Effective Date

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Periods beginning on or after 1 July 2009

IFRS 3 Business Combinations

SCOPE / IDENTIFYING A BUSINESS COMBINATION

A business combination is: IFRS 3 does not apply to:

Transaction or event in which acquirer obtains control over a business (e.g. acquisition of shares or  The accounting for the formation of a joint arrangement in the financial statements of the joint
net assets, legal mergers, reverse acquisitions). arrangement itself.
 Acquisition of an asset or group of assets that is not a business.
 A combination of entities or businesses under common control.

Definition of “control of an investee”

An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the
investee.
Power: when existing rights give an investor the current ability to direct the relevant activities of an investee (ie the activities that significantly affect the investee’s returns)
Rights to variable returns: an investor is exposed or has rights to returns that vary as a result of the investee’s performance
Link between power and returns: control exists when an investor has power over an investee and exposure or rights to the investee’s variable returns, and has the ability to use its power to affect the
investee’s returns.
Principal or agent: an investor with power over an investee determines whether it is a principal or an agent. An investor that is an agent does not control an investee when it exercises delegated rights.

Definition of a “Business”
An Integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or
interest) or generating other income from ordinary activities.

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 Effective Date
Page 2 of 2
Periods beginning on or after 1 July 2009

IFRS 3 Business Combinations

THE ACQUISITION METHOD

A business combination must be accounted for by applying the acquisition method.

STEP 1: IDENTIFYING THE STEP 2: DETERMINING THE STEP 3: RECOGNISING AND MEASURING THE ADDITIONAL GUIDANCE FOR APPLYING THE ACQUISITION METHOD TO
ACQUIRER ACQUISITION DATE IDENTIFIABLE ASSETS ACQUIRED, THE LIABILITIES PARTICULAR TYPES OF BUSINESS COMBINATIONS
ASSUMED AND ANY NON-CONTROLLING INTEREST
IFRS 10 Consolidated Financial Statements The date which the acquirer obtains
is used to identify the acquirer – the entity control of the acquiree.
(NCI) IN THE ACQUIREE
BUSINESS COMBINATION ACHIEVED IN STAGES
that obtains control of the acquiree.
 As of the acquisition date, the acquirer recognises,
separately from goodwill:  An acquirer sometimes obtains control of an acquiree in which it held an equity
STEP 4: RECOGNISING AND MEASURING GOODWILL OR A GAIN FROM ‒ The identifiable assets acquired interest immediately before the acquisition date. This is known as a business
BARGAIN PURCHASE ‒ The liabilities assumed combination achieved in stages or as a step acquisition
‒ Any NCI in the acquiree  Obtaining control triggers re-measurement of previous investments (equity
 Goodwill is recognised as the excess between:  The acquired assets and liabilities are required to be interests)
‒ The aggregate of the consideration transferred, any non-controlling interest in the measured at their acquisition-date fair values  The acquirer remeasures its previously held equity interest in the acquiree at its
acquiree and, in a business combination achieved in stages, the acquisition-date fair  There are certain exceptions to the recognition and/or acquisition-date fair value. Any resulting gain/loss is recognised in profit or loss.
value of the acquirer’s previously held equity interest in the acquiree measurement principles which cover contingent
‒ The identifiable net assets acquired (including any deferred tax balances) liabilities, income taxes, employee benefits,
 Goodwill can be grossed up to include the amounts attributable to NCI, which is the indemnification assets, reacquired rights, share-based BUSINESS COMBINATION ACHIEVED WITHOUT TRANSFER OF
case when NCI is measured at their acquisition date fair value. payments and assets held for sale. CONSIDERATION
 A gain from a bargain purchase is immediately recognised in profit or loss  NCI that represent ownership interests and entitle their
 The consideration transferred in a business combination (including any contingent holders to a proportionate share of the entity’s net  The acquisition method of accounting for a business combination also applies if no
consideration) is measured at fair value assets in the event of liquidation (e.g. shares) are consideration is transferred.
 Contingent consideration is either classified as a liability or an equity instrument on the measured at acquisition-date fair value or at the NCI’s  Such circumstances include:
basis of IAS 32 Financial Instruments proportionate share in net assets ‒ The acquiree repurchases a sufficient number of its own shares for an existing
 Contingent consideration that is within the scope of IFRS 9 (classified as a financial liability)  All other components of NCI (e.g. from IFRS 2 Share- investor (the acquirer) to obtain control
needs to be remeasured at fair value at each reporting date with changes reported in profit based payments or calls) are required to be measured ‒ Minority veto rights lapse that previously kept the acquirer from controlling an
or loss. at their acquisition-date fair values. acquiree in which the acquirer held the majority voting rights
‒ The acquirer and the acquiree agree to combine their businesses by contract alone.
DETERMINING WHAT IS PART OF THE BUSINESS COMBINATION
MEASUREMENT PERIOD
TRANSACTION SUBSEQUENT MEASUREMENT AND ACCOUNTING
Applies when initial accounting is incomplete at the end of the The acquirer should consider if the consideration includes amounts attributable to
reporting period in which the business combination occurs other transactions within the contract (pre-existing relationship, arrangements that  In general, after the date of a business combination an acquirer measures and
Measurement period ends when acquirer receives information remunerate employees etc.). accounts for assets acquired and liabilities assumed or incurred in accordance with
seeking about facts and circumstances at acquisition date, not Acquisition and other costs other applicable IFRS Accounting Standards.
to exceed one year from acquisition date.  Cannot be capitalised, must instead be expensed in the period they are incurred  However, IFRS 3 includes accounting requirements for reacquired rights,
 Costs to issue debt or equity are recognised in accordance with IAS 32 and IFRS 9. contingent liabilities, contingent consideration and indemnification assets.