IMMOEAST Annual Report 2006/07

174 IMMOEAST Annual Report 2006/07
IFRS 3.57
IFRS 3.56(a)
3.3.2 Excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and
contingent liabilities over cost (excess)
A consolidation will lead to negative differences (negative goodwill or excess) when the cost of a business combination
is less than the proportional share of revalued net assets acquired. In such cases, IFRS 3.56 (a) requires that the
acquirer reassess the identification and measurement of identifiable assets, liabilities and contingent liabilities as
well as the cost of the business combination. Any excess remaining after the reassessment must be recognised
immediately to the income statement as required by IFRS 3.56 (b). The IASB sees three reasons for a gain recognised
under these circumstances: a) errors in identification and measurement, b) the application of standards for the measurement
of assets and liabilities that do not reflect the fair value of these items and c) a bargain purchase.
Negative goodwill recognised in the financial statements of IMMOEAST is comprised exclusively of goodwill as
defined in IAS 3.57 (c) – bargain purchases. Identification and measurement errors are eliminated during the reassessment,
and the application of standards for the measurement of assets and liabilities at amounts that do not
reflect fair value leads to effects that counteract the generation of an excess or reduce this excess. This latter effect
is caused by the prohibition on discounting defined by IFRS 3.57b in connection with IFRS 3.B16 (i) and IAS 12.53,
which affects the deferred tax liabilities in the category summarised under this item.
Bargain purchases can result from the following factors:
a) When a forward purchase is executed, the acquisition price for a property company is determined for a specific
point in the future. A decline in the market yield for this property before the acquisition date leads to a fair value
that can exceed the price defined in the contract by a substantial amount, and thereby leads to an excess.
b) Business combinations of minority interests that cannot be consolidated but, at the same time, include a call
option for IMMOEAST at a fixed yield that is determined in advance can lead to an excess if the market yield
declines at the time of the business combination.
c) The following circumstances can also lead to an excess: A property company is acquired and the objects owned by
this company have a high vacancy rate at the time the contract is signed, this situation is reflected in the purchase
price. If the objects are fully let, or nearly fully let, prior to the transfer of legal ownership (closing), this will result
in a higher fair value at the time of closing, which can lead to an excess.
d) When companies with development projects are acquired, the strategic risk premium that forms the basis for the
acquisition and has been accepted by the seller can be higher than the risk premium determined by the market.
The fair value of the property can therefore be higher than the value on which the contract negotiations were based
– and that can lead to an excess.
e) When a property company is purchased, negotiations can result in a premium over and above the general market
yield. The fair value of the property can therefore be higher than the price agreed with the seller – which, in turn,
can lead to an excess.
f) In the case of a joint venture, where a former contract partner transfers his share to the group and, in turn, the
group subsequently has sole control over the assets of the former joint venture, the group can generally purchase
the net assets at a price below market value. The reason for this is that the seller (former joint venture partner) is
frequently unable to find a buyer for his share in the joint venture, and this situation has a favourable impact on
the purchase price to be paid by the buyer.