Main changes on MPERS
- in term of business combination
Part 3 of 3
Main changes on MPERS - in term of business combination
The followings are the key amendments on accounting standards related to business combinations and consolidation:
1. Business combination
1.1 All business combinations shall be accounted for by applying the purchase method (also known as acquisition method) and incurred on the following steps:
i. identifying an acquirer
ii. measuring the cost of the business combination; and
iii. allocates cost of combination to share of net assets acquired, including contingent liabilities
Reference: MPERS S19.6 & S19.7
i. Initial measurement
measured at the difference between cost of combination and share of net assets acquired.
Reference: MPERS S19.22
ii. Subsequent measurement
measured at cost less accumulated amortisation and impairment.
If unable to make reliable estimate of the useful life, the life is determined based on management’s best estimate but shall not exceed 10 years
Reference: MPERS S19.23
2. Consolidated Financial Statement
2.1 Control power to determine consolidation.
Consolidation is required if an entity is controlled by another entity.
Control means a power to govern the financial and operating policies of an entity so as to obtain benefits from its.
Reference: MPERS S9.4
2.2 Exemption from consolidation
i. If the parent itself is a subsidiary and its ultimate parent (or any intermediate parent).
ii. If it is acquired and is held with the intention of selling or disposing of it within one year from its acquisition date. (in accordance with Section 11)
Reference: MPERS S9.3
2.3 Disposal of subsidiaries
If an entity ceases to be a subsidiary, any remaining interest, whether a financial asset or becomes an associate or a JV, is measured at the carrying amount at the date control is lost i.e. no re-measurement to fair value.
On disposal of foreign subsidiary, the cumulative foreign exchange difference shall not be reclassified to profit or loss.
Reference: MPERS S9.18 & S9.19
2.4 Non-controlling interest
To disclose non-controlling interest separately in consolidated statement of financial position, even if the result is in deficit balance.
Reference: MPERS S9.22
3. Investment in Associates
- For the measurement, a policy choice is given to account for all investments in associates using either:
(i) the cost model,
(ii) the equity method, or
(iii) the fair value model
No specific exemption for mutual funds and venture capital entities.
No specific exception for investment entities.
Reference: MPERS S14.4
3.2 Disposal of associates
i. Cease to be associates
If the associate become subsidiary or join venture, a re-measurement is required with gain or loss recognised in profit or loss
Reference: MPERS S14.8 (i)(i)
ii. Loss of significant influence
Either in full or partial disposal, re-measurement of the interest retained to fair value is required but there is no recycling of Other Comprehensive Income reserves to profit or loss
For reasons other than partial disposal, the carrying amount at that date is regarded as a new cost basis i.e. no re-measurement
Reference: MPERS S14.8(i)(ii) & S14.8(i)(iii)
4. Investment in joint ventures
For jointly controlled entities, a policy choice is given to account for all joint venture entities using:
(i) the cost model
(ii) the equity method; or
(iii) the fair value model.
Under MPERS, there is no exception if equity method is applied.
Reference: MPERS S15
5. Foreign currency
Applies the concept of functional currency to measure results and financial position. The functional currency of a Malaysian entity is not necessarily the local currency as it depends on the primary economic environment in which the entity operates:
The presentation currency can be in any currency or currencies, which may not necessarily be the same as the functional currency.
No option to capitalise exchange differences in related asset
Only one translation method i.e. the closing rate method is prescribed for all foreign operations
Goodwill and fair value adjustments must be treated as assets and liabilities of the foreign operation and translated at the closing rate
Reference: MPERS S30
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