Discuss and evaluate the favourable and unfavourable consequences of IFRS 3 allo

Question

Discuss and evaluate the favourable and unfavourable consequences of IFRS 3 allowing the adjusted fair value option for measuring non-controlling interests as an alternative to the proportionate net assets approach. Comment on the appropriateness of using the pro rata assumption for measuring the fair value of non-controlling interests at acquisition under this option, and on the relevance and reliability of other potential approaches for measuring such a fair value if the pro rata assumption is not made.

Explanation / Answer

Favourable :

In net asset approach it is difficult value the good will and also fair value of assets and liabiloity as per market value

Tthe acquirer may intend not to use an acquired asset, such as a research and development intangible asset, or it may intend to use the asset in a way that is different from the way in which other market participants would use it. Still the acquirer should measure the asset at fair value determined in accordance with ithe other competitors

Unfavourable:

It is difficult to apply the method realistically

The companies tend to manipulate the values

It is appropriate to use the pro rate method for calculating the fair valuee of acquired non controlling interest

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