insurance entity a purchases an insurance business owned by entity b for 10 million 599165

Business combination under IFRS 4

Insurance entity A purchases an insurance business owned by Entity B for 10 million. Under A’s existing accounting policies for insurance contracts the carrying value of the insurance contract liabilities held by B is 8 million. Entity A estimates the fair value of the insurance contract liabilities to be 6 million. The fair value of other net assets acquired, including intangible assets, after recognising any additional deferred tax, is 13 million. The tax rate is 25%.

This gives rise to the following journal entry to record the acquisition of B in A’s consolidated financial statements:

	m	m
Cash		10.0
Present value of in-force (PVIF) business intangible (8m less 6m)	2.0
Carrying value of insurance liabilities (A’s existing accounting policies)		8.0
Goodwill	3.5
Other net assets acquired	13.0
Deferred taxation on PVIF		0.5