X Company Purchases a (100%) Controlling Interest in Y Company

question 52

Essay

X Company Purchases a (100%) controlling interest in Y Company by issuing $2,000,000 worth of common shares. An agreement was drawn whereby X Company would pay 10% of any earnings in excess of $750,000 to Y's shareholders in the first year following the acquisition. On that date, X's shares had a market value of $80 per share.
Required:
a) Assuming that Y's net income was $950,000, prepare any journal entries (for company X) that you feel may be necessary to reflect Y's results under IFRS 3 Business Combinations. Assume that on the acquisition date no provision was made for the contingent consideration.
b) Assuming that the agreement called for Y's shareholders to be compensated for any decline in X's share price, what journal entries would be required under IFRS 3, if the market value of X's shares dropped to $64?

---

Definitions:

Psychoanalysis

A therapeutic method and theory of psychotherapy, developed by Sigmund Freud, that aims to explore the unconscious mind to treat psychopathology.

Psychogenic Perspective

A viewpoint in psychology that emphasizes the psychological origins of disorders, as opposed to their physical or biological aspects.

Bernheim and Lièbault

Two prominent figures in the history of hypnotism and psychotherapy, known for their work on suggestibility and hypnosis in the late 19th century.

Using Hypnosis

The practice of inducing a trance-like state to increase suggestibility and facilitate therapeutic interventions.