Objective: IFRS 3 establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any non-controlling interest in the acquiree.
- Applies to all business combinations except joint ventures and combinations under common control
- Uses acquisition method of accounting
- Core principle: Fair value measurement at acquisition date
Business Combination: A transaction or other event in which an acquirer obtains control of one or more businesses.
Business: An integrated set of activities and assets capable of being conducted and managed for providing returns.
Acquisition Date: The date on which the acquirer obtains control of the acquiree.
- Goodwill: Future economic benefits from assets not individually identified
- Bargain Purchase: When acquisition cost is less than fair value of net assets
- Non-controlling Interest: Equity in subsidiary not attributable to parent
Step 1: Identify the Acquirer
The entity that obtains control of the acquiree.
Step 2: Determine Acquisition Date
The date control is obtained (typically closing date).
Step 3: Recognize and Measure Assets & Liabilities
At fair value, including identifiable intangible assets.
Step 4: Recognize and Measure Goodwill or Bargain Purchase
Calculate as consideration transferred plus NCI less net assets.
| Indicator | Description |
|---|---|
| Voting Rights | Entity with majority voting power |
| Board Control | Power to appoint majority of board members |
| Size Difference | Significantly larger entity typically acquirer |
| Exchange Consideration | Entity transferring cash/other assets typically acquirer |
Consideration Transferred: Measured at acquisition-date fair value.
- Cash: Face amount
- Equity Instruments: Fair value at acquisition date
- Contingent Consideration: Fair value at acquisition date
- Assets Transferred: Fair value at acquisition date
- Liabilities Assumed: Present value of settlement amount
Consideration Transferred: $10,000,000
Non-controlling Interest: $2,000,000
Fair Value of Net Assets: $9,500,000
Goodwill Calculation:
$10,000,000 + $2,000,000 - $9,500,000 = $2,500,000
Result: $2,500,000 recognized as goodwill
- Identifiable Assets: Recognize separately from goodwill if they arise from contractual/legal rights or are separable
- Intangible Assets: Must meet identifiability criteria (contractual-legal or separable)
- Contingent Liabilities: Recognize if present obligation exists and fair value can be measured reliably
- Exceptions: Some items measured under other standards (deferred tax, employee benefits)
- Measurement Period: Up to one year to finalize measurements
| Scenario | Accounting Treatment |
|---|---|
| Goodwill | Recognized as asset and tested annually for impairment |
| Bargain Purchase | Gain recognized immediately in profit or loss |
| Negative Goodwill | Reassess measurements, then recognize gain |
Goodwill Formula:
Consideration + NCI + Previously held equity interest - Net assets fair value
- Qualitative Information: Description of acquisition and reasons
- Quantitative Information: Details of consideration, assets, liabilities
- Goodwill: Amount recognized and factors contributing
- Bargain Purchases: Amount of gain and reasons
- Contingent Consideration: Arrangements and fair value
- Pro-forma Information: Combined revenue and profit as if acquired at beginning of period
- Transaction Costs: Amount recognized as expenses
- Goodwill: Not amortized, tested annually for impairment
- Assets/Liabilities: Accounted for under relevant standards
- Contingent Consideration: Remeasured at fair value through P&L
- Measurement Period Adjustments: Adjusted retrospectively if within one year
- Indemnification Assets: Measured consistently with indemnified item