Question43 Delta Ltd has 100,000 ordinary shares on issue. On 1 October 20X2, Atlas Ltd acquired 15,000 shares in Delta Ltd at a price of $5.00 per share, paid in cash. Subsequently, on 15 July 20X4, Atlas Ltd acquired the remaining 85,000 shares in Delta Ltd by issuing 170,000 of its own shares. On the acquisition date, Atlas Ltd’s shares were trading at $4.00 per share.What is the total cost of the business combination to be recognised by Atlas Ltd? $680,000 $800,000 $415,000 $775,000 $400,000 ResetMaximum marks: 1 Flag question undefined

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We need to restate the scenario and evaluate each answer choice step by step.
Question setup: Delta Ltd has 100,000 ordinary shares. Atlas Ltd first acquired 15,000 Delta shares on 1 Oct 20X2 for cash at $5.00 per share. Later, on 15 July 20X4, Atlas acquired the remaining 85,000 Delta shares by issuing 170,000 of Atlas’s own shares. The acquisition date fair value of Atlas’s shares was $4.00 per share. What is the total cost of the business combination to be recognised by Atlas Ltd?

Option A: $680,000. This figure represents the fair value of the non-cash consideration used to obtain control on the date Atlas achieved control (15 July 20X4). The second stage of the acquisition is what determines control and consolidation; the fair value of the consideration transferred at that date is 170,000 shares × $4.00 = $680,000. The cash paid for the initial 15,000 Delta shares (15,000 × $5.00 = $75,000) is a prior investment and is not included in the cost of the business combination recognized at the date control is obtained.

Option B: $800,000. This would correspond to summing all consideration across both steps (cash paid plus fair value of shares issued). However, under business combination accounting, the cost of a business combination that results in control is measured at the fair value of the consideration transferred to obtain control at the acquisition date. The initial $75,000 cash step occurred before control was obtained and is not included in the cost recognized for the step that gives control.

Option C: $415,000. This figure does not align with any straightforward interpretation of the given numbers. It neither matches the cash paid ($75,000) nor the fair value of the share consideration for the control date ($680,000). It seems to mix components incorrectly.

Option D: $775,000. This value is close to the sum of $75,000 (cash for the first step) and $680,000 (fair value of Atlas shares issued for the second step), totaling $755,000, not $775,000. The $775,000 option likely results from a rounding or arithmetic misstep and does not reflect the correct consolidation treatment.

Option E: $400,000. This equals the per-share fair value ($4.00) times the 100,000 Delta shares, which would be relevant if Atlas had paid the full market value for all Delta shares in one step, but the problem specifies a two-step acquisition with different forms of consideration and a specific acquisition date for the control step. It does not represent the cost of the business combination under standard consolidation accounting.

Summary of reasoning for each option:
- Correct approach (leading to the cost recognised at control date): the cost of the business combination is the fair value of the consideration transferred to obtain control on 15 July 20X4, which is 170,000 Atlas shares × $4.00 = $680,000. The prior cash payment for the first 15,000 Delta shares occurred before control and is not included in the cost recognised for the acquisition that results in control.
- Incorrect approaches: each other option either incorrectly sums components from before control, misinterprets the date of control, or uses an incorrect basis for measurement (e.g., treating the total across both steps as the cost, or applying the full equity value without regard to the two-step structure).

Therefore, the most consistent answer with IFRS/IFRS-like business combination accounting is option A: $680,000.

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