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6
NOTE 6
BUSINESS COMBINATIONS
Accounting policy –
Business combinations
The acquisition method of accounting is used to account for all business combinations. The consideration
transferred is the sum of the fair values of the assets transferred, the liabilities incurred and the equity interests
issued by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the
acquiree.
The consideration transferred also includes the fair value of any contingent consideration arrangement and the
fair value of any pre-existing equity interest in the investment. Acquisition-related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with
limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition
basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling
interest’s proportionate share of the acquiree’s net identifiable assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of
the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net
identifiable assets acquired and the measurement of all amounts has been reviewed, the difference is recognised
directly in the income statement as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted
to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate,
being the rate at which a similar borrowing could be obtained from an independent financier under comparable
terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial
liability are subsequently remeasured to fair value with changes in fair value recognised in the income statement.
If the Group recognises previous acquired deferred tax assets after the initial acquisition accounting is completed
there will be no adjustment to goodwill. As a consequence, the recognition of the deferred tax asset will increase
the Group’s net profit after tax.
a) Acquisitions during the year
New Hope Corporation Limited acquisition of Bengalla Joint Venture
On 1 March 2016, a subsidiary of Washington H. Soul Pattinson and Company Limited, New Hope Corporation
Limited, acquired a 40% interest in the Bengalla Joint Venture, a coal mining and extraction operation producing
thermal coal in the Hunter Valley, New South Wales.
The Joint Venture is accounted for as a joint operation, whereby the Group recognises its direct right to the
assets, liabilities, revenue and expenses of the joint operation and its share of any jointly held or incurred assets,
liabilities, revenues and expenses. These have been incorporated in the financial statements under the appropriate
headings.
2016
$’000
i) Purchase Consideration
Cash Paid – Current Year
850,796
Purchase price adjustment receivable
(1,668)
Total Purchase Consideration
849,128