Walk me through the mechanics of a step acquisition, including increases after control is obtained.
An advanced Group Accounting question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
Two distinct phases. Crossing into control: remeasure any previously held equity interest to fair value at the acquisition date, recognizing the remeasurement gain or loss in P&L (and recycling related OCI), then apply IFRS 3 — goodwill = FV of prior interest + new consideration + NCI − FV of identifiable net assets — measured once at that date. After control is already held: any further purchases of NCI (or partial sales that don't lose control) are NOT new acquisitions and produce no new goodwill or gain/loss; they're accounted for as equity transactions — the difference between the consideration and the carrying amount of the NCI acquired/sold is recorded directly in parent equity. Conversely, a partial disposal that loses control triggers full deconsolidation (remeasure retained interest, gain/loss to P&L, recycle OCI). The two traps: forgetting the day-one remeasurement-to-fair-value of the pre-control stake, and incorrectly running a gain/loss (or new goodwill) through P&L on post-control stake changes that should hit equity.
WHAT INTERVIEWERS LISTEN FOR
- ✓Into control: remeasure prior interest to FV (gain/loss to P&L), then IFRS 3 goodwill once
- ✓Goodwill = FV prior interest + new consideration + NCI − FV net assets
- ✓Further NCI buys/sells keeping control = equity transactions (no goodwill/P&L)
- ✓Partial disposal losing control = deconsolidation (remeasure, P&L, recycle OCI)
COMMON MISTAKES
- ✗Recognizing goodwill/P&L on post-control stake changes
- ✗Not remeasuring the pre-control stake
- ✗Treating an NCI top-up as a new acquisition
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RELATED QUESTIONS
- Explain capital consolidation under IFRS 3.
- How do you account for a step acquisition where control is achieved?
- How do you handle a mid-year change in consolidation scope (acquisition or disposal)?
- How do you account for non-controlling interests (NCI)?
- When is proportionate consolidation used?
- What is the difference between the full and partial goodwill methods?