Analysis of AASB 3

This document provides an analysis of AASB 3 and its application in financial statements of business combinations. It discusses the guidelines for the acquirer, recognition and measurement of assets and liabilities, and the disclosure requirements. The document also includes a case study on the acquisition of Dick Smith by Anchorage Capital and the non-compliance with AASB 3 standards.

Running head: ANALYSIS OF AASB 3
ANALYSIS OF AASB 3
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1ANALYSIS OF AASB 3
Introduction
Application of AASB 3
The aim of the standard is to improve the relevance and comparability of the
information that a entity provides in its financial statements about a business combination and
its effect (Yang 2018). To fulfil that the standard has built up guidelines for the acquirer these
guidelines are stated below
Recognise and calculate the identifiable assets that are recorded in the financial
statements , the liabilities that are estimated and any non controlling interest in the acquirer.
The goodwill acquired are identified and measured that are recorded in the balance
sheet and the gain from a bargain purchase and
Determine what information is required to be disclosed to enable users of the financial
statements to assess the characteristics of the financial effect on the business combination.
After Woolworth, anchorage acquired the business of dick smith in November 2012.
Dick smit is the largest consumer electronics chain in Australia having 381 stores. During the
Anchorage’s ownership period Dick smith started to expand its store network and that
decision of the company under the changed ownership has failed and become the main reason
for the collapse of the company (Karolyi and Liao 2017).
The acquisition method that is applicable for the company under the AASB 3 standard
are mentioned below
 Identifying the acquirer
 Determine the date of acquisition
 Recognising the identifiable assets acquired the liabilities assumed and any non-
controlling interest in the acquire and

2ANALYSIS OF AASB 3
 Recognising and measuring the goodwill that the acquirer company can get from the
bargain purchase.
The anchorage capital does not follow any of the following methods and never
disclose the actual price that they have paid to the management of dick smith. Beside that the
company also failed to identify the assets of dick smith properly. The inventory valuation of
dick smith is falling at the time when anchor decided to purchase the shares of dick smith.
Anchorage does not appoint any valuer to assess the inventory valuation of dick smith for
which anchorage has to suffer. The process of purchasing the shares of dick smith is also not
made according to the standards set by the AASB 3 which results in to the overvaluation of
the share price of the company. The anchorage does not follow the recognition principles and
the principle of measurement of the AASB 3. The recognition principle states that
 The financial assets and liabilities should be measured at fair value through profit or
loss or at amortised cost.
 The derivative instrument should be designated as a hedging instrument
The measurement principle states the following points
For combination, the acquirer shall measure the acquisition date components of non-
controlling interest in the acquiree that are present ownership interest and entitle their holders
to proportionate basis in the event of liquidation either at
 fair value or
 The current ownership instruments proportionate share in the recognised amounts of
the acquirees identifiable net assets.

3ANALYSIS OF AASB 3
REFERENCE
Yang, D., 2018. Has the arrival of Amazon altered the market structure for consumer
electronic goods in Australia?.
Karolyi, G.A. and Liao, R.C., 2017. State capitalism's global reach: Evidence from foreign
acquisitions by state-owned companies. Journal of Corporate Finance, 42, pp.367-391.