The acquirer is the combining entity that obtains control of the other combining entities — What factors/indicators should management consider determining which

1. What factors/indicators should management consider in determining which entity is the acquirer?

2. Why is it necessary to identify an acquirer? In particular, what differences in accounting would arise if White Ltd or Cloud Ltd were identified as the acquirer?

SOLUTION

Question 1.

The acquirer is the combining entity that obtains control of the other combining entities.

Determination of the acquirer requires judgement. Paragraphs B13-B18 of AASB 3 provides indicators/guidelines to assist in this judgement:

Form of consideration: did one entity transfer cash or other assets for the shares of the other? [para B14]; did one entity issue its own equity interests in exchange for another entity’s equity interests? [para B15] Was there a premium paid by one of the entities? [para B16(e)]

Subsequent management: which entity’s management subsequently controls the business combination? What are the relative voting rights after the business combination? [para B15(a)] What is the composition of the senior management of the combined entity? [para B15(d)]