Section 19 – 19.14 Disclosures

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19.14 Disclosures

19.14.1 Extracts from FRS 102 section 19.25 – 19.26A

For business combinations effected during the reporting period

19.25 For each business combination, excluding any group reconstructions, that was effected during the period, the acquirer shall disclose the following:

(a) the names and descriptions of the combining entities or businesses;

(b) the acquisition date;

(c) the percentage of voting equity instruments acquired;

(d) the cost of the combination and a description of the components of that cost (such as cash, equity instruments and debt instruments);

(e) the amounts recognised at the acquisition date for each class of the acquiree’s assets, liabilities and contingent liabilities, including goodwill;

(g) the useful life of goodwill, and if this cannot be reliably estimated, supporting reasons for the period chosen; and

(h) the periods in which the excess recognised in accordance with paragraph 19.24 will be recognised in profit or loss.

19.25A The acquirer shall disclose, separately for each material business combination that occurred during the reporting period, the amounts of revenue and profit or loss of the acquiree since the acquisition date included in the consolidated statement of comprehensive income for the reporting period. The disclosure may be provided in aggregate for business combinations that occurred during the reporting period which, individually, are not material.

For all business combinations

19.26 An acquirer shall disclose a reconciliation of the carrying amount of goodwill at the
beginning and end of the reporting period, showing separately:

(a) changes arising from new business combinations;

(b) amortisation;

(c) impairment losses;

(d) disposals of previously acquired businesses; and

(e) other changes.

This reconciliation need not be presented for prior periods.

19.26A An acquirer shall disclose a reconciliation of the carrying amount of the excess recognised in accordance with paragraph 19.24 at the beginning and end of the reporting period, showing separately:

(a) changes arising from new business combinations;

(b) amounts recognised in profit or loss in accordance with paragraph 19.24(c);

(c) disposals of previously acquired businesses; and

(d) other changes.

This reconciliation need not be presented for prior periods.

19.14.2 OmniPro comment

Section 19.25 – 19.25 A of FRS 102 provides the disclosures for a business combination affected during the period. Section 19.26 and 19.26A of FRS 102 provide disclosures for all entity’s regardless of whether there was a business combination or not in the year.

See below illustration of the above requirements for negative goodwill and positive goodwill. No prior year comparatives are required.

19.14.2.1 Accounting policies positive goodwill – Consolidated financial statements.

Example 21: Extract from the Accounting policy notes in the consolidated financial statements (excluding negative goodwill)

Basis of consolidation

The Group financial statements reflect the consolidation of the results, assets and liabilities of the parent undertaking, the Company and all of its subsidiaries, together with the Group’s share of profits/losses of associates and joint ventures. Where a subsidiary, associate or joint venture is acquired or disposed of during the financial year, the Group financial statements include the attributable results from, or to, the effective date when control passes, or, in the case of associates, when significant influence is lost.

Subsidiary undertakings

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition related costs are capitalised with the cost of the investment. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition by acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the group’s share of identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised as negative goodwill on the balance sheet and amortised through the profit and loss account in the period in which the non-monetary assets are recovered.

Associates and joint ventures

Associates are those entities in which the Group has significant influence over, but not control of, the financial and operating policies. Joint ventures are those entities over which the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic, financial and operating decisions. Investments in associates and joint ventures are accounted for using the equity method of accounting.

Under the equity method of accounting, the Group’s share of the post-acquisition profits or losses of its associates and joint ventures is recognised in the income statement. The income statement reflects, in profit before tax, the Group’s share of profit after tax of its associates and joint ventures in accordance with Section 14 of FRS102, ‘Investments in Associates’ and Section 15 of FRS 102, ‘Interests in Joint Ventures’. The Group’s interest in their net assets is included as investments in associates and joint ventures in the Group Statement of Financial Position at an amount representing the Group’s share of the fair value of the identifiable net assets at acquisition plus the Group’s share of post acquisition retained income and expenses. The Group’s investment in associates and joint ventures includes goodwill on acquisition. The amounts included in the financial statements in respect of the post acquisition income and expenses of associates and joint ventures are taken from their latest financial statements prepared up to their respective year ends together with management accounts for the intervening periods to the Group’s year end. The fair value of any investment retained in a former subsidiary is regarded as a cost on initial recognition of an investment in an associate or joint venture. Where necessary, the accounting policies of associates and joint ventures have been changed to ensure consistency with the policies adopted by the Group.

Transactions eliminated on consolidation

Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the Group financial statements. Unrealised gains and income and expenses arising from transactions with associates and joint ventures are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that they do not provide evidence of impairment.

Business combinations and goodwill

All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries, associates and joint ventures. In respect of acquisitions that have occurred since XXXXX (INSERT DATE OF TRANSITION WHERE SECTION 35.10(A) EXEMPTION IS CLAIMED), goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, i.e. original cost less accumulated amortisation from the date of acquisition up to XXXXX, which represents the amount recorded under UK and Irish GAAP. Goodwill is now stated at cost or deemed cost less any accumulated amortisation and impairment losses. In respect of associates and joint ventures, the carrying amount of goodwill is included in the carrying amount of the investment.

(i) Goodwill

Positive goodwill acquired on each business combination is capitalised, classified as an asset on the balance sheet and amortised on a straight line basis over its useful life of X years. Goodwill acquired in a business combination is, from the date of acquisition, allocated to each cash generating unit that is expected to benefit from the synergies of the combination. If an investment is disposed of any unamortised goodwill is subsumed within goodwill in the profit and loss on sale on discontinuance. Useful life is determined by reference to the period over which the values of the underlying businesses are expected to exceed the values of their identifiable net assets.

Goodwill is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.

Negative goodwill represents the fair value of net assets on acquisition in excess of the fair value of consideration. Negative goodwill is capitalised and amortised through the profit and loss account in the period in which the non-monetary assets are recovered. In the case of fixed assets acquired, this is the period over which they are depreciated and in the case of stocks it is the period over which they are sold or otherwise realised.

(ii) Impairment

The carrying amounts of the Group’s/Company’s assets, other than inventories (which are carried at the lower of cost and net realisable value), deferred tax assets (which are recognised based on recoverability), investment properties (which are carried at fair value), and those financial instruments, which are carried at fair value, are reviewed to determine whether there is an indication of impairment when an event or transaction indicates that there may be. If any such indication exists, an impairment test is carried out and the asset is written down to its recoverable amount.

The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Value in use is defined as the present value of the future pre-tax and interest cash flows obtainable as a result of the asset’s continued use. The pre-tax and interest cash flows are discounted using a pre-tax discount rate that represents the current market risk free rate and the risks inherent in the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. An impairment loss is recognised in the profit and loss account, unless the asset has been revalued when the amount is recognised in other comprehensive income to the extent of any previously recognised revaluation. Thereafter any excess is recognised in profit or loss.

Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis.

An impairment loss, other than in the case of goodwill, is reversed if there has been a change in the estimates used to determine the recoverable amount. If an impairment loss is subsequently reversed, the carrying amount of the asset (or asset’s cash generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the revised carrying amount does not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised in prior periods. A reversal of an impairment loss is recognised in the profit and loss account.

(iii) Intangible assets

Intangible assets acquired as part of a business combination are initially recognised at fair value being their deemed cost as at the date of acquisition. These generally include brand and customer related intangible assets. Computer software that is not an integral part of an item of computer hardware is also classified as an intangible asset. Where intangible assets are separately acquired, they are capitalised at cost. Cost comprises purchase price and other directly attributable costs.

Intangible assets with finite lives are amortised over the period of their expected useful lives in equal annual instalments, as follows;

Brands 5 to 10 years

Customer related 5 to 20 years

Supplier agreements 4 to 10 years

Computer related 3 to 7 years

Subsequent to initial recognition, intangible assets are stated at cost less accumulated amortisation and impairment losses incurred.

The company’s policy is to review the remaining economic lives and residual values of intangible assets on an on-going basis and to adjust the amortisation charge to reflect the remaining estimated life where applicable and residual value where indicators of a change are present.

(vi) Contingent acquisition consideration

Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with Section 21. Any adjustments to the estimated contingent consideration are accounted for as an adjustment to goodwill as a current period adjustment as it reflects a change in estimate and the adjusted goodwill is amortised from that date. Contingent consideration that is classified as equity is not remeasured and its subsequent settlement is accounted for within equity. To the extent that contingent acquisition consideration is payable after more than one year from the date of acquisition, it is discounted at an appropriate loan interest rate and, accordingly, carried at net present value on the Balance Sheet. An appropriate interest charge, at a constant rate on the carrying amount adjusted to reflect market conditions, is reflected in the Profit and Loss over the earnout period, increasing the carrying amount so that the obligation will reflect its settlement at the time of maturity.

19.14.2.2 Example from the notes to the accounts

Example 22: Extract from notes to the financial statements – Business combination and financial asset note in the consolidated financial statements

Business combinations

On the XX December 20X4 the company acquired 70% of the voting rights of XYZ Limited for a total consideration of CU1,000,000. XYZ manufacturers agricultural equipment. The useful life of the goodwill acquired is X years which is consistent with industry norms and the business acquired.

	Book value on acquisition	Fair value Adjustments	Fair value on acquisition
	CU	CU	CU
Investments	XXXXX	–	XXXXX
Tangible fixed assets	XXXXX	(XXXXX)	XXXXX
Stock	XXXXX	–	XXXXX
Cash at bank and in hand	XXXXX	–	XXXXX
Debtors	XXXXX	–	XXXXX
Creditors	(XXXX)	–	(XXXX)
Provisions	(XXXX)	–	(XXXX)
	XXXXX	(XXXXXX)	XXXXX
Provisional fair value attributable to non-controlling interest			(XXXXX)
Provisional fair value attributable to group (70%)			2,010,000
Consideration for acquisition (see (ii) below)			(1,000,000)
Directly attributable acquisition costs			(10,000)
Positive Goodwill			1,000,000

(ii) The split of the consideration for the acquisition is as follows:

Cash				XXXXX
Equity instruments				XXXXX
Debt instruments				XXXXX
Total consideration				1,000,000
The consolidated financial statements included turnover of CUXXX in relation to the above business since the date of acquisition. This entity contributed to CUXXX to the consolidated profit in the period
Financial assets	Joint Venture and associates	Other investments	Total
	CU	CU	CU
Cost
At 1 January 2015	XXX	XXX	XXX
Additions	XXX	XXX	XXX
Fair value adjustments	XXX	–	XXX
Disposals	–	–	(XXX)
At 31 December 2015	XXX	XXX	XXX

Amounts provided:
At 1 January 2015	XXX	XXX	XXX
Additional provision	–	–	XX
At 31 December 2015	XXX	XXX	XXX

Carrying amount
At 31 December 2015	XXXX	XXXX	XXXX

At 31 December 2014	XXXX	XXXX	XXXX

(a) Investment in associates and joint ventures are stated at cost less impairment. Other investments are measured at fair value based on the quoted share prices.

(b) Details of investments in which the parent Company holds 20% or more of the nominal value of any class of share capital are as follows:

Name and Registered Office	Nature of Business	Nature of Shares Held	% of Share Class Held

Subsidiary undertakings
(i) XXXX Limited Address 1, Address 2, Ireland	Machinery Manufacturing	Ordinary share capital	100%
This investment has been fully provided against.
(ii) XXXX Limited Address 1, Address 2, Ireland	Patent holding company	Ordinary share capital	100%
Associate
(iii) XXXX Limited Address 1, Address 2, Ireland	Machinery Manufacturing	Ordinary share capital	25%
Joint Venture
(iv) XXXX Limited Address 1, Address 2, Ireland	Machinery Manufacturing	Ordinary share capital	50%

19.14.2.2.1 Contingent consideration note

Example 23: Extract from notes to the financial statements – contingent consideration note

Deferred consideration	2015 CU	2014 CU

At 1 January	XXX	–
Charge for year	–	XXXX
Utilised in the year	(XXX)	–
Provision carried at 31 December	100,000	90,000

	2012	2011
	CU	CU
Split as follows:
Amounts falling due within one year (note 10)	40,000	45,000
Amounts falling due after one year (note 11)	60,000	45,000
	100,000	90,000

Deferred consideration of CUXXX is payable upon the achievement of certain minimum targets arising in respect of an asset/SHARE purchase agreement entered into by the company in XXXXX. This provision represents the minimum amount which is reasonably expected to be paid under the terms of the asset/SHARE purchase agreement. The provision is not discounted due to materiality.

19.14.2.3 Parent entity accounting policies

Example 24: Extract from accounting policy notes to the financial statements for the parent entity financial statements and for an entity that holds a subsidiary, associate or joint venture interest but is not required to prepare consolidated financial statements

Financial assets

Financial assets in subsidiaries and other financial fixed assets are stated at cost less provision for any diminution in value.

AND/OR

The company has adopted a policy of measuring investments in financial assets which can be reliably measured at their fair value, with changes in the fair value recognised in the profit and loss.

AND/OR

Financial assets which can be reliably measured are measured at their fair value, with changes in the fair value recognised in other comprehensive income and the revaluation reserve.

Dividend income

Dividend income from subsidiaries is recognised when the Company’s right to receive payment has been established

Goodwill

Positive goodwill acquired on each business combination is capitalised, classified as an asset on the balance sheet and amortised on a straight line basis over its useful life of 10 years. Goodwill acquired in a business combination is, from the date of acquisition, allocated to each cash generating unit that is expected to benefit from the synergies of the combination. If an investment is disposed of any unamortised goodwill is subsumed within goodwill in the profit and loss on sale on discontinuance. Useful life is determined by reference to the period over which the values of the underlying businesses are expected to exceed the values of their identifiable net assets

Goodwill is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.

Intangible assets

Intangible assets with finite lives are amortised over the period of their expected useful lives in equal annual instalments, as follows;

Brands 5 to 10 years

Customer related 5 to 20 years

Supplier agreements 4 to 10 years

Computer related 3 to 7 years

Subsequent to initial recognition, intangible assets are stated at cost less accumulated amortisation and impairment losses incurred.

Contingent acquisition consideration

19.14.2.3.1 Extract from notes to the financial statements

Example 25: Extract from notes to the financial statements for the for an entity that holds an associate/subsidiary/joint venture/other interest but is not required to prepare consolidated financial statements – Financial asset note

Financial assets	Subsidiary Undertakings	Joint Venture and associates	Other investments	Total
	CU	CU	CU	CU
Cost
At 1 January 2015	XXX	XXX	XXX	XXX
Additions	XXX	XXX	XXX	XXX
Disposals	(XXX)	–	–	(XXX)
At 31 December 2015	XXX	XXX	XXX	XXX
Amounts provided:
At 1 January 2015	XXX	XXX	XXX	XXX
Additional provision	XXX	–	–	XX
At 31 December 2015	XXX	XXX	XXX	XXX
Carrying amount
At 31 December 2015	XXXX	XXXX	XXXX	XXXX
At 31 December 2014	XXXX	XXXX	XXXX	XXXX

(a) Details of investments in which the parent Company holds 20% or more of the nominal value of any class of share capital are as follows:

Name and Registered Office	Nature of Business	Nature of Shares Held	% of Share Class Held		Net Assets/ (Liabilities)	Results for year
					CU	CU
Subsidiary undertakings
(i) XXXX Limited Address 1, Address 2, Ireland	Machinery Manufacturing	Ordinary share capital	100%		XXXX	XXXX
This investment has been fully provided against.
(ii) XXXX Limited Address 1, Address 2, Ireland	Patent holding company	Ordinary share capital	100%		XXX	XXXX
Associate
(iii) XXXX Limited Address 1, Address 2, Ireland	Machinery Manufacturing	Ordinary share capital	25%		XXXX	XXXX
Joint Venture
(iv) XXXX Limited Address 1, Address 2, Ireland	Machinery Manufacturing	Ordinary share capital	50%		XXXX	XXXX
Intangible assets
				CU
Cost
At 1 January and 31 December				300,000
Amortisation
At 1 January				150,000
Amortised to profit and loss account				75,000
At 31 December				225,000
Net book amount
At 31 December 2015				75,000
At 31 December 2014				150,000

The intangible asset represents the purchased goodwill arising in respect of an asset purchase agreement with XXXX Limited. This amount represents the minimum amount which the directors consider is reasonably expected to be paid, and includes both the initial consideration paid and a deferred consideration element which is payable upon the achievement of certain minimum targets (see note XX).

19.14.2.4 Extract from notes to the financial statements for the for an entity that holds intangibles/goodwill

Example 26: Extract from notes to the financial statements for the for an entity that holds intangibles/goodwill

Intangible assets
		CU
Cost
At 1 January and 31 December		300,000
Amortisation
At 1 January		100,000
Amortised to profit and loss account		75,000
At 31 December		175,000
Net book amount
At 31 December 2015		115,000

At 31 December 2014		200,000

The intangible asset represents the purchased goodwill arising in respect of an asset purchase agreement with XXXXXXXXXX Limited. This amount represents the minimum amount which the directors consider is reasonably expected to be paid, and includes both the initial consideration paid and a deferred consideration element which is payable upon the achievement of certain minimum targets (see note XX).

19.14.2.5 Profit and Loss Account for parent entity

Example 27: Extract from the profit and loss account for an entity which is not a parent that holds an investment in a subsidiary, associate/joint venture or an entity that is a parent but consolidated financial statements are not required to be prepared where income is received from an associate/joint venture/subsidiary

	2015	2014
	CU	CU
Turnover	–	–

Cost of sales	(XXX)	(XXX)
Gross profit	–	–
Administrative expenses	(XXX)	–
Operating loss	(XXX)	–
Income from shares in group undertakings	XXXX	–
Income from participating interests	XXXX	–
Income from other financial assets	XXXX	–
Interest payable	(XX)	(XXX)
Profit/(loss) for the financial year	86,442	(22)

19.14.2.6 – Negative Goodwill for the financial year

Example 28: Extract from the notes in the consolidated/entity financial statements – negative goodwill

Intangible fixed assets

		CU
Negative goodwill
Cost
At 1 January		–
Arising during period (see (i) below)		1,000,000
At 31 December		1,000,000

Amortisation
At 1 January		–
Amortised for the period		(10,000)
At 31 December		(10,000)

Net book value
At 31 December 2014		–
At 31 December 2015		990,000

(i) Negative goodwill arose on the change in controlling interest in XYZ Limited. On XX January XXXX XYZ Limited entered into an agreement to buy back and cancel 1,000 ordinary shares from the former shareholder for CU2,000,000. As a result XYZ Limited’s percentage shareholding increased from 20% to 70% making XYZ Limited a subsidiary of Parent Limited from that date. Negative goodwill has been allocated toward the cost of inventory and is being released over the period of in which the inventory is utilised.

(ii) The net assets of the company at that date were as follows:

	Book value on acquisition	Fair value Adjustments	Fair value on acquisition
	CU	CU	CU
Investments	XXXXX	–	XXXXX
Tangible fixed assets	XXXXX	(XXXXX)	XXXXX
Stock	XXXXX	–	XXXXX
Cash at bank and in hand	XXXXX	–	XXXXX
Debtors	XXXXX	–	XXXXX
Creditors	(XXXX)	–	(XXXX)
Provisions	(XXXX)	–	(XXXX)
	XXXXX	(XXXXXX)	XXXXX
Provisional fair value attributable to non-controlling interest			(XXXXX)
Provisional fair value attributable to group (70%)			1,210,000
Original investment			(100,000)
Acquisition costs			(10,000)
Negative goodwill			1,000,000

Example 29: Extract from the consolidated Balance Sheet for negative goodwill


	2015	2014
	CU	CU
Fixed assets
Tangible assets	XXXX	XXXX
Negative goodwill	(XXXX)	–
Financial assets	XXXX	XXXX
	XXXX	XXXXX
Current assets
Stocks	XXXXX	XXXXX
Debtors	XXXXX	XXXXX
Cash at bank and on hand	XXXXX	XXXXX
	XXXXX	XXXXX

Creditors – amounts falling due within one year	(XXXXX)	(XXXXX)

Net current assets	XXXXX	XXXXX
Total assets less current liabilities	XXXXX	XXXXX

Creditors – amounts falling due after more than one year	(XXXX)	(XXXX)

Provisions for liabilities
Capital grants	(XXXX)	(XXXX)
Deferred taxation	(XXXX)	(XXXX)
Net assets excluding pension liability	XXXXX	XXXXX

Defined benefit pension liability	(XXXXX)	(XXXXX)
Net assets including pension liability	XXXXXX	XXXXXX

Capital and reserves
Share capital	XXXXX	XXXXX
Profit and loss account	XXXXX	XXXXX
Equity attributable to owners of the parent company	XXXXX	XXXXX

Non-controlling interest	XXXXX	XXXXX
	XXXXX	XXXXX