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Concept Map 2

IFRS 3 provides guidance on accounting for business combinations. A business combination occurs when one entity obtains control of another entity. The acquisition date is when the acquirer obtains control of the acquiree. The acquirer is the entity that obtains control of the acquiree. Goodwill arises when the consideration transferred for an acquisition exceeds the net fair value of the identifiable assets and liabilities. The acquisition method is used which requires identifying the acquirer, acquisition date, and recognizing and measuring the identifiable assets acquired and liabilities assumed.

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84 views8 pages

Concept Map 2

IFRS 3 provides guidance on accounting for business combinations. A business combination occurs when one entity obtains control of another entity. The acquisition date is when the acquirer obtains control of the acquiree. The acquirer is the entity that obtains control of the acquiree. Goodwill arises when the consideration transferred for an acquisition exceeds the net fair value of the identifiable assets and liabilities. The acquisition method is used which requires identifying the acquirer, acquisition date, and recognizing and measuring the identifiable assets acquired and liabilities assumed.

Uploaded by

mike ranin
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Business Combination

IFRS 3
Terms

 Business Combination
– event where one entity obtains control over the other.
 Acquisition Date
- The date the acquirer contains control over the acquiree
 Acquirer
- Acquiring entity or the one obtaining control over the other.
 Acquiree
 Acquired entity or the one being obtained
Illustration IFRS 3

Determining whether a transaction is a business combination BUSINESS


COMBINATION

OCCURENCE  
STRUCTURE ACQUISITION

ACQUIREE
ACQUIRER
ACQUIRE
CONTROL MAJORITY SHARES TO
ACQUIRE CONTROL
Acquisition Method

ACCOUNTING FOR BUSINESS


COMBINATION
IDENTIFY
ACQUIRER
RECOGNITION AND
IDENTIFY MEASUREMENT OF
ACQUISITION DATE GOODWILL
RECOGNITION
Recognition and measurement PRINCIPLE
of the identifiable assets,
liabilities assumed and any non-
controlling interest
MEASUREMENT
PRINCIPLE
Elements of Business Combination

Objective
 As to why a business combination is performed

Consideration Given
 Form of payment (Cash, Incurring Liability, issuing equity instrument)

Acquisition of Business
 There should be an acquisition of business, and has 3 elements:
 Input
 Process
 Output
Acquisition Method

3 REQUIREMENTS

 Identify the acquirer


 Identify the acquisition date
-Transfer of control
 Recognition of good will
 Term of payment used
 Net Identifiable Asset
 Prev. Held Securities
 Net Controlling Asset
 Recognition of the Consideration Given
Acquisition Method

Elements How to Identify


Entity giving the consideration for
Acquirer

the business combination.
 Usually has the largest relative size
(assets and revenue)
 Relative voting rights
Acquisition Method

 Acquisition Date  the date on which it obtains control of


the acquiree. The acquisition date may
be a date that is earlier or later than
the closing date.

• Acquired Assets and • Recognition principle. Identifiable


assets acquired, liabilities assumed, and
Liabilities non-controlling interests in the acquiree,
are recognized separately from goodwill.
• Measurement principle. All assets
acquired and liabilities assumed in a
business combination are measured at
acquisition-date fair value.
Acquisition Method

Goodwill
• the aggregate of the value of the consideration transferred (generally at fair value),
the amount of any non-controlling interest, the acquisition-date fair value of the
acquirer's previously-held equity interest in the acquiree.
• the net of the acquisition-date amounts of the identifiable assets acquired and the
liabilities assumed.

Amount Fair value of


Net Asset
Good =Consideration of non-
+ previous +
- Recognize
will Transferred controllin equity
d
g interest interests

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