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Public Benefit Entity Combinations
Extract from FRS102: Section PBE 34.75-. PBE 34.86
PBE34.75 Paragraphs PBE34.76 to PBE34.86 apply only to public benefit entities for the following categories of entity combinations which involve a whole entity or parts of an entity combining with another entity:
(a) combinations at nil or nominal consideration which are in substance a gift; and
(b) combinations which meet the definition and criteria of a merger.
PBE34.76 Combinations which are determined to be acquisitions shall be accounted for in accordance with Section 19 Business Combinations and Goodwill.
Combinations that are in substance a gift
Accounting treatment and disclosure
PBE34.77 A combination that is in substance a gift shall be accounted for in accordance with Section 19 except for the matters addressed in paragraphs PBE34.78 and PBE34.79 below.
PBE34.78 Any excess of the fair value of the assets received over the fair value of the liabilities assumed is recognised as a gain in income and expenditure. This gain represents the gift of the value of one entity to another and shall be recognised as income.
PBE34.79 Any excess of the fair value of the liabilities assumed over the fair value of the assets received is recognised as a loss in income and expenditure. This loss represents the net obligations assumed, for which the receiving entity has not received a financial reward and shall be recognised as an expense.
Combinations that are a merger
PBE34.80 Unless it is not permitted by the statutory framework under which a public benefit entity report, an entity combination that is a merger shall apply merger accounting as prescribed below. If merger accounting is not permitted, an entity combination shall be accounted for as an acquisition in accordance with Section 19.
PBE34.81 Any entity combination:
(a) which is neither a combination that is in substance a gift nor a merger; or
(b) for which merger accounting is not permitted by the statutory framework under which the public benefit entity reports shall be accounted for as an acquisition in accordance with Section 19.
Accounting treatment
PBE34.82 Under merger accounting the carrying value of the assets and liabilities of the parties to the combination are not adjusted to fair value, although adjustments shall be made to achieve uniformity of accounting policies across the combining entities.
PBE34.83 The results and cash flows of all the combining entities shall be brought into the financial statements of the newly formed entity from the beginning of the financial period in which the merger occurs.
PBE34.84 The comparative amounts shall be restated by including the results for all the combining entities for the previous accounting period and their statement of financial positions for the previous reporting date. The comparative figures shall be marked as ‘combined’ figures.
PBE34.85 All costs associated with the merger shall be charged as an expense in the period incurred.
Disclosure
PBE34.86 For each entity combination accounted for as a merger in the reporting period the following shall be disclosed in the newly formed entity’s financial statements:
(a) the names and descriptions of the combining entities or businesses;
(b) the date of the merger;
(c) an analysis of the principal components of the current year’s total comprehensive income to indicate:
(i) the amounts relating to the newly formed merged entity for the period after the date of the merger; and
(ii) the amounts relating to each party to the merger up to the date of the merger.
(d) an analysis of the previous year’s total comprehensive income between each party to the merger;
(e) the aggregate carrying value of the net assets of each party to the merger at the date of the merger; and
(f) the nature and amount of any significant adjustments required to align accounting policies and an explanation of any further adjustments made to net assets as a result of the merger.
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