IFRS 3 Business Combinations Archives – FAQ | IFRS

IFRS 3 Objective Scope

Objective – IFRS 3 Objective ScopeIFRS 3 Objective Scope

1 The objective of this IFRS 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. To accomplish that, this IFRS establishes principles and requirements for how the acquirer:

  1. recognises and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree;
  2. recognises and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and
  3. determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

Scope

2 This IFRS applies to … Read more

IFRS 3 The acquisition method

4 An entity shall account for each business combination by applying the acquisition method. IFRS 3 The acquisition methodIFRS 3 The acquisition method

5 Applying the acquisition method requires: IFRS 3 The acquisition method

  1. identifying the acquirer; IFRS 3 The acquisition method
  2. determining the acquisition date; IFRS 3 The acquisition method
  3. recognising and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; and
  4. recognising and measuring goodwill or a gain from a bargain purchase. IFRS 3 The acquisition method

Identifying the acquirer

6 For each business combination, one of the combining entities shall be identified as the acquirer. IFRS 3 The acquisition method

7 The guidance in IFRS 10 shall be used to identify the acquirer—the entity that … Read more

IFRS 3 Subsequent measurement and accounting

IFRS 3 Subsequent measurement and accountingIFRS 3 Subsequent measurement and accounting

54 In general, an acquirer shall subsequently measure and account for assets acquired, liabilities assumed or incurred and equity instruments issued in a business combination in accordance with other applicable IFRSs for those items, depending on their nature. However, this IFRS provides guidance on subsequently measuring and accounting for the following assets acquired, liabilities assumed or incurred and equity instruments issued in a business combination:

  1. reacquired rights; IFRS 3 Subsequent measurement and accounting
  2. contingent liabilities recognised as of the acquisition date; IFRS 3 Subsequent measurement and accounting
  3. indemnification assets; and IFRS 3 Subsequent measurement and accounting
  4. contingent consideration. IFRS 3 Subsequent measurement and accounting

Paragraph B63 provides related application guidance. IFRS 3 Subsequent measurement Read more

IFRS 3AG Entities under common control

Appendix B Application guidance IFRS 3AG Entities under common controlIFRS 3AG Entities under common control

This appendix is an integral part of the IFRS. IFRS 3AG Entities under common control

Business combinations of entities under common control (application of paragraph 2(c))

B1 This IFRS does not apply to a business combination of entities or businesses under common control. 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 business combination, and that control is not transitory.

B2 A group of individuals shall be regarded as controlling an entity when, as a result of contractual arrangements, they … Read more

IFRS 3AG Identifying a business combination

Identifying a business combination (application of paragraph 3)IFRS 3AG Identifying a business combination

B5 This IFRS defines a business combination as a transaction or other event in which an acquirer obtains control of one or more businesses. An acquirer might obtain control of an acquiree in a variety of ways, for example:

  1. by transferring cash, cash equivalents or other assets (including net assets that constitute a business);
  2. by incurring liabilities;
  3. by issuing equity interests;
  4. by providing more than one type of consideration; or
  5. without transferring consideration, including by contract alone (see paragraph 43).

B6 A business combination may be structured in a variety of ways for legal, taxation or other reasons, which include but are not limited to:

  1. one or more businesses become subsidiaries
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IFRS 3AG Definition of a business

Definition of a business (application of paragraph 3)

[changed May 2019] B7 A business consists of inputs and processes applied to those inputs that have the ability to contribute to the creation of outputs. The three elements of a business are defined as follows (see paragraphs B8–B12D for guidance on the elements of a business):

  1. Input: Any economic resource that creates outputs, or has the ability to contribute to the creation of outputs when one or more processes are applied to it. Examples include non-current assets (including intangible assets or rights to use non-current assets), intellectual property, the ability to obtain access to necessary materials or rights and employees.
  2. Process: Any system, standard, protocol, convention or rule that
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