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ACCA Strategic Professional · Strategic Business Reporting (International) · Group accounting including statements of cash flows

On 1 January, Gamma acquired 60% of Delta. Delta owned land with a carrying amount of $2m and a fair value of $3.5m at that date. Delta's financial statements still carry the land at cost. Which is the correct consolidation treatment?

Land is consolidated at its fair value of $3.5m and that figure is used in the net assets acquired when measuring goodwill. IFRS 3 requires identifiable net assets to be recognised at acquisition-date fair value, so the $1.5m uplift reduces goodwill rather than being left in notes or reserves.

  1. AInclude land at $3.5m in the consolidated statement of financial position and use that fair value in the calculation of goodwillCorrect
  2. BInclude land at $2m and recognise the $1.5m as goodwill
  3. CInclude land at $3.5m but credit the $1.5m to Gamma's retained earnings
  4. DInclude land at $2m and disclose the fair value in the notes

Explanation

IFRS 3 requires identifiable assets to be measured at acquisition-date fair value. The $1.5m uplift increases net assets acquired, reducing goodwill, and is part of the fair value consolidation adjustment. It is not credited to the parent's reserves.

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