New On IFRS 3 The Optional Concentration Test – FAQ | IFRS

New on IFRS 3 The Optional concentration test

Whilst applying the definition of a business might involve significant judgement, there was little or no guidance to identify situations where an acquired set of activities and assets is not a business. To address those concerns, the IASB introduced an optional fair value concentration test. The purpose of this test is to permit a simplified assessment of whether an acquired set of activities and assets is not a business. Important – Entities may elect whether or not to apply the concentration test on a transaction-by-transaction basis. AND once starting the optional concentration tests an entity can always back off! New on IFRS 3 The Optional concentration test

The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. The test is based on gross assets, not net assets, as the Board concluded that whether a set of activities and assets includes a substantive process does not depend on how the set is financed. In addition, certain assets are excluded from the gross assets considered in the test. If the test is met, the set of activities and assets is determined not to be a business and no further assessment is needed. If the test is not met, or if an entity elects not to apply the test, a detailed assessment must be performed applying the normal requirements in IFRS 3. As such, the concentration test never determines that a transaction is a business combination. In summary:

Want to know the accounting differences between a business acquisition and an asset acquisition? LOOOOK HERE

Perform the normal detailed assessment? > Identify a business

New on IFRS 3 The Optional concentration test New on IFRS 3 The Optional concentration test New on IFRS 3 The Optional concentration test New on IFRS 3 The Optional concentration test New on IFRS 3 The Optional concentration test New on IFRS 3 The Optional concentration test New on IFRS 3 The Optional concentration test

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