An entity shall determine whether a transaction or other event is a business combination by applying the definition in IFRS 3, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition. See also the accounting treatment acquisition of a business or asset(s)
Guidance on identifying a business combination and the definition of a business are as follows:
The definition of a business: An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities.
Identifying a business combination [IFRS 3 B5 – B6] IFRS 3 Identify a business
IFRS 3 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:
- by transferring cash, cash equivalents or other assets (including net assets that constitute a business);
- by incurring liabilities; IFRS 3 Identify a business
- by issuing equity interests; IFRS 3 Identify a business
- by providing more than one type of consideration; or
- without transferring consideration, including by contract alone.
A business combination may be structured in a variety of ways for legal, taxation or other reasons, which include but are not limited to:
- one or more businesses become subsidiaries of an acquirer or the net assets of one or more businesses are legally merged into the acquirer;
- one combining entity transfers its net assets, or its owners transfer their equity interests, to another combining entity or its owners;
- all of the combining entities transfer their net assets, or the owners of those entities transfer their equity interests, to a newly formed entity (sometimes referred to as a roll-up or put-together transaction); or
- a group of former owners of one of the combining entities obtains control of the combined entity.
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