Bright Pharmaceuticals SE: Accounting for a Business Combination under IFRS 3

Abstract

This instructional resource familiarizes students with the accounting for business combinations under IFRS 3 and illustrates the uncertainty and professional judgment involved in asset valuation and consolidation. First, students need to assess the quality of information generated under IFRS 3 and fair value accounting. Second, they are asked to account for a business combination by identifying possible input parameters to measure several intangible assets and a contingent liability. Based on their valuation results, they compute the amount of goodwill recognized on the acquisition and assess the effects of their parameter choices on the values of different assets and liabilities. As an optional third task, the case asks students to consolidate the financial statements and evaluate the impact of the acquisition on the financial position of the acquirer.

Keywords:

• Business combinations
• intangible assets
• goodwill
• IFRS

Acknowledgments

The authors thank the 2012 IAAER/HEC Montréal Case Competition advisory committee for their helpful suggestions during the review process and Alan Sangster (editor) for his editorial support.

Notes

All names, dates, and locations are fictitious, as are the ‘characters’ involved in the case.

Assume a tax rate of 30%. Also assume that Braintex's total revenues for the year were 6.5 million euros. Round all values to two decimal places.

Return on equity, return on assets, equity ratio, financial leverage, liabilities to equity, current ratio, quick ratio, cash ratio.