Bass Ltd. has recently undertaken a business combination with Fong Ltd. At the start of negotiations, Bass owned 70% of the shares of Fong. The current discussions between the two entities concerned Bass’s acquisition of the remaining 30% of shares of Fong. The negotiations began on January 1, 2013, and enough shareholders in Fong agreed to the deal by September 30, 2013. The purchase agreement was for shareholders in Fong to receive in exchange shares in Bass. Over the negotiation period, the share price of Bass shares reached a low of $5.40 and a high of $6.20.The accountant for Bass, Joel Spencer, knows that IFRS 3 has to be applied in accounting for business combinations.
However, he is confused as to how to account for the original 70% investment in Fong, what share price to use to account for the issue of Bass’s shares, and how the varying dates such as the date of exchange and acquisition date will affect the accounting for the business combination.
Provide Joel with advice on the issues that are confusing him.