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Valuing a Research and development project

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Valuing a Research and development project is an example of a special project in IFRS 3. The reporting entity acquires a research and development (R&D) project in a business combination. The entity does not intend to complete the project.

If completed, the project would compete with one of its own projects (to provide the next generation of the entity’s commercialized technology). Instead, the entity intends to hold (i.e., to lock up) the project to prevent its competitors from obtaining access to the technology. In doing this, the project is expected to provide defensive value, principally by improving the prospects for the entity’s own competing technology.

To measure the fair value of the project at initial recognition, the … Read more

How is goodwill different from other intangible assets?

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How is goodwill different from other intangible assets? An asset, which has no physical existence such as corporate intellectual properties (patents, trademarks, business methodologies and copyrights), trademarks, patents, software, goodwill and brand recognition are known to be an “Intangible asset”. So goodwill is and is not an intangible asset. Goodwill is a residual, unidentifiable, not separable asset. Intangibles are not that but…. How is goodwill different from other intangible assets

Separate identifiable intangible assets acquired

That is because identifiable intangible assets acquired in a business combination are recognised separately from goodwill [IFRS 3 B31]. An intangible asset is ‘identifiable’ if it arises from contractual or other legal rights or if it is separable [IAS 38 12]. Under … Read more

Customer relationships valuation

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Introduction

Customer relationships valuation is based on valuation model. Here such a valuation model is presented to value customer contracts and the related customer relationship and the non-contractual customer relationships, as per IFRS 3 Business Combinations.

References (to familiarise yourself with the subject):

Customer contracts and the related customer relationships
Non-contractual customer relationships
Order or production backlog

What are the inputs to the model?

Revenue

Revenue – represents revenue from existing customer relationships for existing products. Includes contractual and non-contractual relationships (even those without current backlog or commitments). Separate valuation of a backlog revenue intangible asset can be considered if and when such backlog exists.

The model assumes a “market participant” point of view, … Read more

IAS 38 Non-contractual customer relationships

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IAS 38 Non-contractual customer relationships, in Business Combinations, this is a intangible asset and is therefore recognised separately from goodwill, provided that its fair value can be measured reliably. This customer-related intangible asset does not arise from contractual or other legal rights, but meets the definition of an intangible asset because it is separable. IAS 38 Non-contractual customer relationships

IAS 38 Non-contractual customer relationships

If a customer relationship acquired in a business combination does not arise from a contract, the relationship is an intangible asset if it meets the separability criterion. Exchange transactions for the same asset or a similar asset provide evidence of separability of a non-contractual customer relationship and might also provide information about exchange prices that should be considered … Read more

Investments in Joint Ventures Overview

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Investments in Joint Ventures Overview that is what this is……

An entity with joint control of an investee shall account for its investment in a joint venture using the equity method except when that investment qualifies for exemption in IAS 28. Investments in Joint Ventures Overview

The exemptions include:Investments in Joint Ventures Overview

  • if the entity is a parent that is exempt from preparing consolidated financial statements by the scope exception in paragraphs 4(a) of IFRS 10 Consolidated Financial Statements; or Investments in Joint Ventures Overview
  • all of the following apply: Investments in Joint Ventures Overview
    1. the entity is a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners, including those
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Identify and separate Intangible assets

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Identify and separate Intangible assets that is one of the most important exercises in a IFRS 3 business combination. The acquirer recognises, separately from goodwill, the identifiable intangible assets acquired in a business combination. An intangible asset is identifiable if it meets either the separability criterion or the contractual-legal criterion. Identify and separate Intangible assets Identify and separate Intangible assets

An intangible asset that meets the contractual-legal criterion is identifiable even if the asset is not transferable or separable from the acquiree or from other rights and obligations. For example:

  1. an acquiree leases a manufacturing facility under an operating lease that has terms that are favourable relative to market terms.

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The Acquisition Method illustrated

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The Acquisition Method illustrated – a little history of acquisitions, mergers, purchase accounting, pooling of interests, goodwill, intangible assets acquired and the current end to this IFRS 3 Business Combinations. This is a developing story I will add stuff to end with a complete overview.

The short case: The Acquisition Method illustrated

The company A Corp is purchasing all shares in B Corp. Control is acquired by A Corp, B Corp disappears from the economic entity, and B or B’s shareholders receive either A Corp stock or other property. This will result in a business combination which means A Corp’s acquisition of control over the business of B Corp.

The acquisition will be accounted for as a Read more

IFRS 3 Application of the definition of a business

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IFRS 3 Application of the definition of a business – Highlights

In October 2018, the International Accounting Standards Board (IASB or Board) issued amendments to the definition of a business in IFRS 3 Business Combinations. The amendments are intended to assist entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition.

IFRS 3 continues to adopt a market participant’s perspective to determine whether an acquired set of activities and assets is a business. The amendments: clarify the minimum requirements for a business; remove the assessment of whether market participants are capable of replacing any missing elements; add guidance to help entities assess whether an acquired process is substantive; … Read more

IFRS 3 Redefinition of a business

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IFRS 3 Redefinition of a business – In summary:IFRS 3 Redefinition of a business IFRS 3 Redefinition of a business

  • The IASB issued narrow-scope amendments to IFRS 3 to help entities determine whether an acquired set of activities and assets is a business or not.
  • The amendments clarify the minimum requirements to be a business, remove the assessment of a market participant’s ability to replace missing elements, and narrow the definition of outputs.
  • The amendments add guidance to assess whether an acquired process is substantive and add illustrative examples.
  • The amendments introduce an optional concentration test to permit a simplified assessment.
  • The amendments are effective for annual reporting periods beginning on or after 1 January 2020 and apply prospectively. Earlier
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Overview of the amendments IFRS 3

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Overview of the amendments IFRS 3 – In May 2019 amendments to IFRS 3 Business Combinations were published by IASB. See the introduction in Redefinition of a business.

IFRS 3 continues to adopt a market participant’s perspective to determine whether an acquired set of activities and assets is a business. The amendments: clarify the minimum requirements for a business; remove the assessment of whether market participants are capable of replacing any missing elements; add guidance to help entities assess whether an acquired process is substantive; narrow the definitions of a business and of outputs; and introduce an optional fair value concentration test. Overview of the amendments IFRS 3 Business Combinations

Minimum requirements to be a businessRead more