list companies and seems to contradict IFRS 3.B41 as highlighted in your above article...

[Marek Muc]

I see two reasons:
1/ lack of knowledge:)
2/ simplifications in consolidation process

It’s easier to continue the accounting of an acquired subsidiary (i.e. keep the original GBV and accumulated depreciation, subject to fair value adjustments), as it means fewer consolidation adjustments. But it makes no sense if you think about it. For example, when you buy a used asset (say a property), but not through a business combination, but as a standalone asset, you would not even think of entering it into your books with a historical accumulated depreciation recognised by a previous owner, or would you?:)