Section 9100: Business Combinations
International Financial Reporting Standard 3
Business Combinations
1. Business Combinations: IFRS
IAS 22: Accounting for Business Combinations,1983
IAS 22: Business Combinations, 1993
IAS 22 was replaced by IFRS 3 in 2004
IFRS 3: Business Combinations, 2004
IFRS 3: Business Combinations, revised in January 2008
2. Business Combinations: U.S. GAAP
[U.S. GAAP Codification Topic]
805 Business combinations
805-10 Overall
805-20 Identifiable assets and liabilities and any noncontrolling interest
805-30 Goodwill or gain from bargain purchase, including consideration transferred
805-40 Reverse acquisitions
805-50 Related issues
805-740 Income taxes
[U.S. GAAP before the Codification]
SFAS 141, June 2001, Business Combinations
SFAS 141(R), December 2007, Business Combinations, Revised SFAS 141
FSP FAS 141(R)-1, April 2009, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies
3. Accounting Methods for Business Combinations
Acquisition Method
IFRS 3, Revised in January 2008
SFAS 141(R), December 2007
Purchase Method Only
IFRS 3, Issued in March 2004
SFAS 141, June 2001
Pooling-of-interests Method Allowed
APB Opinion No. 16, August 1970
IAS 22, Issued in 1983, Revised in 1998
(Acquisition vs. Uniting of interests)
4. Before APB Opinion No. 16
ARB (Accounting Research Bulletin) No. 48, January 1957
Superseded ARB No. 43, Chapter 7C
ARB No. 43, June 1953
Chapter 7: Capital Accounts
Section C: Business Combinations
5. Four Steps of Acquisition Method, IFRS 3.5, ASC 805-10-25-1
(1) Acquirer
(2) Acquisition date
(3) Assets and liabilities assumed
(4) Goodwill
6. Acquirer is identified in all business combinations
7. Items to be recognized by acquirer
(1) Identifiable assets acquired
(2) Liabilities assumed
(3) Non-controlling interest in acquiree
(4) Goodwill or gain from bargain purchase
8. Measurement of Assets and Liabilities
Measured at acquisition-date fair value
9. Goodwill
Goodwill = A - B, where
A = Consideration transferred + Non-controlling interest
B = Net identifiable assets acquired
10. Bargain Purchase
Gain from Bargain Purchase, when A < B, where
A = Consideration transferred + Non-controlling interest
B = Net identifiable assets acquired
11. Gain from Bargain Purchase
--> recognised in Profit or Loss
--> no concept of “Negative Goodwill”
12. Acquisition-related costs are expensed
--> One exception: Costs to issue debt or equity securities
--> IAS 32 and IAS 39 rules apply
13. Recognition principle, IFRS 3.10
Acquirer recognises the following as of the acquisition date:
(1) assets acquired
(2) liabilities assumed
(3) goodwill
(4) non-controlling interests in acquiree
14. Exceptions to recognition principle, IFRS 3.22, 28
(1) contingent liabilities: recognised even if (1a) is not probable
(1a) outflow of resources is required for settlement
(2) income taxes: IAS 12
(3) employee benefits: IAS 19
(4) imdenification assets: measured on the same basis as (4a)
(4a) indemnified item
15. Measurement principle, IFRS 3.18
Acquisition-date fair value is used.
16. Exceptions to measurement principle, IFRS 3.29, 31
(1) reacquired rights: measure as an intangible asset
(2) share-based payments: IFRS 2
(3) assets held for sale: at fair value less costs to sell, IFRS 5
17. Contingent consideration, IFRS 3.39, 40
a. right to the return of (1) is classified as an asset
(1) previously transferred consideration
b. obligation to pay contingent consideration is
--> classified as (2) or (3) in accordance with IAS 32
(2) liability
(3) equity
c. contingent consideration is recognised at (4)
(4) the acquisition-date fair value
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