IFRS 3 Business Combinations

A business combination is defined as a transaction or other event in which an

acquirer obtains control of one or more businesses. Companies must apply the
requirements of IFRS 3 when accounting for business combinations. An entity
may acquire control of a business when the acquirer purchases net assets which
together form a business, or the acquirer purchases the shares of another entity
establishing a parent-subsidiary relationship. The objective of IFRS 3 business
combinations is to improve the relevance, reliability and comparability of the
information that a reporting entity provides in its financial statements about a
business combination and its effects.
IFRS 3 does not apply to the accounting for the formation of a joint arrangement
in the financial statements of the joint arrangement itself, the acquisition of an
asset or group of assets that is not a business and a combination of entities or
businesses under common control.
It is necessary to measure and account for the amount of goodwill acquired as a
result of the business combination and to recognise goodwill as an asset. IFRS 3
defines goodwill as an asset representing the future economic benefit arising
from assets acquired in a business combination that are not individually
identified and separately recognised. Goodwill is generally recognised as the
price paid by the acquirer in the business combination and the acquirers interest
in the net fair value of the identifiable assets and liabilities at the date of
acquisition.
Goodwill acquired in a business combination should not be amortised. IFRS3
requires that goodwill should be measured at the amount initially recognised less
any accumulated impairment losses. An impairment loss arises when an assets
value falls below its carrying amount.
Acquisitions:
Acquisition date

Acquirer considers all facts and circumstances when deciding acquisition

date.
This is the date on which control of new business takes place.
Doesnt provide support on the determination of the acquisition.

Acquired Assets and Liabilities

Recognition principle
Identifiable assets acquired, liabilities assumed, non-controlling interests
in the acquiree, recognised separately from goodwill.
Measurement principle
Assets and liabilities are measured at acquisition-date fair value.

Exceptions to above principles

Contingent Liabilities

Income Taxes

Employee Benefits

Indemnification assets

Reacquired rights

Share-based payment transactions

Assets held for sale

Disclosure requirements of IFRS3:

The main disclosure requirements of IFRS3 in relation to goodwill are as follows:
a) a reconciliation of the carrying amount of goodwill at the beginning and end of
the accounting period, showing
i) the gross amount of goodwill and any accumulated impairment losses at the
beginning of the period
ii) additional goodwill recognised in the period
iii) goodwill now derecognised because it has been disposed of or because it is
included in a disposal group classified as held for sale
iv) impairment losses for the period
v) any other movements
vi) the gross amount of goodwill and any accumulated impairment losses at the
end of the period
b) bargain purchase:
i) the amount of any gain which has been included in the entitys profit or loss for
the period and the line item in the statement of comprehensive income in which

this gain is included, and

ii) an explanation of the reasons that caused this gain to occur.