The following key terms of the acquisition was announced to the market on 13 September 2014 (share price of GOE: $0.10):

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1 Reverse Acquisition Business Combination Example Golden Exploration Ltd ( GOE ) is a public company listed on the ASX. The company was a mineral explorer that has subsequently become dormant with only directors and an admin staff remaining. There was an opportunity for the company to move into the IT industry following the slowdown in the mining industry. IT Electronics Pty Ltd ( ITE ) is a Perth-based IT company. Golden Exploration has entered into a share sale agreements to acquire 100% of IT Electronics. The following key terms of the acquisition was announced to the market on 13 September 2014 (share price of GOE: $0.10): The acquisition is conditional upon: o Golden Exploration being satisfied with due diligence on IT Electronics; o Golden Exploration re-complying with ASX Chapters 1 & 2, including: o Raising sufficient funds so that Golden Exploration holds a minimum of $3m cash (via issue of 15m shares) following Golden Exploration being relisted on the ASX. o Obtaining the approval of Golden Exploration shareholders; and o A consolidation of Golden Exploration s capital On completion of the acquisition, Golden Exploration will issue 60,000,000 shares to the existing shareholders of IT Electronics. This represents 60% of current issued capital of Golden Exploration post acquisition. IT Electronics to appoint 3 of 5 directors in the Golden Exploration; Following successful completion of this acquisition, Golden Exploration will change its name to IT Electronics Group. On 15 October 2014, the shareholders of Golden Exploration approved the various transactions in the acquisition of IT Electronics. The share price on the date of approval was $0.18. On 20 October 2014, consideration shares were issued to the existing shareholders of IT Electronics at $0.20 per share and shares were issued to general public as part of capital raising also at $0.20. The following is the statement of financial position of Golden Exploration Ltd and IT Electronics Pty Ltd at the date of Acquisition: GOE ITE $ $ ASSETS Current Assets Cash & Bank Balances 700,000 1,000,000 Trade & Other Receivables 60, ,000 Total current assets 760,000 1,460,000 Non-Current Assets Property, plant & equipment 50, ,000 Intangible Assets - 2,000,000 Total non-current assets 50,000 2,500,000 Total assets 810,000 3,960,000 1

2 LIABILITIES Current liabilities Trade & Other Payables 200, ,000 Total current liabilities 200, ,000 Non-Current Liabilities Borrowings 100,000 1,000,000 Total non-current liabilities 100,000 1,000,000 TOTAL LIABILITIES 300,000 1,350,000 NET ASSETS 510,000 2,610,000 EQUITY Issued Capital (GOE: 40m shares) 72,000,000 2,000,000 Retained Earnings/ (Accumulated losses) (71,490,000) 610,000 TOTAL EQUITY 510,000 2,610,000 Step 1: Identifying a business combination AASB 3 business combination provides the guidance on identifying a business combination and definition of a business (AASB3.B5 AASB3.B12). This Standard defines a business combination as a transaction or other event in which an acquirer obtains control of one or more businesses. A business consists of inputs and processes applied to those inputs that have the ability to create outputs. Consideration is required to determine if this transaction is merely an acquisition of assets (governed under AASB 2) or a business (AASB 3). In this case, we have identified the legal parent is not a business as no ongoing business operations in place, only staff/processes currently in place are administrative in nature. Guidance is provided in AASB 3 appendix B in relation to what processes constitute a business operations, which states that if the only processes in place relates to Accounting, payroll and other administrative systems, these are typically not deemed to be processes used to create output. As a result, this transaction is not deemed to be a reverse acquisition under AASB 3 Business Combination. Guidance on treating such transactions is provided by the International Financial Reporting Interpretations Committee. An IFRIC Update issued in March 2013 "IFRS 3 Business Combinations and IFRS 2 Share-based Payment - Accounting for reverse acquisitions that do not constitute a business", stated "In the absence of a Standard that specifically applies to this transaction the Interpretations Committee observed that the analysed transaction has some features of a reverse acquisition under IFRS 3 because the former shareholders of the legal subsidiary obtain control of 2

3 the legal parent. Consequently, it is appropriate to apply by analogy, in accordance with paragraphs of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, the guidance in paragraphs B19-B27 of IFRS 3 for reverse acquisitions. Step 2: Application of acquisition method under AASB 3 AASB 3 business combination requires the acquisition method of accounting to be used to account for a business combination. The steps involved are: Step a: Identify the acquirer (AASB3.6) In accounting for the acquisition, the Company has taken guidance from the principles of AASB 3 Business Combinations. AASB3.B13 states that guidance in AASB10 shall be used to identified the acquirer the entity that obtains control of the acquiree. We have determined that IT Electronics would be deemed to be the acquirer for accounting purposes (refer to AASB3.B15). This is because IT Electronics is effectively controlling Golden Exploration as they will acquire over a 50% interest in Golden Exploration and they will have a majority on the board seats of Golden Exploration. Accordingly, the transaction will be accounted for as a reverse acquisition. Step b: Determine the acquisition date (AASB3.8) AASB3.8 states that the date on which the acquirer obtains control of the acquiree is generally the date on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree. We have determined that the acquisition date is 20 October Step c: Recognise and measure the identifiable net assets acquired and non-controlling interest in the acquiree (AASB3.10) Recognition of identifiable assets acquired and liabilities assumed is subject to the conditions specified in AASB3.11 and AASB3.12. AASB3.15 states that at the acquisition date, the acquirer shall classify or designate the identifiable assets acquired and liabilities assumed as necessary to apply other Australian Accounting Standards subsequently. The acquirer shall make those classifications or designations on the basis of the contractual terms, economic conditions, its operating or accounting policies and other pertinent conditions as they exist at the acquisition date. AASB3.18 states that the acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values. For this case study, because this transaction is not within the scope of AASB 3, it is therefore a sharebased payment transaction which should be accounted for in accordance with AASB 2. AASB2.10 3

4 states that for equity-settled share-based payment transactions, the entity shall measure the goods or services received at the fair value of the goods or services received. For this acquisition, we assumed that all the assets and liabilities acquired in Golden Exploration are stated at fair value. Net assets of Golden Exploration = $510,000 As previously highlighted, this transaction was note deemed to be a business combination. Key points of differences between the accounting for a business combinations and share based payments transactions at initial recognition includes: Under AASB 3 Under AASB 2 (a) Recognition of contingent liabilities Yes No (b) Transaction costs No Yes (c) Goodwill Yes No (d) Deferred taxes Yes No Step d: Recognise and measure the goodwill or gain from bargain purchase (AASB3.32) AASB3.37 states that the consideration transferred in a business combination shall be measured at fair value which are calculated as the sum of the acquisition-date fair value of assets transferred by the acquirer, the liabilities incurred by the acquirer and the equity interest issued by the acquirer. The guidance infers that the fair value of the consideration effectively transferred should be based on the most reliable measure. In this case, due to there not being an accurate valuation of IT Electronics, the quoted price of Golden Exploration s shares in the ASX market provides a more reliable basis for measuring the consideration effectively transferred than the fair value of the shares in IT Electronics. The issue price of shares issued to acquire IT Electronics and raise funds from the public was $0.20. This has been used as a reliable proxy for the fair value of the company s shares at that date due to the size and nature of the shares issued. Consideration transferred = 40,000,000 shares x $0.20 = $8,000,000 Excess consideration over fair value of net assets acquired = $8,000,000 - $510,000 = $7,490,000 For this case study, because this transaction is not within the scope of AASB 3, it is therefore a sharebased payment transaction which should be accounted for in accordance with AASB 2. On the basis of the guidance in para 13A of AASB 2, any difference in the fair value of the consideration shares and the fair value of the identifiable net assets should be considered to be payment for the services to transition to a public company. Thus, the excess consideration over fair value of net assets acquired will be recognised in the profit or loss. 4

5 The following is the consolidation worksheet explaining the reversed acquisition transactions: Golden IT Electronics Acquisition Acquisition Acquisition Post Exploration entries (i) entries (ii) entries (iii) acquisition $ $ $ $ $ $ ASSETS Current Assets Cash & Bank Balances 700,000 1,000,000 2,650,000 4,350,000 Trade & Other Receivables 60, , ,000 Total current assets 760,000 1,460,000 2,650,000 4,870,000 Non-Current Assets Property, plant & equipment 50, , ,000 Intangible Assets - 2,000,000-2,000,000 Total non-current assets 50,000 2,500,000-2,550,000 Total assets 810,000 3,960,000 2,650,000 7,420,000 LIABILITIES Current liabilities Trade & Other Payables 200, , ,000 Total current liabilities 200, , ,000 Non-Current Liabilities Borrowings 100,000 1,000,000-1,100,000 Total non-current liabilities 100,000 1,000,000-1,100,000 TOTAL LIABILITIES 300,000 1,350,000-1,650,000 NET ASSETS 510,000 2,610,000 2,650,000 5,770,000 EQUITY Issued Capital 72,000,000 2,000,000 8,000,000 (72,000,000) 2,650,000 12,650,000 Retained Earnings/ (71,490,000) 610,000 (7,490,000) 71,490,000 - (6,880,000) (Accumulated losses) TOTAL EQUITY 510,000 2,610, ,000 (510,000) 2,650,000 5,770,000 (i) Recognised service fee of $7,490,000 from the deemed consideration of $8m over net fair value of assets and liabilities of $510,000. (ii) Elimination of share capital of Golden Exploration. (iii) Share capital raising of $3m with capital raising costs of $350,000. 5

6 Disclosure in financial statements: For accounting purposes, IT Electronics is deemed to be the accounting acquirer in the business combination. Therefore, the acquisition of IT Electronics will be accounted for as a reverse acquisition. Accordingly, the 2015 annual report for the Company will be prepared as a continuation of the business and operation of IT Electronics, ie. the parent entity is now IT Electronics and comparative information of IT Electronics is required in the financial statements. Furthermore, the normal business combination note is also required in the financial statements with explanation of the reverse acquisition. For the share capital note to the financial statements, the dollar value is represented by the accounting acquirer, ie. IT Electronics and the number of shares is that of the accounting acquiree, ie. Golden Exploration: Note 1. Issued Capital 30 June 2015 # 30 June 2014 # 30 June 2015 $ 30 June 2014 Balance at beginning of period 40,000,000 40,000,000 2,000,000 2,000,000 Issue of shares at $0.20 (a) 60,000,000-8,000,000 - Issue of shares at $0.20 (b) 15,000,000-3,000,000 - Share issue costs - - (350,000) - Balance at end of period 77,000,000 40,000,000 12,650,000 2,000,000 $ (a) 20 October 2014 issue 60,000,000 shares at deemed issue price of $0.20 as consideration for previous vendors of IT Electronics Pty Ltd. (b) 20 October 2014 issue 15,000,000 shares at $0.20 each on completion of placement. 6