《国际财务报告准则第 3 号：企业合并》（最新英文版）
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《国际财务报告准则第 3 号：企业合并》（最新英文版）
IFRS 3
International Financial Reporting Standard 3 ：Business Combinations
This version includes amendments resulting from IFRSs issued up to 31 Dece
mber 2006.
IAS 22 Business Combinations was issued by the International Accounting Stan
dards Committee in October 1998. It was a revision of IAS 22 Business Com
binations (issued in December 1993), which replaced IAS 22 Accounting for B
usiness Combinations (issued in November 1983).
In April 2001 the International Accounting Standards Board (IASB) resolved th
at all Standards and Interpretations issued under previous Constitutions continue
d to be applicable unless and until they were amended or withdrawn.
In March 2004 the IASB issued IFRS 3 Business Combinations. It replaced IA
S 22 and three Interpretations:
IFRS 3
International Financial Reporting Standard 3 Business Combinations (IFRS 3) is
set out in paragraphs 1–87 and Appendices A–C. All the paragraphs have equa
l authority. Paragraphs in bold type state the main principles. Terms defined in
Appendix A are in italics the first time they appear in the Standard. Definition
s of other terms are given in the Glossary for International Financial Reporting
Standards. IFRS 3 should be read in the context of its objective and the Basis
for Conclusions, the Preface to International Financial Reporting Standards and
the Framework for the Preparation and Presentation of Financial Statements. IA
S 8 Accounting Policies, Changes in Accounting Estimates and Errors provides
a basis for selecting and applying accounting policies in the absence of explicit
guidance.
IFRS 3
Introduction
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IN1
International Financial Reporting Standard 3 Business Combinations (IFRS 3) re
places IAS 22 Business Combinations. The IFRS also replaces the following
Interpretations: .
SIC-9 Business Combinations—Classification either as Acquisitions or Unitings
of Interests
.
SIC-22 Business Combinations—Subsequent Adjustment of Fair Values and Go
odwill Initially Reported
.
SIC-28 Business Combinations—“Date of Exchange” and Fair Value of Equity
Instruments.
Reasons for issuing the IFRS
IN2 IAS 22 permitted business combinations to be accounted for using one of
two methods: the pooling of interests method or the purchase method. Althoug
h
IAS 22 restricted the use of the pooling of interests method to business combi
nations classified as unitings of interests, analysts and other users of financial
statements indicated that permitting two methods of accounting for substantially
similar transactions impaired the comparability of financial statements. Others a
rgued that requiring more than one method of accounting for such transactions
created incentives for structuring those transactions to achieve a desired account
ing result, particularly given that the two methods produce quite different result
s.
IN3 These factors, combined with the prohibition of the pooling of interests m
ethod in Australia, Canada and the United States, prompted the International A
ccounting Standards Board to examine whether, given that few combinations w
ere understood to be accounted for in accordance with IAS 22 using the pooli
ng
of interests method, it would be advantageous for international standards to con
verge with those in Australia and North America by also prohibiting the
method.
IN4 Accounting for business combinations varied across jurisdictions in other r
espects as well. These included the accounting for goodwill and intangible asse
ts
acquired in a business combination, the treatment of any excess of the acquirer
’s interest in the fair values of identifiable net assets acquired over the cost of
the
business combination, and the recognition of liabilities for terminating or reduci
ng the activities of an acquiree.
IN5 Furthermore, IAS 22 contained an option in respect of how the purchase
method could be applied: the identifiable assets acquired and liabilities assumed
could be measured initially using either a benchmark treatment or an allowed a
lternative treatment. The benchmark treatment resulted in the identifiable assets
acquired and liabilities assumed being measured initially at a combination of fa
ir values (to the extent of the acquirer’s ownership interest) and pre-acquisition
carrying amounts (to the extent of any minority interest). The allowed alternati
ve treatment resulted in the identifiable assets acquired and liabilities assumed
IFRS 3
being measured initially at their fair values as at the date of acquisition. The
Board believes that permitting similar transactions to be accounted for in dissi
milar ways impairs the usefulness of the information provided to users of finan
cial statements, because both comparability and reliability are diminished.
IN6
Therefore, this IFRS has been issued to improve the quality of, and seek inter
national convergence on, the accounting for business combinations,
including: (a) the method of accounting for business combinations; (b) the initi
al measurement of the identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination; (c) the recognition of liabilities f
or terminating or reducing the activities of an acquiree; (d) the treatment of an
y excess of the acquirer’s interest in the fair values of identifiable net assets a
cquired in a business combination over the cost of the combination; and (e) th
e accounting for goodwill and intangible assets acquired in a business combinat
ion. Main features of the IFRS
IN7 This IFRS:
(a) requires all business combinations within its scope to be accounted for by
applying the purchase method.
(b) requires an acquirer to be identified for every business combination within
its scope. The acquirer is the combining entity that obtains control of the
other combining entities or businesses.
(c) requires an acquirer to measure the cost of a business combination as the
aggregate of: the fair values, at the date of exchange, of assets given,
liabilities incurred or assumed, and equity instruments issued by the acquirer, i
n exchange for control of the acquiree; plus any costs directly attributable to t
he combination.
(d) requires an acquirer to recognise separately, at the acquisition date, the acq
uiree’s identifiable assets, liabilities and contingent liabilities that satisfy the fol
lowing recognition criteria at that date, regardless of whether they had been pr
eviously recognised in the acquiree’s financial statements:
(i) in the case of an asset other than an intangible asset, it is probable that an
y associated future economic benefits will flow to the acquirer, and its fair val
ue can be measured reliably;
(ii) in the case of a liability other than a contingent liability, it is probable tha
t an outflow of resources embodying economic benefits will be required to sett
le the obligation, and its fair value can be measured reliably; and
(iii) in the case of an intangible asset or a contingent liability, its fair value c
an be measured reliably.
(e) requires the identifiable assets, liabilities and contingent liabilities that satisf
y the above recognition criteria to be measured initially by the acquirer at thei
r fair values at the acquisition date, irrespective of the extent of any minority
interest.
(f) requires goodwill acquired in a business combination to be recognised by t
he acquirer as an asset from the acquisition date, initially measured as the exc
ess of the cost of the business combination over the acquirer’s interest in the
net fair value of the acquiree’s identifiable assets, liabilities and contingent liab
ilities recognised in accordance with (d) above.
(g) prohibits the amortisation of goodwill acquired in a business combination a
nd instead requires the goodwill to be tested for impairment annually, or
more frequently if events or changes in circumstances indicate that the asset m
ight be impaired, in accordance with IAS 36 Impairment of Assets.
(h) requires the acquirer to reassess the identification and measurement of the
acquiree’s identifiable assets, liabilities and contingent liabilities and the
measurement of the cost of the business combination if the acquirer’s interest i
n the net fair value of the items recognised in accordance with (d) above exce
eds the cost of the combination. Any excess remaining after that reassessment
must be recognised by the acquirer immediately in profit or loss.
(i) requires disclosure of information that enables users of an entity’s financial
statements to evaluate the nature and financial effect of:
(i) business combinations that were effected during the period; (ii) business co
mbinations that were effected after the balance sheet date but before the financ
ial statements are authorised for issue; and (iii) some business combinations tha
t were effected in previous periods.
(j) requires disclosure of information that enables users of an entity’s financial
statements to evaluate changes in the carrying amount of
goodwill during the period. Changes from previous requirements
IN8 The main changes from IAS 22 are described below. Method of accountin
g
IN9 This IFRS requires all business combinations within its scope to be accou
nted for using the purchase method. IAS 22 permitted business combinations to
be
accounted for using one of two methods: the pooling of interests method for c
ombinations classified as unitings of interests and the purchase method for
combinations classified as acquisitions.
Recognising the identifiable assets acquired and liabilities and contingent liabilit
ies assumed
IN10
This IFRS changes the requirements in IAS 22 for separately recognising as pa
rt of allocating the cost of a business combination:
(a) liabilities for terminating or reducing the activities of the acquiree; and (b)
contingent liabilities of the acquiree.
This IFRS also clarifies the criteria for separately recognising intangible assets
of the acquiree as part of allocating the cost of a combination.
IN11
This IFRS requires an acquirer to recognise liabilities for terminating or reduci
ng the activities of the acquiree as part of allocating the cost of the combinati
on only
when the acquiree has, at the acquisition date, an existing liability for restructu
ring recognised in accordance with IAS 37 Provisions, Contingent Liabilities an
d Contingent Assets. IAS 22 required an acquirer to recognise as part of alloc
ating the cost of a business combination a provision for terminating or reducin
g the
activities of the acquiree that was not a liability of the acquiree at the acquisit
ion date, provided the acquirer satisfied specified criteria.
IN12
This IFRS requires an acquirer to recognise separately the acquiree’s contingent
liabilities (as defined in IAS 37) at the acquisition date as part of allocating th
e
cost of a business combination, provided their fair values can be measured reli
ably. Such contingent liabilities were, in accordance with IAS 22, subsumed
within the amount recognised as goodwill or negative goodwill.
IN13
IAS 22 required an intangible asset to be recognised if, and only if, it was pr
obable that the future economic benefits attributable to the asset would flow to
the
entity, and its cost could be measured reliably. The probability recognition crite
rion is not included in this IFRS because it is always considered to be satisfie
d
for intangible assets acquired in business combinations. Additionally, this IFRS
includes guidance clarifying that the fair value of an intangible asset acquired i
n
a business combination can normally be measured with sufficient reliability to
qualify for recognition separately from goodwill. If an intangible asset acquired
in a business combination has a finite useful life, there is a rebuttable presump
tion that its fair value can be measured reliably.
Measuring the identifiable assets acquired and liabilities and contingent liabilitie
s assumed
IN14
IAS 22 included a benchmark and an allowed alternative treatment for the initi
al measurement of the identifiable net assets acquired in a business combinatio
n,
and therefore for the initial measurement of any minority interests. This IFRS
requires the acquiree’s identifiable assets, liabilities and contingent liabilities
recognised as part of allocating the cost of the combination to be measured ini
tially by the acquirer at their fair values at the acquisition date. Therefore, any
minority interest in the acquiree is stated at the minority’s proportion of the ne
t fair values of those items. This is consistent with IAS 22’s allowed alternativ
e
treatment.
Subsequent accounting for goodwill
IN15
This IFRS requires goodwill acquired in a business combination to be measure
d after initial recognition at cost less any accumulated impairment losses.
Therefore, the goodwill is not amortised and instead must be tested for impair
ment annually, or more frequently if events or changes in circumstances
indicate that it might be impaired. IAS 22 required acquired goodwill to be sy
stematically amortised over its useful life, and included a rebuttable
presumption that its useful life could not exceed twenty years from initial reco
gnition.
Excess of acquirer’s interest in the net fair value of acquiree’s identifiable asse
ts, liabilities and contingent liabilities over cost
IN16
This IFRS requires the acquirer to reassess the identification and measurement
of the acquiree’s identifiable assets, liabilities and contingent liabilities and the
measurement of the cost of the combination if, at the acquisition date, the acq
uirer’s interest in the net fair value of those items exceeds the cost of the mbi
nation. Any excess remaining after that reassessment must be recognised by th
e acquirer immediately in profit or loss. In accordance with IAS 22, any exces
s of the acquirer’s interest in the net fair value of the identifiable assets and li
abilities acquired over the cost of the acquisition was accounted for as negativ
e
goodwill as follows:
(a) to the extent that it related to expectations of future losses and expenses id
entified in the acquirer’s acquisition plan, it was required to be carried
forward and recognised as income in the same period in which the future loss
es and expenses were recognised.
(b) to the extent that it did not relate to expectations of future losses and exp
enses identified in the acquirer’s acquisition plan, it was required to be
recognised as income as follows:
(i) for the amount of negative goodwill not exceeding the aggregate fair value
of acquired identifiable non-monetary assets, on a systematic
basis over the remaining weighted average useful life of the identifiable deprec
iable assets.
(ii) for any remaining excess, immediately.
International Financial Reporting Standard 3
Business Combinations
Objective
The objective of this IFRS is to specify the financial reporting by an entity w
hen it undertakes a business combination. In particular, it specifies that all busi
ness
combinations should be accounted for by applying the purchase method. Theref
ore, the acquirer recognises the acquiree’s identifiable assets, liabilities and cont
ingent liabilities at their fair values at the acquisition date, and also recognises
goodwill, which is subsequently tested for impairment rather than amortised.
Scope
2 Except as described in paragraph 3, entities shall apply this IFRS when acco
unting for business combinations.
3 This IFRS does not apply to:
(a) business combinations in which separate entities or businesses are brought t
ogether to form a joint venture.
(b) business combinations involving entities or businesses under common contro
l.
(c) business combinations involving two or more mutual entities.
(d) business combinations in which separate entities or businesses are brought t
ogether to form a reporting entity by contract alone without the obtaining of
an ownership interest (for example, combinations in which separate entities are
brought together by contract alone to form a dual listed
corporation). Identifying a business combination
4 A business combination is the bringing together of separate entities or busine
sses into one reporting entity. The result of nearly all business combinations is
that
one entity, the acquirer, obtains control of one or more other businesses, the a
cquiree. If an entity obtains control of one or more other entities that are not
businesses, the bringing together of those entities is not a business combination.
When an entity acquires a group of assets or net assets that does not constitut
e a
business, it shall allocate the cost of the group between the individual identifia
ble assets and liabilities in the group based on their relative fair values at the
acquisition date.
5
A business combination may be structured in a variety of ways for legal, taxat
ion or other reasons. It may involve the purchase by an entity of the equity o
f another
entity, the purchase of all the net assets of another entity, the assumption of t
he liabilities of another entity, or the purchase of some of the net assets of an
other
entity that together form one or more businesses. It may be effected by the iss
ue of equity instruments, the transfer of cash, cash equivalents or other assets,
or a
combination thereof. The transaction may be between the shareholders of the c
ombining entities or between one entity and the shareholders of another entity.
It may involve the establishment of a new entity to control the combining enti
ties or net assets transferred, or the restructuring of one or more of the combi
ning
entities.
6
A business combination may result in a parent-subsidiary relationship in which
the acquirer is the parent and the acquiree a subsidiary of the acquirer. In suc
h
circumstances, the acquirer applies this IFRS in its consolidated financial state
ments. It includes its interest in the acquiree in any separate financial statemen
ts it issues as an investment in a subsidiary (see IAS 27 Consolidated and Sep
arate Financial Statements).
7
A business combination may involve the purchase of the net assets, including
any goodwill, of another entity rather than the purchase of the equity of the ot
her
entity. Such a combination does not result in a parent-subsidiary relationship.
8
Included within the definition of a business combination, and therefore the sco
pe of this IFRS, are business combinations in which one entity obtains control
of
another entity but for which the date of obtaining control (ie the acquisition da
te) does not coincide with the date or dates of acquiring an ownership interest
(ie the
date or dates of exchange). This situation may arise, for example, when an inv
estee enters into share buy-back arrangements with some of its investors and, a
s a
result, control of the investee changes.
9
This IFRS does not specify the accounting by venturers for interests in joint v
entures (see IAS 31 Interests in Joint Ventures).
Business combinations involving entities under common control
10
A business combination involving entities or businesses under common control
is a business combination in which all of the combining entities or businesses
are
ultimately controlled by the same party or parties both before and after the bu
siness combination, and that control is not transitory.
11
A group of individuals shall be regarded as controlling an entity when, as a re
sult of contractual arrangements, they collectively have the power to govern its
financial and operating policies so as to obtain benefits from its activities. The
refore, a business combination is outside the scope of this IFRS when the sam
e
group of individuals has, as a result of contractual arrangements, ultimate colle
ctive power to govern the financial and operating policies of each of the
combining entities so as to obtain benefits from their activities, and that ultima
te collective power is not transitory.
12
An entity can be controlled by an individual, or by a group of individuals acti
ng together under a contractual arrangement, and that individual or group of
individuals may not be subject to the financial reporting requirements of IFRSs.
Therefore, it is not necessary for combining entities to be included as part of t
he
same consolidated financial statements for a business combination to be regarde
d as one involving entities under common control.
312
. IASCF
IFRS 3
The extent of minority interests in each of the combining entities before and a
fter the business combination is not relevant to determining whether the
combination involves entities under common control. Similarly, the fact that on
e of the combining entities is a subsidiary that has been excluded from the
consolidated financial statements of the group in accordance with IAS 27 is no
t relevant to determining whether a combination involves entities under commo
n
control.
Method of accounting
14
All business combinations shall be accounted for by applying the purchase met
hod.
15
The purchase method views a business combination from the perspective of the
combining entity that is identified as the acquirer. The acquirer purchases net
assets and recognises the assets acquired and liabilities and contingent liabilities
assumed, including those not previously recognised by the acquiree.
The measurement of the acquirer’s assets and liabilities is not affected by the t
ransaction, nor are any additional assets or liabilities of the acquirer recognised
as a result of the transaction, because they are not the subjects of the transacti
on.
Application of the purchase method
16
Applying the purchase method involves the following steps:
(a) identifying an acquirer;
(b) measuring the cost of the business combination; and
(c) allocating, at the acquisition date, the cost of the business combination to t
he assets acquired and liabilities and contingent liabilities assumed.
Identifying the acquirer
17
An acquirer shall be identified for all business combinations. The acquirer is t
he combining entity that obtains control of the other combining entities
or businesses.
18
Because the purchase method views a business combination from the acquirer’s
perspective, it assumes that one of the parties to the transaction can be identifi
ed
as the acquirer.
19
Control is the power to govern the financial and operating policies of an entity
or business so as to obtain benefits from its activities. A combining entity shal
l be
presumed to have obtained control of another combining entity when it acquire
s more than one-half of that other entity’s voting rights, unless it can be
demonstrated that such ownership does not constitute control. Even if one of t
he combining entities does not acquire more than one-half of the voting rights
of
another combining entity, it might have obtained control of that other entity if,
as a result of the combination, it obtains:
(a) power over more than one-half of the voting rights of the other entity by
virtue of an agreement with other investors; or
(b) power to govern the financial and operating policies of the other entity un
der a statute or an agreement; or
(c) power to appoint or remove the majority of the members of the board of
directors or equivalent governing body of the other entity; or
(d) power to cast the majority of votes at meetings of the board of directors o
r equivalent governing body of the other entity.
20
Although sometimes it may be difficult to identify an acquirer, there are usuall
y indications that one exists. For example:
(a) if the fair value of one of the combining entities is significantly greater th
an that of the other combining entity, the entity with the greater fair
value is likely to be the acquirer;
(b) if the business combination is effected through an exchange of voting ordin
ary equity instruments for cash or other assets, the entity giving up
cash or other assets is likely to be the acquirer; and
(c) if the business combination results in the management of one of the combi
ning entities being able to dominate the selection of the
management team of the resulting combined entity, the entity whose manageme
nt is able so to dominate is likely to be the acquirer.
21
In a business combination effected through an exchange of equity interests, the
entity that issues the equity interests is normally the acquirer. However, all
pertinent facts and circumstances shall be considered to determine which of the
combining entities has the power to govern the financial and operating policies
of the other entity (or entities) so as to obtain benefits from its (or their) activ
ities.
In some business combinations, commonly referred to as reverse acquisitions, t
he
acquirer is the entity whose equity interests have been acquired and the issuing
entity is the acquiree. This might be the case when, for example, a private ent
ity
arranges to have itself ‘acquired’ by a smaller public entity as a means of
obtaining a stock exchange listing. Although legally the issuing public entity is
regarded as the parent and the private entity is regarded as the subsidiary, the
legal subsidiary is the acquirer if it has the power to govern the financial and
operating policies of the legal parent so as to obtain benefits from its activities.
Commonly the acquirer is the larger entity; however, the facts and circumstanc
es
surrounding a combination sometimes indicate that a smaller entity acquires a
larger entity. Guidance on the accounting for reverse acquisitions is provided i
n
paragraphs B1–B15 of Appendix B.
22
When a new entity is formed to issue equity instruments to effect a business
combination, one of the combining entities that existed before the combination
shall be identified as the acquirer on the basis of the evidence available.
23
Similarly, when a business combination involves more than two combining
entities, one of the combining entities that existed before the combination shall
be identified as the acquirer on the basis of the evidence available. Determinin
g
the acquirer in such cases shall include a consideration of, amongst other thing
s,
which of the combining entities initiated the combination and whether the asset
s
or revenues of one of the combining entities significantly exceed those of
the others.
314
. IASCF
IFRS 3
Cost of a business combination
24
The acquirer shall measure the cost of a business combination as the aggregate
of:
(a)
the fair values, at the date of exchange, of assets given, liabilities incurred
or assumed, and equity instruments issued by the acquirer, in exchange for
control of the acquiree; plus
(b)
any costs directly attributable to the business combination.
25
The acquisition date is the date on which the acquirer effectively obtains contr
ol
of the acquiree. When this is achieved through a single exchange transaction, t
he
date of exchange coincides with the acquisition date. However, a business
combination may involve more than one exchange transaction, for example
when it is achieved in stages by successive share purchases. When this occurs:
(a)
the cost of the combination is the aggregate cost of the individual
transactions; and
(b)
the date of exchange is the date of each exchange transaction (ie the date
that each individual investment is recognised in the financial statements
of the acquirer), whereas the acquisition date is the date on which the
acquirer obtains control of the acquiree.
26
Assets given and liabilities incurred or assumed by the acquirer in exchange fo
r
control of the acquiree are required by paragraph 24 to be measured at their f
air
values at the date of exchange. Therefore, when settlement of all or any part
of
the cost of a business combination is deferred, the fair value of that deferred
component shall be determined by discounting the amounts payable to their
present value at the date of exchange, taking into account any premium or
discount likely to be incurred in settlement.
27
The published price at the date of exchange of a quoted equity instrument
provides the best evidence of the instrument’s fair value and shall be used, ex
cept
in rare circumstances. Other evidence and valuation methods shall be considere
d
only in the rare circumstances when the acquirer can demonstrate that the
published price at the date of exchange is an unreliable indicator of fair value,
and that the other evidence and valuation methods provide a more reliable
measure of the equity instrument’s fair value. The published price at the date
of
exchange is an unreliable indicator only when it has been affected by the thin
ness
of the market. If the published price at the date of exchange is an unreliable
indicator or if a published price does not exist for equity instruments issued b
y
the acquirer, the fair value of those instruments could, for example, be estimat
ed
by reference to their proportional interest in the fair value of the acquirer or b
y
reference to the proportional interest in the fair value of the acquiree obtained,
whichever is the more clearly evident. The fair value at the date of exchange
of
monetary assets given to equity holders of the acquiree as an alternative to eq
uity
instruments may also provide evidence of the total fair value given by the
acquirer in exchange for control of the acquiree. In any event, all aspects of t
he
combination, including significant factors influencing the negotiations, shall be
considered. Further guidance on determining the fair value of equity
instruments is set out in IAS 39 Financial Instruments: Recognition and Measu
rement.
. IASCF
315
IFRS 3
28
The cost of a business combination includes liabilities incurred or assumed by
the
acquirer in exchange for control of the acquiree. Future losses or other costs
expected to be incurred as a result of a combination are not liabilities incurred
or
assumed by the acquirer in exchange for control of the acquiree, and are not,
therefore, included as part of the cost of the combination.
29
The cost of a business combination includes any costs directly attributable to t
he
combination, such as professional fees paid to accountants, legal advisers, value
rs
and other consultants to effect the combination. General administrative costs,
including the costs of maintaining an acquisitions department, and other costs
that cannot be directly attributed to the particular combination being accounted
for are not included in the cost of the combination: they are recognised as an
expense when incurred.
30
The costs of arranging and issuing financial liabilities are an integral part of th
e
liability issue transaction, even when the liabilities are issued to effect a busine
ss
combination, rather than costs directly attributable to the combination.
Therefore, entities shall not include such costs in the cost of a business
combination. In accordance with IAS 39, such costs shall be included in the in
itial
measurement of the liability.
31
Similarly, the costs of issuing equity instruments are an integral part of the eq
uity
issue transaction, even when the equity instruments are issued to effect a
business combination, rather than costs directly attributable to the combination.
Therefore, entities shall not include such costs in the cost of a business
combination. In accordance with IAS 32 Financial Instruments: Presentation, su
ch
costs reduce the proceeds from the equity issue.
Adjustments to the cost of a business combination contingent on
future events
32
When a business combination agreement provides for an adjustment to the cost
of the combination contingent on future events, the acquirer shall include the
amount of that adjustment in the cost of the combination at the acquisition dat
e
if the adjustment is probable and can be measured reliably.
33
A business combination agreement may allow for adjustments to the cost of th
e
combination that are contingent on one or more future events. The adjustment
might, for example, be contingent on a specified level of profit being maintain
ed
or achieved in future periods, or on the market price of the instruments issued
being maintained. It is usually possible to estimate the amount of any such
adjustment at the time of initially accounting for the combination without
impairing the reliability of the information, even though some uncertainty exists.
If the future events do not occur or the estimate needs to be revised, the cost
of
the business combination shall be adjusted accordingly.
34
However, when a business combination agreement provides for such an
adjustment, that adjustment is not included in the cost of the combination at th
e
time of initially accounting for the combination if it either is not probable or
cannot be measured reliably. If that adjustment subsequently becomes probable
and can be measured reliably, the additional consideration shall be treated as a
n
adjustment to the cost of the combination.
316
. IASCF
IFRS 3
35
In some circumstances, the acquirer may be required to make a subsequent
payment to the seller as compensation for a reduction in the value of the asset
s
given, equity instruments issued or liabilities incurred or assumed by the
acquirer in exchange for control of the acquiree. This is the case, for example,
when the acquirer guarantees the market price of equity or debt instruments
issued as part of the cost of the business combination and is required to issue
additional equity or debt instruments to restore the originally determined cost.
In such cases, no increase in the cost of the business combination is recognise
d.
In the case of equity instruments, the fair value of the additional payment is o
ffset
by an equal reduction in the value attributed to the instruments initially issued.
In the case of debt instruments, the additional payment is regarded as a reduct
ion
in the premium or an increase in the discount on the initial issue.
Allocating the cost of a business combination to the assets
acquired and liabilities and contingent liabilities assumed
36
The acquirer shall, at the acquisition date, allocate the cost of a business
combination by recognising the acquiree’s identifiable assets, liabilities and
contingent liabilities that satisfy the recognition criteria in paragraph 37 at their
fair values at that date, except for non-current assets (or disposal groups) that
are
classified as held for sale in accordance with IFRS 5 Non-current Assets Held
for Sale
and Discontinued Operations, which shall be recognised at fair value less costs
to
sell. Any difference between the cost of the business combination and the
acquirer’s interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities so recognised shall be accounted for in accordance with
paragraphs 51–57.
37
The acquirer shall recognise separately the acquiree’s identifiable assets,
liabilities and contingent liabilities at the acquisition date only if they satisfy th
e
following criteria at that date:
(a)
in the case of an asset other than an intangible asset, it is probable that any
associated future economic benefits will flow to the acquirer, and its fair
value can be measured reliably;
(b)
in the case of a liability other than a contingent liability, it is probable that
an outflow of resources embodying economic benefits will be required to
settle the obligation, and its fair value can be measured reliably;
(c)
in the case of an intangible asset or a contingent liability, its fair value can
be measured reliably.
38
The acquirer’s income statement shall incorporate the acquiree’s profits and
losses after the acquisition date by including the acquiree’s income and expens
es
based on the cost of the business combination to the acquirer. For example,
depreciation expense included after the acquisition date in the acquirer’s incom
e
statement that relates to the acquiree’s depreciable assets shall be based on the
fair values of those depreciable assets at the acquisition date, ie their cost to t
he
acquirer.
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39
Application of the purchase method starts from the acquisition date, which is t
he
date on which the acquirer effectively obtains control of the acquiree. Because
control is the power to govern the financial and operating policies of an entity
or
business so as to obtain benefits from its activities, it is not necessary for a
transaction to be closed or finalised at law before the acquirer obtains control.
All pertinent facts and circumstances surrounding a business combination shall
be considered in assessing when the acquirer has obtained control.
40
Because the acquirer recognises the acquiree’s identifiable assets, liabilities and
contingent liabilities that satisfy the recognition criteria in paragraph 37 at their
fair values at the acquisition date, any minority interest in the acquiree is state
d
at the minority’s proportion of the net fair value of those items. Paragraphs B
16
and B17 of Appendix B provide guidance on determining the fair values of th
e
acquiree’s identifiable assets, liabilities and contingent liabilities for the purpose
of allocating the cost of a business combination.
Acquiree’s identifiable assets and liabilities
41
In accordance with paragraph 36, the acquirer recognises separately as part of
allocating the cost of the combination only the identifiable assets, liabilities an
d
contingent liabilities of the acquiree that existed at the acquisition date and
satisfy the recognition criteria in paragraph 37. Therefore:
(a)
the acquirer shall recognise liabilities for terminating or reducing the
activities of the acquiree as part of allocating the cost of the combination
only when the acquiree has, at the acquisition date, an existing liability for
restructuring recognised in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets; and
(b)
the acquirer, when allocating the cost of the combination, shall not
recognise liabilities for future losses or other costs expected to be incurred
as a result of the business combination.
42
A payment that an entity is contractually required to make, for example, to its
employees or suppliers in the event that it is acquired in a business combinati
on
is a present obligation of the entity that is regarded as a contingent liability u
ntil
it becomes probable that a business combination will take place. The contractu
al
obligation is recognised as a liability by that entity in accordance with IAS 37
when a business combination becomes probable and the liability can be measur
ed
reliably. Therefore, when the business combination is effected, that liability of
the acquiree is recognised by the acquirer as part of allocating the cost of the
combination.
43
However, an acquiree’s restructuring plan whose execution is conditional upon
its being acquired in a business combination is not, immediately before the
business combination, a present obligation of the acquiree. Nor is it a continge
nt
liability of the acquiree immediately before the combination because it is not a
possible obligation arising from a past event whose existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future even
ts
not wholly within the control of the acquiree. Therefore, an acquirer shall not
recognise a liability for such restructuring plans as part of allocating the cost o
f
the combination.
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44
The identifiable assets and liabilities that are recognised in accordance with
paragraph 36 include all of the acquiree’s assets and liabilities that the acquirer
purchases or assumes, including all of its financial assets and financial liabilitie
s.
They might also include assets and liabilities not previously recognised in the
acquiree’s financial statements, eg because they did not qualify for recognition
before the acquisition. For example, a tax benefit arising from the acquiree’s ta
x
losses that was not recognised by the acquiree before the business combination
qualifies for recognition as an identifiable asset in accordance with paragraph 3
6
if it is probable that the acquirer will have future taxable profits against which
the unrecognised tax benefit can be applied.
Acquiree’s intangible assets
45
In accordance with paragraph 37, the acquirer recognises separately an intangib
le
asset of the acquiree at the acquisition date only if it meets the definition of a
n
intangible asset in IAS 38 Intangible Assets and its fair value can be measured
reliably. This means that the acquirer recognises as an asset separately from
goodwill an in-process research and development project of the acquiree if the
project meets the definition of an intangible asset and its fair value can be
measured reliably. IAS 38 provides guidance on determining whether the fair
value of an intangible asset acquired in a business combination can be measure
d
reliably.
46
A non-monetary asset without physical substance must be identifiable to meet
the definition of an intangible asset. In accordance with IAS 38, an asset meet
s
the identifiability criterion in the definition of an intangible asset only if it:
(a)
is separable, ie capable of being separated or divided from the entity and
sold, transferred, licensed, rented or exchanged, either individually or
together with a related contract, asset or liability; or
(b)
arises from contractual or other legal rights, regardless of whether those
rights are transferable or separable from the entity or from other rights
and obligations.
Acquiree’s contingent liabilities
47
Paragraph 37 specifies that the acquirer recognises separately a contingent
liability of the acquiree as part of allocating the cost of a business combinatio
n
only if its fair value can be measured reliably. If its fair value cannot be mea
sured
reliably:
(a)
there is a resulting effect on the amount recognised as goodwill or
accounted for in accordance with paragraph 56; and
(b)
the acquirer shall disclose the information about that contingent liability
required to be disclosed by IAS 37.
Paragraph B16(l) of Appendix B provides guidance on determining the fair val
ue
of a contingent liability.
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IFRS 3
48
After their initial recognition, the acquirer shall measure contingent liabilities
that are recognised separately in accordance with paragraph 36 at the higher of
:
(a)
the amount that would be recognised in accordance with IAS 37, and
(b)
the amount initially recognised less, when appropriate, cumulative
amortisation recognised in accordance with IAS 18 Revenue.
49
The requirement in paragraph 48 does not apply to contracts accounted for in
accordance with IAS 39. However, loan commitments excluded from the scope
of
IAS 39 that are not commitments to provide loans at below-market interest rat
es
are accounted for as contingent liabilities of the acquiree if, at the acquisition
date, it is not probable that an outflow of resources embodying economic bene
fits
will be required to settle the obligation or if the amount of the obligation can
not
be measured with sufficient reliability. Such a loan commitment is, in
accordance with paragraph 37, recognised separately as part of allocating the c
ost
of a combination only if its fair value can be measured reliably.
50
Contingent liabilities recognised separately as part of allocating the cost of a
business combination are excluded from the scope of IAS 37. However, the
acquirer shall disclose for those contingent liabilities the information required t
o
be disclosed by IAS 37 for each class of provision.
Goodwill
51
The acquirer shall, at the acquisition date:
(a)
recognise goodwill acquired in a business combination as an asset; and
(b)
initially measure that goodwill at its cost, being the excess of the cost of the
business combination over the acquirer’s interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities recognised in
accordance with paragraph 36.
52
Goodwill acquired in a business combination represents a payment made by th
e
acquirer in anticipation of future economic benefits from assets that are not
capable of being individually identified and separately recognised.
53
To the extent that the acquiree’s identifiable assets, liabilities or contingent
liabilities do not satisfy the criteria in paragraph 37 for separate recognition at
the acquisition date, there is a resulting effect on the amount recognised as
goodwill (or accounted for in accordance with paragraph 56). This is because
goodwill is measured as the residual cost of the business combination after
recognising the acquiree’s identifiable assets, liabilities and contingent liabilities.
54
After initial recognition, the acquirer shall measure goodwill acquired in a
business combination at cost less any accumulated impairment losses.
55
Goodwill acquired in a business combination shall not be amortised. Instead, th
e
acquirer shall test it for impairment annually, or more frequently if events or
changes in circumstances indicate that it might be impaired, in accordance with
IAS 36 Impairment of Assets.
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Excess of acquirer’s interest in the net fair value of acquiree’s
identifiable assets, liabilities and contingent liabilities over cost
56
If the acquirer’s interest in the net fair value of the identifiable assets, liabiliti
es
and contingent liabilities recognised in accordance with paragraph 36 exceeds
the cost of the business combination, the acquirer shall:
(a)
reassess the identification and measurement of the acquiree’s identifiable
assets, liabilities and contingent liabilities and the measurement of the cost
of the combination; and
(b)
recognise immediately in profit or loss any excess remaining after that
reassessment.
57
A gain recognised in accordance with paragraph 56 could comprise one or mor
e
of the following components:
(a)
errors in measuring the fair value of either the cost of the combination or
the acquiree’s identifiable assets, liabilities or contingent liabilities.
Possible future costs arising in respect of the acquiree that have not been
reflected correctly in the fair value of the acquiree’s identifiable assets,
liabilities or contingent liabilities are a potential cause of such errors.
(b)
a requirement in an accounting standard to measure identifiable net assets
acquired at an amount that is not fair value, but is treated as though it is
fair value for the purpose of allocating the cost of the combination.
For example, the guidance in Appendix B on determining the fair values of
the acquiree’s identifiable assets and liabilities requires the amount
assigned to tax assets and liabilities to be undiscounted.
(c)
a bargain purchase.
Business combination achieved in stages
58
A business combination may involve more than one exchange transaction, for
example when it occurs in stages by successive share purchases. If so, each
exchange transaction shall be treated separately by the acquirer, using the cost
of
the transaction and fair value information at the date of each exchange
transaction, to determine the amount of any goodwill associated with that
transaction. This results in a step-by-step comparison of the cost of the individ
ual
investments with the acquirer’s interest in the fair values of the acquiree’s
identifiable assets, liabilities and contingent liabilities at each step.
59
When a business combination involves more than one exchange transaction, the
fair values of the acquiree’s identifiable assets, liabilities and contingent
liabilities may be different at the date of each exchange transaction. Because:
(a)
the acquiree’s identifiable assets, liabilities and contingent liabilities are
notionally restated to their fair values at the date of each exchange
transaction to determine the amount of any goodwill associated with each
transaction; and
(b)
the acquiree’s identifiable assets, liabilities and contingent liabilities must
then be recognised by the acquirer at their fair values at the acquisition
date,
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IFRS 3
any adjustment to those fair values relating to previously held interests of the
acquirer is a revaluation and shall be accounted for as such. However, because
this revaluation arises on the initial recognition by the acquirer of the acquiree’
s
assets, liabilities and contingent liabilities, it does not signify that the acquirer
has elected to apply an accounting policy of revaluing those items after initial
recognition in accordance with, for example, IAS 16 Property, Plant and Equip
ment.
60
Before qualifying as a business combination, a transaction may qualify as an
investment in an associate and be accounted for in accordance with IAS 28
Investments in Associates using the equity method. If so, the fair values of the
investee’s identifiable net assets at the date of each earlier exchange transaction
will have been determined previously in applying the equity method to the
investment.
Initial accounting determined provisionally
61
The initial accounting for a business combination involves identifying and
determining the fair values to be assigned to the acquiree’s identifiable assets,
liabilities and contingent liabilities and the cost of the combination.
62
If the initial accounting for a business combination can be determined only
provisionally by the end of the period in which the combination is effected
because either the fair values to be assigned to the acquiree’s identifiable asset
s,
liabilities or contingent liabilities or the cost of the combination can be
determined only provisionally, the acquirer shall account for the combination
using those provisional values. The acquirer shall recognise any adjustments to
those provisional values as a result of completing the initial accounting:
(a)
within twelve months of the acquisition date; and
(b)
from the acquisition date. Therefore:
(i)
the carrying amount of an identifiable asset, liability or contingent
liability that is recognised or adjusted as a result of completing the
initial accounting shall be calculated as if its fair value at the
acquisition date had been recognised from that date.
(ii)
goodwill or any gain recognised in accordance with paragraph 56
shall be adjusted from the acquisition date by an amount equal to the
adjustment to the fair value at the acquisition date of the identifiable
asset, liability or contingent liability being recognised or adjusted.
(iii)
comparative information presented for the periods before the initial
accounting for the combination is complete shall be presented as if
the initial accounting had been completed from the acquisition date.
This includes any additional depreciation, amortisation or other
profit or loss effect recognised as a result of completing the initial
accounting.
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Adjustments after the initial accounting is complete
63
Except as outlined in paragraphs 33, 34 and 65, adjustments to the initial
accounting for a business combination after that initial accounting is complete
shall be recognised only to correct an error in accordance with IAS 8 Account
ing
Policies, Changes in Accounting Estimates and Errors. Adjustments to the initia
l
accounting for a business combination after that accounting is complete shall n
ot
be recognised for the effect of changes in estimates. In accordance with IAS 8,
the
effect of a change in estimates shall be recognised in the current and future
periods.
64
IAS 8 requires an entity to account for an error correction retrospectively, and
to
present financial statements as if the error had never occurred by restating the
comparative information for the prior period(s) in which the error occurred.
Therefore, the carrying amount of an identifiable asset, liability or contingent
liability of the acquiree that is recognised or adjusted as a result of an error
correction shall be calculated as if its fair value or adjusted fair value at the
acquisition date had been recognised from that date. Goodwill or any gain
recognised in a prior period in accordance with paragraph 56 shall be adjusted
retrospectively by an amount equal to the fair value at the acquisition date (or
the
adjustment to the fair value at the acquisition date) of the identifiable asset,
liability or contingent liability being recognised (or adjusted).
Recognition of deferred tax assets after the initial accounting is
complete
65
If the potential benefit of the acquiree’s income tax loss carry-forwards or othe
r
deferred tax assets did not satisfy the criteria in paragraph 37 for separate
recognition when a business combination is initially accounted for but is
subsequently realised, the acquirer shall recognise that benefit as income in
accordance with IAS 12 Income Taxes. In addition, the acquirer shall:
(a)
reduce the carrying amount of goodwill to the amount that would have
been recognised if the deferred tax asset had been recognised as an
identifiable asset from the acquisition date; and
(b)
recognise the reduction in the carrying amount of the goodwill as an
expense.
However, this procedure shall not result in the creation of an excess as describ
ed
in paragraph 56, nor shall it increase the amount of any gain previously
recognised in accordance with paragraph 56.
Disclosure
66
An acquirer shall disclose information that enables users of its financial
statements to evaluate the nature and financial effect of business combinations
that were effected:
(a)
during the period.
(b)
after the balance sheet date but before the financial statements are
authorised for issue.
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IFRS 3
To give effect to the principle in paragraph 66(a), the acquirer shall disclose t
he
following information for each business combination that was effected during
the period:
(a)
the names and descriptions of the combining entities or businesses.
(b)
the acquisition date.
(c)
the percentage of voting equity instruments acquired.
(d)
the cost of the combination and a description of the components of that
cost, including any costs directly attributable to the combination.
When equity instruments are issued or issuable as part of the cost, the
following shall also be disclosed:
(i)
the number of equity instruments issued or issuable; and
(ii)
the fair value of those instruments and the basis for determining that
fair value. If a published price does not exist for the instruments at
the date of exchange, the significant assumptions used to determine
fair value shall be disclosed. If a published price exists at the date of
exchange but was not used as the basis for determining the cost of the
combination, that fact shall be disclosed together with: the reasons
the published price was not used; the method and significant
assumptions used to attribute a value to the equity instruments; and
the aggregate amount of the difference between the value attributed
to, and the published price of, the equity instruments.
(e)
details of any operations the entity has decided to dispose of as a result of
the combination.
(f)
the amounts recognised at the acquisition date for each class of the
acquiree’s assets, liabilities and contingent liabilities, and, unless
disclosure would be impracticable, the carrying amounts of each of those
classes, determined in accordance with IFRSs, immediately before the
combination. If such disclosure would be impracticable, that fact shall be
disclosed, together with an explanation of why this is the case.
(g)
the amount of any excess recognised in profit or loss in accordance with
paragraph 56, and the line item in the income statement in which the
excess is recognised.
(h)
a description of the factors that contributed to a cost that results in the
recognition of goodwill—a description of each intangible asset that was not
recognised separately from goodwill and an explanation of why the
intangible asset’s fair value could not be measured reliably—or a
description of the nature of any excess recognised in profit or loss in
accordance with paragraph 56.
(i)
the amount of the acquiree’s profit or loss since the acquisition date
included in the acquirer’s profit or loss for the period, unless disclosure
would be impracticable. If such disclosure would be impracticable, that
fact shall be disclosed, together with an explanation of why this is the case.
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68
The information required to be disclosed by paragraph 67 shall be disclosed in
aggregate for business combinations effected during the reporting period that ar
e
individually immaterial.
69
If the initial accounting for a business combination that was effected during th
e
period was determined only provisionally as described in paragraph 62, that fac
t
shall also be disclosed together with an explanation of why this is the case.
70
To give effect to the principle in paragraph 66(a), the acquirer shall disclose t
he
following information, unless such disclosure would be impracticable:
(a)
the revenue of the combined entity for the period as though the acquisition
date for all business combinations effected during the period had been the
beginning of that period.
(b)
the profit or loss of the combined entity for the period as though the
acquisition date for all business combinations effected during the period
had been the beginning of the period.
If disclosure of this information would be impracticable, that fact shall be
disclosed, together with an explanation of why this is the case.
71
To give effect to the principle in paragraph 66(b), the acquirer shall disclose t
he
information required by paragraph 67 for each business combination effected
after the balance sheet date but before the financial statements are authorised f
or
issue, unless such disclosure would be impracticable. If disclosure of any of th
at
information would be impracticable, that fact shall be disclosed, together with
an
explanation of why this is the case.
72
An acquirer shall disclose information that enables users of its financial
statements to evaluate the financial effects of gains, losses, error corrections an
d
other adjustments recognised in the current period that relate to business
combinations that were effected in the current or in previous periods.
73
To give effect to the principle in paragraph 72, the acquirer shall disclose the
following information:
(a)
the amount and an explanation of any gain or loss recognised in the
current period that:
(i)
relates to the identifiable assets acquired or liabilities or contingent
liabilities assumed in a business combination that was effected in the
current or a previous period; and
(ii)
is of such size, nature or incidence that disclosure is relevant to an
understanding of the combined entity’s financial performance.
(b)
if the initial accounting for a business combination that was effected in the
immediately preceding period was determined only provisionally at the
end of that period, the amounts and explanations of the adjustments to the
provisional values recognised during the current period.
(c)
the information about error corrections required to be disclosed by IAS 8
for any of the acquiree’s identifiable assets, liabilities or contingent
liabilities, or changes in the values assigned to those items, that the
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IFRS 3
acquirer recognises during the current period in accordance with
paragraphs 63 and 64.
74
An entity shall disclose information that enables users of its financial statement
s
to evaluate changes in the carrying amount of goodwill during the period.
75
To give effect to the principle in paragraph 74, the entity shall disclose a
reconciliation of the carrying amount of goodwill at the beginning and end of
the
period, showing separately:
(a)
the gross amount and accumulated impairment losses at the beginning of
the period;
(b)
additional goodwill recognised during the period except goodwill included
in a disposal group that, on acquisition, meets the criteria to be classified
as held for sale in accordance with IFRS 5;
(c)
adjustments resulting from the subsequent recognition of deferred tax
assets during the period in accordance with paragraph 65;
(d)
goodwill included in a disposal group classified as held for sale in
accordance with IFRS 5 and goodwill derecognised during the period
without having previously been included in a disposal group classified as
held for sale;
(e)
impairment losses recognised during the period in accordance with IAS 36;
(f)
net exchange differences arising during the period in accordance with
IAS 21 The Effects of Changes in Foreign Exchange Rates;
(g)
any other changes in the carrying amount during the period; and
(h)
the gross amount and accumulated impairment losses at the end of the
period.
76
The entity discloses information about the recoverable amount and impairment
of goodwill in accordance with IAS 36 in addition to the information required
to
be disclosed by paragraph 75(e).
77
If in any situation the information required to be disclosed by this IFRS does
not
satisfy the objectives set out in paragraphs 66, 72 and 74, the entity shall disc
lose
such additional information as is necessary to meet those objectives.
Transitional provisions and effective date
Except as provided in paragraph 85, this IFRS shall apply to the accounting fo
r
business combinations for which the agreement date is on or after 31 March 2
004.
This IFRS shall also apply to the accounting for:
(a)
goodwill arising from a business combination for which the agreement
date is on or after 31 March 2004; or
(b)
any excess of the acquirer’s interest in the net fair value of the acquiree’s
identifiable assets, liabilities and contingent liabilities over the cost of a
business combination for which the agreement date is on or after 31 March
2004.
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Previously recognised goodwill
79
An entity shall apply this IFRS prospectively, from the beginning of the first
annual period beginning on or after 31 March 2004, to goodwill acquired in a
business combination for which the agreement date was before 31 March 2004,
and to goodwill arising from an interest in a jointly controlled entity obtained
before 31 March 2004 and accounted for by applying proportionate consolidatio
n.
Therefore, an entity shall:
(a)
from the beginning of the first annual period beginning on or after
31 March 2004, discontinue amortising such goodwill;
(b)
at the beginning of the first annual period beginning on or after 31 March
2004, eliminate the carrying amount of the related accumulated
amortisation with a corresponding decrease in goodwill; and
(c)
from the beginning of the first annual period beginning on or after
31 March 2004, test the goodwill for impairment in accordance with IAS 36
(as revised in 2004).
80
If an entity previously recognised goodwill as a deduction from equity, it shall
not
recognise that goodwill in profit or loss when it disposes of all or part of the
business to which that goodwill relates or when a cash-generating unit to whic
h
the goodwill relates becomes impaired.
Previously recognised negative goodwill
81
The carrying amount of negative goodwill at the beginning of the first annual
period beginning on or after 31 March 2004 that arose from either
(a)
a business combination for which the agreement date was before 31 March
2004 or
(b)
an interest in a jointly controlled entity obtained before 31 March 2004 and
accounted for by applying proportionate consolidation
shall be derecognised at the beginning of that period, with a corresponding
adjustment to the opening balance of retained earnings.
Previously recognised intangible assets
82
The carrying amount of an item classified as an intangible asset that either
(a)
was acquired in a business combination for which the agreement date was
before 31 March 2004 or
(b)
arises from an interest in a jointly controlled entity obtained before
31 March 2004 and accounted for by applying proportionate consolidation
shall be reclassified as goodwill at the beginning of the first annual period
beginning on or after 31 March 2004, if that intangible asset does not at that
date
meet the identifiability criterion in IAS 38 (as revised in 2004).
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Equity accounted investments
83
For investments accounted for by applying the equity method and acquired on
or
after 31 March 2004, an entity shall apply this IFRS in the accounting for:
(a)
any acquired goodwill included in the carrying amount of that investment.
Therefore, amortisation of that notional goodwill shall not be included in
the determination of the entity’s share of the investee’s profits or losses.
(b)
any excess included in the carrying amount of the investment of the
entity’s interest in the net fair value of the investee’s identifiable assets,
liabilities and contingent liabilities over the cost of the investment.
Therefore, an entity shall include that excess as income in the
determination of the entity’s share of the investee’s profits or losses in the
period in which the investment is acquired.
84
For investments accounted for by applying the equity method and acquired
before 31 March 2004:
(a)
an entity shall apply this IFRS on a prospective basis, from the beginning of
the first annual period beginning on or after 31 March 2004, to any
acquired goodwill included in the carrying amount of that investment.
Therefore, an entity shall, from that date, discontinue including the
amortisation of that goodwill in the determination of the entity’s share of
the investee’s profits or losses.
(b)
an entity shall derecognise any negative goodwill included in the carrying
amount of that investment at the beginning of the first annual period
beginning on or after 31 March 2004, with a corresponding adjustment to
the opening balance of retained earnings.
Limited retrospective application
85
An entity is permitted to apply the requirements of this IFRS to goodwill exist
ing
at or acquired after, and to business combinations occurring from, any date
before the effective dates outlined in paragraphs 78–84, provided:
(a)
the valuations and other information needed to apply the IFRS to past
business combinations were obtained at the time those combinations were
initially accounted for; and
(b)
the entity also applies IAS 36 (as revised in 2004) and IAS 38 (as revised in
2004) prospectively from that same date, and the valuations and other
information needed to apply those Standards from that date were
previously obtained by the entity so that there is no need to determine
estimates that would need to have been made at a prior date.
Withdrawal of other pronouncements
This IFRS supersedes IAS 22 Business Combinations (as issued in 1998).
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This IFRS supersedes the following Interpretations:
(a)
SIC-9 Business Combinations—Classification either as Acquisitions or Unitings
of
Interests;
(b)
SIC-22 Business Combinations—Subsequent Adjustment of Fair Values and Go
odwill
Initially Reported; and
(c)
SIC-28 Business Combinations—“Date of Exchange” and Fair Value of Equity
Instruments.
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IFRS 3
Appendix A
Defined terms
This appendix is an integral part of the IFRS.
acquisition date
The date on which the acquirer effectively obtains control of
the acquiree.
agreement date
The date that a substantive agreement between the combining
parties is reached and, in the case of publicly listed entities,
announced to the public. In the case of a hostile takeover, the
earliest date that a substantive agreement between the
combining parties is reached is the date that a sufficient
number of the acquiree’s owners have accepted the acquirer’s
offer for the acquirer to obtain control of the acquiree.
business
An integrated set of activities and assets conducted and
managed for the purpose of providing:
(a)
a return to investors; or
(b)
lower costs or other economic benefits directly and
proportionately to policyholders or participants.
A business generally consists of inputs, processes applied to
those inputs, and resulting outputs that are, or will be, used to
generate revenues. If goodwill is present in a transferred set of
activities and assets, the transferred set shall be presumed to be
a business.
business combination
The bringing together of separate entities or businesses into
one reporting entity.
business combination A business combination in which all of the combining en
tities
involving entities or or businesses ultimately are controlled by the same party
or
businesses under parties both before and after the combination, and that control
common control is not transitory.
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contingent liability Contingent liability has the meaning given to it in IAS 37
Provisions, Contingent Liabilities and Contingent Assets, ie:
(a) a possible obligation that arises from past events and
whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the entity;
or
(b) a present obligation that arises from past events but is
not recognised because:
(i) it is not probable that an outflow of resources
embodying economic benefits will be required to
settle the obligation; or
(ii) the amount of the obligation cannot be measured
with sufficient reliability.
control The power to govern the financial and operating policies of an
entity or business so as to obtain benefits from its activities.
date of exchange When a business combination is achieved in a single exchan
ge
transaction, the date of exchange is the acquisition date.
When a business combination involves more than one
exchange transaction, for example when it is achieved in stages
by successive share purchases, the date of exchange is the date
that each individual investment is recognised in the financial
statements of the acquirer.
fair value The amount for which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in an
arm’s length transaction.
goodwill Future economic benefits arising from assets that are not
capable of being individually identified and separately
recognised.
intangible asset Intangible asset has the meaning given to it in IAS 38 Intangi
ble
Assets, ie an identifiable non-monetary asset without physical
substance.
joint venture Joint venture has the meaning given to it in IAS 31 Interests in
Joint Ventures, ie a contractual arrangement whereby two or
more parties undertake an economic activity that is subject to
joint control.
minority interest That portion of the profit or loss and net assets of a subsidia
ry
attributable to equity interests that are not owned, directly or
indirectly through subsidiaries, by the parent.
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IFRS 3
mutual entity An entity other than an investor-owned entity, such as a mutual
insurance company or a mutual cooperative entity, that
provides lower costs or other economic benefits directly and
proportionately to its policyholders or participants.
parent An entity that has one or more subsidiaries.
probable More likely than not.
reporting entity An entity for which there are users who rely on the entity’s
general purpose financial statements for information that will
be useful to them for making decisions about the allocation of
resources. A reporting entity can be a single entity or a group
comprising a parent and all of its subsidiaries.
subsidiary An entity, including an unincorporated entity such as a
partnership, that is controlled by another entity (known as the
parent).
332 . IASCF
IFRS 3
Appendix B
Application supplement
This appendix is an integral part of the IFRS.
Reverse acquisitions
B1 As noted in paragraph 21, in some business combinations, commonly referr
ed to
as reverse acquisitions, the acquirer is the entity whose equity interests have b
een
acquired and the issuing entity is the acquiree. This might be the case when, f
or
example, a private entity arranges to have itself ‘acquired’ by a smaller public
entity as a means of obtaining a stock exchange listing. Although legally the
issuing public entity is regarded as the parent and the private entity is regarde
d
as the subsidiary, the legal subsidiary is the acquirer if it has the power to go
vern
the financial and operating policies of the legal parent so as to obtain benefits
from its activities.
B2 An entity shall apply the guidance in paragraphs B3–B15 when accounting
for a
reverse acquisition.
B3 Reverse acquisition accounting determines the allocation of the cost of the
business combination as at the acquisition date and does not apply to
transactions after the combination.
Cost of the business combination
B4
When equity instruments are issued as part of the cost of the business
combination, paragraph 24 requires the cost of the combination to include the
fair value of those equity instruments at the date of exchange. Paragraph 27 n
otes
that, in the absence of a reliable published price, the fair value of the equity
instruments can be estimated by reference to the fair value of the acquirer or t
he
fair value of the acquiree, whichever is more clearly evident.
B5
In a reverse acquisition, the cost of the business combination is deemed to hav
e
been incurred by the legal subsidiary (ie the acquirer for accounting purposes)
in
the form of equity instruments issued to the owners of the legal parent (ie the
acquiree for accounting purposes). If the published price of the equity
instruments of the legal subsidiary is used to determine the cost of the
combination, a calculation shall be made to determine the number of equity
instruments the legal subsidiary would have had to issue to provide the same
percentage ownership interest of the combined entity to the owners of the legal
parent as they have in the combined entity as a result of the reverse acquisitio
n.
The fair value of the number of equity instruments so calculated shall be used
as
the cost of the combination.
B6
If the fair value of the equity instruments of the legal subsidiary is not otherw
ise
clearly evident, the total fair value of all the issued equity instruments of the l
egal
parent before the business combination shall be used as the basis for determini
ng
the cost of the combination.
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IFRS 3
Preparation and presentation of consolidated financial statements
B7
Consolidated financial statements prepared following a reverse acquisition shall
be issued under the name of the legal parent, but described in the notes as a
continuation of the financial statements of the legal subsidiary (ie the acquirer
for accounting purposes). Because such consolidated financial statements
represent a continuation of the financial statements of the legal subsidiary:
(a)
the assets and liabilities of the legal subsidiary shall be recognised and
measured in those consolidated financial statements at their
pre-combination carrying amounts.
(b)
the retained earnings and other equity balances recognised in those
consolidated financial statements shall be the retained earnings and other
equity balances of the legal subsidiary immediately before the business
combination.
(c)
the amount recognised as issued equity instruments in those consolidated
financial statements shall be determined by adding to the issued equity of
the legal subsidiary immediately before the business combination the cost
of the combination determined as described in paragraphs B4–B6.
However, the equity structure appearing in those consolidated financial
statements (ie the number and type of equity instruments issued) shall
reflect the equity structure of the legal parent, including the equity
instruments issued by the legal parent to effect the combination.
(d)
comparative information presented in those consolidated financial
statements shall be that of the legal subsidiary.
B8
Reverse acquisition accounting applies only in the consolidated financial
statements. Therefore, in the legal parent’s separate financial statements, if any,
the investment in the legal subsidiary is accounted for in accordance with the
requirements in IAS 27 on accounting for investments in an investor’s separate
financial statements.
B9
Consolidated financial statements prepared following a reverse acquisition shall
reflect the fair values of the assets, liabilities and contingent liabilities of the l
egal
parent (ie the acquiree for accounting purposes). Therefore, the cost of the
business combination shall be allocated by measuring the identifiable assets,
liabilities and contingent liabilities of the legal parent that satisfy the recognitio
n
criteria in paragraph 37 at their fair values at the acquisition date. Any excess
of
the cost of the combination over the acquirer’s interest in the net fair value of
those items shall be accounted for in accordance with paragraphs 51–55.
Any excess of the acquirer’s interest in the net fair value of those items over
the
cost of the combination shall be accounted for in accordance with paragraph 5
6.
Minority interest
B10
In some reverse acquisitions, some of the owners of the legal subsidiary do no
t
exchange their equity instruments for equity instruments of the legal parent.
Although the entity in which those owners hold equity instruments (the legal
subsidiary) acquired another entity (the legal parent), those owners shall be
treated as a minority interest in the consolidated financial statements prepared
after the reverse acquisition. This is because the owners of the legal subsidiary
334
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IFRS 3
that do not exchange their equity instruments for equity instruments of the lega
l
parent have an interest only in the results and net assets of the legal subsidiar
y,
and not in the results and net assets of the combined entity. Conversely, all of
the
owners of the legal parent, notwithstanding that the legal parent is regarded as
the acquiree, have an interest in the results and net assets of the combined ent
ity.
B11
Because the assets and liabilities of the legal subsidiary are recognised and
measured in the consolidated financial statements at their pre-combination
carrying amounts, the minority interest shall reflect the minority shareholders’
proportionate interest in the pre-combination carrying amounts of the legal
subsidiary’s net assets.
Earnings per share
B12
As noted in paragraph B7(c), the equity structure appearing in the consolidated
financial statements prepared following a reverse acquisition reflects the equity
structure of the legal parent, including the equity instruments issued by the leg
al
parent to effect the business combination.
B13
For the purpose of calculating the weighted average number of ordinary shares
outstanding (the denominator) during the period in which the reverse acquisitio
n
occurs:
(a)
the number of ordinary shares outstanding from the beginning of that
period to the acquisition date shall be deemed to be the number of
ordinary shares issued by the legal parent to the owners of the legal
subsidiary; and
(b)
the number of ordinary shares outstanding from the acquisition date to
the end of that period shall be the actual number of ordinary shares of the
legal parent outstanding during that period.
B14
The basic earnings per share disclosed for each comparative period before the
acquisition date that is presented in the consolidated financial statements
following a reverse acquisition shall be calculated by dividing the profit or los
s of
the legal subsidiary attributable to ordinary shareholders in each of those perio
ds
by the number of ordinary shares issued by the legal parent to the owners of
the
legal subsidiary in the reverse acquisition.
B15
The calculations outlined in paragraphs B13 and B14 assume that there were n
o
changes in the number of the legal subsidiary’s issued ordinary shares during t
he
comparative periods and during the period from the beginning of the period in
which the reverse acquisition occurred to the acquisition date. The calculation
of
earnings per share shall be appropriately adjusted to take into account the effec
t
of a change in the number of the legal subsidiary’s issued ordinary shares duri
ng
those periods.
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IFRS 3
Allocating the cost of a business combination
B16
This IFRS requires an acquirer to recognise the acquiree’s identifiable assets,
liabilities and contingent liabilities that satisfy the relevant recognition criteria
at their fair values at the acquisition date. For the purpose of allocating the co
st
of a business combination, the acquirer shall treat the following measures as fa
ir
values:
(a)
for financial instruments traded in an active market the acquirer shall use
current market values.
(b)
for financial instruments not traded in an active market the acquirer shall
use estimated values that take into consideration features such as
price-earnings ratios, dividend yields and expected growth rates of
comparable instruments of entities with similar characteristics.
(c)
for receivables, beneficial contracts and other identifiable assets the
acquirer shall use the present values of the amounts to be received,
determined at appropriate current interest rates, less allowances for
uncollectibility and collection costs, if necessary. However, discounting is
not required for short-term receivables, beneficial contracts and other
identifiable assets when the difference between the nominal and
discounted amounts is not material.
(d)
for inventories of:
(i)
finished goods and merchandise the acquirer shall use selling prices
less the sum of (1) the costs of disposal and (2) a reasonable profit
allowance for the selling effort of the acquirer based on profit for
similar finished goods and merchandise;
(ii)
work in progress the acquirer shall use selling prices of finished
goods less the sum of (1) costs to complete, (2) costs of disposal and
(3) a reasonable profit allowance for the completing and selling effort
based on profit for similar finished goods; and
(iii)
raw materials the acquirer shall use current replacement costs.
(e)
for land and buildings the acquirer shall use market values.
(f)
for plant and equipment the acquirer shall use market values, normally
determined by appraisal. If there is no market-based evidence of fair value
because of the specialised nature of the item of plant and equipment and
the item is rarely sold, except as part of a continuing business, an acquirer
may need to estimate fair value using an income or a depreciated
replacement cost approach.
(g)
for intangible assets the acquirer shall determine fair value:
(i)
by reference to an active market as defined in IAS 38; or
(ii)
if no active market exists, on a basis that reflects the amounts the
acquirer would have paid for the assets in arm’s length transactions
between knowledgeable willing parties, based on the best
336
. IASCF
IFRS 3
information available (see IAS 38 for further guidance on determining
the fair values of intangible assets acquired in business
combinations).
(h)
for net employee benefit assets or liabilities for defined benefit plans the
acquirer shall use the present value of the defined benefit obligation less
the fair value of any plan assets. However, an asset is recognised only to the
extent that it is probable it will be available to the acquirer in the form of
refunds from the plan or a reduction in future contributions.
(i)
for tax assets and liabilities the acquirer shall use the amount of the tax
benefit arising from tax losses or the taxes payable in respect of profit or
loss in accordance with IAS 12, assessed from the perspective of the
combined entity. The tax asset or liability is determined after allowing for
the tax effect of restating identifiable assets, liabilities and contingent
liabilities to their fair values and is not discounted.
(j)
for accounts and notes payable, long-term debt, liabilities, accruals and
other claims payable the acquirer shall use the present values of amounts
to be disbursed in settling the liabilities determined at appropriate current
interest rates. However, discounting is not required for short-term
liabilities when the difference between the nominal and discounted
amounts is not material.
(k)
for onerous contracts and other identifiable liabilities of the acquiree the
acquirer shall use the present values of amounts to be disbursed in settling
the obligations determined at appropriate current interest rates.
(l)
for contingent liabilities of the acquiree the acquirer shall use the amounts
that a third party would charge to assume those contingent liabilities.
Such an amount shall reflect all expectations about possible cash flows and
not the single most likely or the expected maximum or minimum cash
flow.
B17
Some of the above guidance requires fair values to be estimated using present
value techniques. If the guidance for a particular item does not refer to the us
e
of present value techniques, such techniques may be used in estimating the fair
value of that item.
. IASCF
337
IFRS 3
Appendix C
Amendments to other IFRSs
The amendments in this appendix shall be applied to the accounting for busine
ss combinations for which
the agreement date is on or after 31 March 2004, and to the accounting for a
ny goodwill and intangible
assets acquired in those business combinations. In all other respects, these ame
ndments shall be applied
for annual periods beginning on or after 31 March 2004.
However, if an entity elects in accordance with paragraph 85 to apply IFRS 3
from any date before the
effective dates outlined in paragraphs 78–84, it shall also apply these amendme
nts prospectively from
that same date.
* * * * *
The amendments contained in this appendix when this IFRS was issued in 200
4 have been incorporated
into the relevant pronouncements published in this volume.
338 . IASCF
IFRS 3
Approval of IFRS 3 by the Board
International Financial Reporting Standard 3 Business Combinations was approv
ed for issue
by twelve of the fourteen members of the International Accounting Standards
Board.
Professor Whittington and Mr Yamada dissented. Their dissenting opinions are
set out
after the Basis for Conclusions on IFRS 3.
Sir David Tweedie Chairman
Thomas E Jones Vice-Chairman
Mary E Barth
Hans-Georg Bruns
Anthony T Cope
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O’Malley
Harry K Schmid
John T Smith
Geoffrey Whittington
Tatsumi Yamada
. IASCF 339
IFRS 3 BC
CONTENTS
paragraphs
BASIS FOR CONCLUSIONS
IFRS 3 BUSINESS COMBINATIONS
INTRODUCTION BC1–BC5
DEFINITION OF A BUSINESS COMBINATION BC6–BC15
Definition of a business BC10–BC15
Replacing ‘operations’ with ‘businesses’ BC11
Defining a business BC12–BC15
SCOPE BC16–BC36
Scope exclusions BC16–BC34
Business combinations involving the formation of a joint venture BC17–BC23
Business combinations involving entities under common control BC24–BC28
Combinations involving mutual entities or the bringing together of separate
entities to form a reporting entity by contract alone BC29–BC34
Scope inclusions BC35–BC36
METHOD OF ACCOUNTING BC37–BC55
Business combinations in which one of the combining entities obtains
control BC44–BC46
Business combinations in which none of the combining entities obtains
control BC47–BC53
Reasons for rejecting the pooling of interests method BC50–BC53
Business combinations in which it is difficult to identify an acquirer BC54–BC
55
APPLICATION OF THE PURCHASE METHOD BC56–BC169
Identifying an acquirer BC56–BC66
Identifying an acquirer in a business combination effected through an
exchange of equity interests BC57–BC61
Identifying an acquirer when a new entity is formed to effect a business
combination BC62–BC66
Cost of a business combination BC67–BC73
Costs directly attributable to the business combination BC71–BC73
Allocating the cost of a business combination BC74–BC158
Recognising the identifiable assets acquired and liabilities and contingent
liabilities assumed BC74–BC120
Provisions for terminating or reducing the activities of the acquiree BC76–BC8
7
Intangible assets BC88–BC106
Contingent liabilities BC107–BC117
Contractual obligations of the acquiree for which payment is triggered
by a business combination BC118–BC120
Measuring the identifiable assets acquired and liabilities and contingent
liabilities incurred or assumed BC121–BC128
Goodwill BC129–BC142
340 . IASCF
IFRS 3 BC
Initial recognition of goodwill as an asset BC129–BC135
Subsequent accounting for goodwill BC136–BC142
Excess of acquirer’s interest in the net fair value of acquiree’s identifiable
assets, liabilities and contingent liabilities over cost BC143–BC156
Recognising the excess as a reduction in the values attributed to
some net assets BC151–BC153
Recognising the excess as a separate liability BC154
Recognising the excess immediately in profit or loss BC155–BC156
Business combination achieved in stages BC157–BC158
Initial accounting determined provisionally BC159–BC169
Adjustments after the initial accounting is complete BC164–BC169
Adjustments to the cost of a business combination after the initial
accounting is complete BC166–BC167
Recognition of deferred tax assets after the initial accounting is
complete BC168–BC169
DISCLOSURE BC170–BC178
TRANSITIONAL PROVISIONS AND EFFECTIVE DATE BC179–BC204
Limited retrospective application BC181–BC184
Previously recognised goodwill BC185–BC188
Previously recognised negative goodwill BC189–BC195
Previously recognised intangible assets BC196–BC199
Equity accounted investments BC200–BC204
DISSENTING OPINIONS ON IFRS 3
. IASCF 341
IFRS 3 BC
Basis for Conclusions on
IFRS 3 Business Combinations
This Basis for Conclusions accompanies, but is not part of, IFRS 3.
Introduction
BC1 This Basis for Conclusions summarises the Board’s considerations in reac
hing the
conclusions in IFRS 3 Business Combinations. Individual Board members gave
greater weight to some factors than to others.
BC2 IAS 22 Business Combinations (revised in 1998) specified the accounting
for business
combinations. In 2001 the Board began a project to review IAS 22 as part of
its
initial agenda, with the objective of improving the quality of, and seeking
international convergence on, the accounting for business combinations.
The Board’s project on business combinations has two phases. As part of the f
irst
phase, the Board published in December 2002 ED 3 Business Combinations, to
gether
with an Exposure Draft of proposed related amendments to IAS 38 Intangible
Assets
and IAS 36 Impairment of Assets, with a comment deadline of 4 April 2003.
The Board received 136 comment letters.
BC3 The first phase resulted in the Board issuing simultaneously the IFRS and
revised
versions of IAS 36 and IAS 38. The Board’s intention in developing the IFRS
as part
of the first phase of the project was not to reconsider all of the requirements i
n
IAS 22. Instead, the Board’s primary focus was on:
(a) the method of accounting for business combinations;
(b) the initial measurement of the identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination;
(c) the recognition of liabilities for terminating or reducing the activities of an
acquiree;
(d) the treatment of any excess of the acquirer’s interest in the fair value of
identifiable net assets acquired in a business combination over the cost of
the combination; and
(e) the accounting for goodwill and intangible assets acquired in a business
combination.
BC4 Therefore, a number of the requirements in the IFRS were carried forwar
d from
IAS 22 without reconsideration by the Board. This Basis for Conclusions identi
fies
those requirements but does not discuss them in detail.
BC5 The second phase of the Business Combinations project includes considera
tion of:
(a) issues arising in respect of the application of the purchase method,
including its application to:
(i) business combinations involving two or more mutual entities; and
(ii) business combinations in which separate entities are brought
together to form a reporting entity by contract alone without the
342 . IASCF
IFRS 3 BC
obtaining of an ownership interest. This includes combinations in
which separate entities are brought together by contract to form a
dual listed corporation.
(b)
the accounting for business combinations in which separate entities or
businesses are brought together to form a joint venture, including possible
applications for ‘fresh start’ accounting.
(c)
the accounting for business combinations involving entities under
common control.
Definition of a business combination
BC6
A business combination is defined in the IFRS as ‘the bringing together of sep
arate
entities or businesses into one reporting entity’.
BC7
The Board concluded that the definition of a business combination should be
broad enough to encompass all transactions that meet the business combination
definition in IAS 22, ie all transactions or other events in which separate entiti
es
or businesses are brought together into one economic entity, regardless of the
form of the transaction. In developing ED 3 and the ensuing IFRS, the Board
considered the following description contained in the US Financial Accounting
Standards Board’s Statement of Financial Accounting Standards No. 141 Busine
ss
Combinations (SFAS 141):
a business combination occurs when an entity acquires net assets that constitute
a
business or acquires equity interests of one or more other entities and obtains
control
over that entity or entities. (paragraph 9)
BC8
The Board was concerned whether the above description would, in fact,
encompass all transactions or other events in which separate entities or
businesses are brought together into one economic entity. That concern
stemmed from the use of the term ‘acquires’ in the above description, and its
implication that a business combination is always the result of one entity
acquiring control of one or more other entities or businesses, ie that all busine
ss
combinations are acquisitions. The Board concluded that it should not rule out
the possibility of some transaction or other event occurring or being structured
in which separate entities or businesses are brought together into one economic
entity, but without one of the combining entities acquiring control of the other
combining entities or businesses. Therefore, the Board decided to develop a mo
re
general definition.
BC9
Given the Board’s desire for the definition to encompass all transactions or oth
er
events that are, in substance, business combinations, regardless of their form, t
he
Board decided to retain the IAS 22 definition, but with two modifications.
The first was to remove the reference in that definition to the form that IAS
22
asserts a business combination might take (ie a uniting of interests or an
acquisition). The second was to replace the reference to ‘economic entity’ with
‘reporting entity’ for consistency with the IASB’s Framework for the Preparatio
n and
Presentation of Financial Statements. Paragraph 8 of the Framework states that
it is
concerned with the financial statements of reporting enterprises, and that a
reporting enterprise is ‘an enterprise for which there are users who rely on the
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IFRS 3 BC
financial statements as their major source of financial information about the
enterprise.’ The definition of reporting entity in the IFRS also clarifies that a
reporting entity can be a single entity or a group comprising a parent and all
of
its subsidiaries.
Definition of a business
BC10
ED 3 proposed to define a business combination as ‘the bringing together of
separate entities or operations of entities into one reporting entity’. Many
respondents to ED 3 asked for additional guidance on identifying when an enti
ty
or a group of assets or net assets comprises an operation and when, therefore,
the
acquisition of an entity or a group of assets or net assets should be accounted
for
in accordance with the IFRS. As a result:
(a)
references in ED 3 to ‘operations’ have been replaced in the IFRS with
‘businesses’.
(b)
‘business’ has been defined in the IFRS (Appendix A) as follows:
An integrated set of activities and assets conducted and managed for the purpo
se of
providing:
(a)
a return to investors; or
(b)
lower costs or other economic benefits directly and proportionately to
policyholders or participants.
A business generally consists of inputs, processes applied to those inputs, and
resulting
outputs that are, or will be, used to generate revenues. If goodwill is present i
n a
transferred set of activities and assets, the transferred set shall be presumed to
be a
business.
(c)
additional guidance has been included in the IFRS to clarify that if an
entity obtains control over one or more other entities that are not
businesses, the bringing together of those entities is not a business
combination. When a group of assets that does not constitute a business is
acquired, the cost of the group of assets should be allocated between the
individual identifiable assets in the group based on their relative fair
values.
Replacing ‘operations’ with ‘businesses’
BC11
As noted above, ED 3 proposed to define a business combination as ‘the bring
ing
together of separate entities or operations of entities into one reporting entity’.
The Board observed that the definition of a discontinuing operation in IAS 35
Discontinuing Operations incorporates a definition of an operation for the purpo
se
of applying the requirements in IAS 35. Similarly, the IFRS arising from ED
4
Disposal of Non-current Assets and Presentation of Discontinued Operations wil
l include a
definition of an operation to ensure its consistent application. The Board decide
d
that it should eliminate any possible connection between the IFRS and the noti
on
of an operation embedded in any current or future Standard on discontinuing
operations. Therefore, the Board decided to replace references to operations in
ED 3 with businesses, and to include in the IFRS guidance on identifying whe
n an
entity or a group of assets or net assets constitutes a business.
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IFRS 3 BC
Defining a business
BC12
Given its objective of seeking international convergence on the accounting for
business combinations, the Board considered as
