IFRS AT A GLANCE

IFRS 3 Business Combinations

 As at 1 July 2018

IFRS 3 Business Combinations Effective Date

Periods beginning on or after 1 July 2009

IDENTIFYING A BUSINESS ACQUISITION METHOD ADDITIONAL GUIDANCE FOR APPLYING

COMBINATION / SCOPE A business combination must be accounted for by applying the acquisition method. THE ACQUISITION METHOD
A business IFRS 3 does not apply to:
combination is: • The accounting for the STEP ACQUISTION
Transaction or event formation of a joint STEP 1: IDENTIFY ACQUIRER STEP 2: DETERMING THE
in which acquirer arrangement in the ACQUISITION DATE • An acquirer sometimes obtains control of an acquiree
obtains control over financial statements of IFRS 10 Consolidated Financial Statements is used to
in which it held an equity interest immediately before
a business (e.g. the joint arrangement identify the acquirer – the entity that obtains control
The date which the acquirer obtains control of the acquisition date. This is known as a business
acquisition of shares itself. of the acquiree.
the acquiree. combination achieved in stages or as a step acquisition
or net assets, legal • Acquisition of an asset • Obtaining control triggers re-measurement of previous
mergers, reverse or group of assets that investments (equity interests)
acquisitions). is not a business. • The acquirer remeasures its previously held equity
• A combination of
entities or businesses
STEP 4: RECOGNITION AND STEP 3: RECOGNITION AND interest in the acquiree at its acquisition-date fair
value (including interests in joint arrangements
under common control. MEASUREMENT OF GOODWILL OR A MEASUREMENT OF ASSETS, classified as joint operations (R)). Any resulting
BARGAIN PURCHASE LIABILITIES AND NON- gain/loss is recognised in profit or loss.
Definition of “control of an investee” • Goodwill is recognised as the excess between: CONTROLLING INTERESTS (NCI)
An investor controls an investee when the investor is - The aggregate of the consideration transferred,
exposed,quantitative
Specific or has rights, todisclosure
variable returns from its
requirements: any non-controlling interest in the acquiree • As of the acquisition date, the acquirer
BUSINESS COMBINATION WITHOUT
involvement with the investee and has the ability to and, in a business combination achieved in recognises, separately from goodwill: TRANSFER OF CONSIDERATION
affect those returns through its power over the stages, the acquisition-date fair value of the - The identifiable assets acquired
investee. acquirer’s previously held equity interest in the - The liabilities assumed • The acquisition method of accounting for a business
acquiree - Any NCI in the acquiree combination also applies if no consideration is
- The identifiable net assets acquired (including • The acquired assets and liabilities are required transferred.
Control (refer to IFRS 10)
any deferred tax balances) to be measured at their acquisition-date fair • Such circumstances include:
• Ownership of more than half the voting right of
• Goodwill can be grossed up to include the values - The acquiree repurchases a sufficient number of its
another entity
amounts attributable to NCI, that is the case • There are certain exceptions to the own shares for an existing investor (the acquirer) to
• Power over more than half of the voting rights by
when NCI is measured at their acquisition date recognition and/or measurement principles obtain control
agreement with investors
fair value. which cover contingent liabilities, income - Minority veto rights lapse that previously kept the
• Power to govern the financial and operating
• A gain from a bargain purchase is immediately taxes, employee benefits, indemnification acquirer from controlling an acquiree in which the
policies of the other entity under statute/
recognised in profit or loss assets, reacquired rights, share-based acquirer held the majority voting rights
agreement
• The consideration transferred in a business payments and assets held for sale. - The acquirer and the acquiree agree to combine
• Power to remove/appoint majority of directors
combination (including any contingent • NCI interests that are present ownership their businesses by contract alone.
• Power to cast majority of votes. consideration) is measured at fair value interests and entitle their holders to a
• Contingent consideration is either classified as a proportionate share of the entity’s net assets
liability or an equity instrument on the basis of in the event of liquidation (e.g. shares) are SUBSEQUENT MEASUREMENT AND
Definition of a “Business” IAS 32 Financial Instruments measured at acquisition-date fair value or at
• Integrated set of activities and assets • Contingent consideration that is within the scope the NCI’s proportionate share in net assets ACCOUNTING
• Capable of being conducted and managed to of IFRS 9 (classified as a financial liability) needs • All other components of NCI (e.g. from IFRS 2
provide return to be remeasured at fair value at each reporting Share-based payments or calls) are required to • In general, after the date of a business combination an
date with changes reported in profit or loss. be measured at their acquisition-date fair acquirer measures and accounts for assets acquired
• Returns include dividends and cost savings.
values. and liabilities assumed or incurred in accordance with
• The acquirer should consider if the consideration
other applicable IFRSs.
includes amounts attributable to other
transactions within the contract (pre-existing • However, IFRS 3 includes accounting requirements for
Acquisition Costs reacquired rights, contingent liabilities, contingent
• Cannot be capitalised, must instead be expensed relationship, arrangements that remunerate
employees etc.). consideration and indemnification assets.
in the period they are incurred
• Costs to issue debt or equity are recognised in
accordance with IAS 32 and IFRS 9.