IFRS- 3

BUSINESS COMBINATION
Objective

 Is to set out the accounting & disclosure requirements

for a business combination
CORE PRINCIPLE
 An acquirer of a business recognizes the assets acquired
& liabilities assumed at their acquisition-date fair value &
discloses relevant information nature and financial effects
of the acquisition.
What is the Business Combination
 A transaction or other event that results in an acquirer
obtaining control over one or more businesses.
Scope & Exclusion
 Transactions or other events that meet the definition of a
business combination are subjected to IFRS-3
 This standard in not applicable to formation of joint
venture,
 Acquisition of an assets or group of assets that do not
constitute business & combination between entities or
businessess under common control
APPLICATION
 Each BC should be accounted for using acquisition
method(Purchases method)
 Identifying An Acquirer
 Determining acquisition date
 Recognizing & measuring
 Identifiable assets acquired, the liabilities assumed & any non-
controlling interest in the acquiree
 Goodwill or a gain from a bargain purchases (capital reserve)
Pooling interest method not permitted under
IFRS-3
 An entity should assess whether a particular transaction
is a business combination or not.
 i.e. has the entity gained control of one or more
businesses for making profit?
 Control of an entity is where one party has the power
over another to “Govern its financial & operating policies
so as to obtain the benefits from its activities
There will be only one acquirer
 For application of IFRS 3, emphasis is on acquisition of
business rather than an assets or a group of assets.
 Purchases of assets or a group of assets, if they do not
constitute business, do not give rise to goodwill, as also
not covered by IFRS 3
 In a straightforward BC one entity will acquire another
resulting, in a parent-subsidiary relationship
 Steps in Business Combination

 1. Identify an acquirer
 2. Determining the acquisition date
 3. Recognition
 4. Measurements of Assets and Liablities
Identify an acquirer
 An acquirer is the entity that obtains control of the
entity- the acquiree. The power to govern the financial &
operating policies of an entity so as to obtained benefits
from its activities
Determining the Acquisition date
 The acquisition date is defined as ‘the date on which the
acquirer obtains control of the acquiree,
 which is normally the date on which the acquirer legally
transfer the consideration for the business
Recognition
 Assets & liabilities recognized must be part of the
exchange transaction between the acquirer and the
acquiree and Not part of a separate transaction or
transactions
 Intangible assets should be recognized by acquirer, the
one which is separable from entity or acquired by law or
contractual agreements.
Measurement of Assets & Liabilities
 The measurement principle is that an acquirer measures
the identifiable tangible & intangible assets acquired and
the liabilities assumed
Recognition & Measurement of goodwill
 A= Consideration paid
 B= Identifiable assets & liablities recognised
 If A>B = GOODWILL
 B>A = gain from bargain purchases
Treatment of goodwill
 It will be either be carried in the statement of financial
position at the amount recognizes
 Or it will reduced as impairment losses are recognizes
Treatment of gain from bargain purchases
 Gain from bargain purchases to be recognised in profit &
loss account ( not in capital reserved as per AS 14 & as
per Indian GAAP)