Purchase Price Allocation (PPA) - Greater China Appraisal

Purchase Price Allocation (PPA)

Our Experience
Chinasoft International Limited (08216.HK)
China Mining Resources Group Limited (00340.HK)
China Primary Resources Holdings Limited (08117.HK)
China Renji Medical Group Limited (00648.HK)
Green Global Resources Limited (00061.HK)
Hanny Holdings Limited (00275.HK)
Nam Tai Electronic & Electrical Products Limited (02633.HK)

Intangible Asset 1.Trade Name 2.Assembled Workforce 3.Customer Relationship	Valuation Methodology Income Approach – Relief from Royalty Method Cost Approach - Replacement Cost Method Income Approach - Multi-period Excess Earnings Method

A revised IFRS 3 Business Combinations was issued in
January 2008.

The objective of IFRS 3r (2008) is:
- to achieve convergence between IFRSs and US GAAP
regarding Business Combinations

Effective Date:1st July 2009

New Definition:
Business is an integrated set of activities and assets that
are capable of being conducted and managed for the
purpose of providing either
i) a return in the form of dividends
OR
ii) lower costs, or other direct economic benefits to investors
or other owners, members or participants

Case Scenario

‧　Company A acquired 100% equity interest of Company B.
‧　Total consideration was HKD 40,000,000.
‧　Business enterprise value for 100% equity interest was HKD 35,000,000.

Issues

‧　Immediate goodwill impairment concern as of valuation date.
‧　Potential goodwill impairment loss was HKD 5,000,000.
‧　(The difference between total consideration and the business enterprise value).

Avoid unexpected financial impact after acquisition

‧　Early assessment of subject company’s historical and current financial statements.
‧　Obtain a reliable and realistic financial projection of the subject company.
‧　Perform a business enterprise valuation and purchase price allocation before the acquisition.

Critical Issues Summary

‧　Amortization expenses after intangible assets recognition – P&L impact.
‧　Negative goodwill.
‧　Goodwill impairment as of valuation date
‧　Identification of intangible assets.
‧　Identification of revenue stream attributable to the intangible assets.
‧　Determination of intangible assets useful life.