2.2. Determination of the 'acquisition date' - the dat=
e on
which the acquirer obtains control of the acquiree. <=
/p>
3.3. Recognition and measurement of the identifiable
assets acquired, the liabilities assumed and any non-controlling intere=
st
(NCI, formerly called minority interest) in the acquiree.
4.4. Recognition and measurement of goodwill or a gain
from a bargain purchase option.
Mea=
surement
of acquired assets and liabilities. Assets and liabilities are measured at
their acquisition-date fair value (with a limited number of specified
exceptions).
Mea=
surement
of NCI. IFRS 3 allows an accounting policy choice, available on a
transaction by transaction basis, to measure NCI either at: =
- fair value (sometimes =
called
the full goodwill method), or
- the NCI's proportionate
share of net assets of the acquiree (option is available on a
transaction by transaction basis).
|
Example: P pays 800 to purchase 80% of the sha=
res
of S. Fair value of 100% of S's identifiable net assets is 600. If P
elects to measure noncontrolling interests as their proportionate
interest in the net assets of S of 120 (20% x 600), the consolidated
financial statements show goodwill of 320 (800 +120 - 600). If P elec=
ts
to measure noncontrolling interests at fair value and determines that
fair value to be 185, then goodwill of 385 is recognised (800 + 185 -
600). The fair value of the 20% noncontrolling interest in S will not
necessarily be proportionate to the price paid by P for its 80%, prim=
arily
due to control premium or discount as explained in paragraph B45 of I=
FRS
3.
|
Acq=
1uired
intangible assets. Must always be recognised and measured. There is no 'reli=
able
measurement' exception.
Goodwill
Goodwi=
ll is
measured as the difference between:
- the aggregate of (i) t=
he
acquisition-date fair value of the consideration transferred, (ii)=
the
amount of any NCI, and
(iii) in a business combination achieved in stages (see =
Below),
the acquisition-date fair value of the acquirer's previously-held
equity interest in the acquiree; and
- the net of the
acquisition-date amounts of the identifiable assets acquired and t=
he
liabilities assumed (measured in accordance with IFRS 3).
If the
difference above is negative, the resulting gain is recognised as a bar=
gain
purchase in profit or loss.
Business
Combination Achieved in Stages (Step Acquisitions)
Prior =
to
control being obtained, the investment is accounted for under IAS 28, I=
AS
31, or IAS 39, as appropriate. On the date that control is obtained, the
fair values of the acquired entity's assets and liabilities, including
goodwill, are measured (with the option to measure full goodwill or only
the acquirer's percentage of goodwill). Any resulting adjustments to
previously recognised assets and liabilities are recognised in profit or
loss. Thus, attaining control triggers remeasurement.
Provisional Accounting
If the=
initial
accounting for a business combination can be determined only provisiona=
lly
by the end of the first reporting period, account for the combination us=
ing
provisional values. Adjustments to provisional values within one year
relating to facts and circumstances that existed at the acquisition dat=
e.
No adjustments after one year except to correct an error in accordance =
with
IAS 8.
Cost of an Acquisition
Mea=
surement. Consideration =
for
the acquisition includes the acquisition-date fair value of contingent =
consideration.
Changes to contingent consideration resulting from events after the
acquisition date must be recognised in profit or loss.
Acq=
uisition
costs.
Costs of issuing debt instruments are accounted for under IAS 39, and c=
osts
of issuing equity instruments are accounted for under IAS 32. All other
costs associated with the acquisition must be expensed, including
reimbursements to the acquiree for bearing some of the acquisition cost=
s.
Examples of costs to be expensed include finder's fees; advisory, legal,
accounting, valuation, and other professional or consulting fees; and
general administrative costs, including the costs of maintaining an
internal acquisitions department.
Con=
tingent
consideration. Contingent consideration must be measured at fair value at
the time of the business combination. If the amount of contingent
consideration changes as a result of a post-acquisition event (such as
meeting an earnings target), accounting for the change in consideration
depends on whether the additional consideration is an equity instrument=
or
cash or other assets paid or owed. If it is equity, the original amount=
is
not remeasured. If the additional consideration is cash or other assets
paid or owed, the changed amount is recognised in profit or loss. If th=
e amount
of consideration changes because of new information about the fair valu=
e of
the amount of consideration at acquisition date (rather than because of=
a
post-acquisition event) then retrospective restatement is required.
Pre-existing Relationships and
Reacquired Rights
If the
acquirer and acquiree were parties to a pre-existing relationship (for
instance, the acquirer had granted the acquiree a right to use its
intellectual property), this must must be accounted for separately from=
the
business combination. In most cases, this will lead to the recognition =
of a
gain or loss for the amount of the consideration transferred to the ven=
dor
which effectively represents a 'settlement' of the pre-existing
relationship. The amount of the gain or loss is measured as follows:
- for pre-existing
non-contractual relationships (for example, a lawsuit): by referen=
ce
to fair value
- for pre-existing contr=
actual
relationships: at the lesser of (a) the favourable/unfavourable
contract position and (b) any stated settlement provisions in the
contract available to the counterparty to whom the contract is
unfavourable.
However, where the transaction effectively represents a
reacquired right, an intangible asset is recognised and measured on the
basis of the remaining contractual term of the related contract excludi=
ng
any renewals. The asset is then subsequently amortised over the remaini=
ng
contractual term, again excluding any renewals.
Other Issues
In add=
ition,
IFRS 3 provides guidance on some specific aspects of business combinati=
ons
including:
- business combinations
achieved without the transfer of consideration; =
- reverse acquisitions; =
- identifying intangible
assets acquired;
- the reassessment of the
acquiree's contractual arrangements at the acquisition date. =
Parent's Disposal of Investment=
or
Acquisition of Additional Investment in Subsidiary
Par=
tial
disposal of an investment in a subsidiary while control is retained. This is accoun=
ted
for as an equity transaction with owners, and gain or loss is not
recognised.
Par=
tial
disposal of an investment in a subsidiary that results in loss of contr=
ol. Loss of control
triggers remeasurement of the residual holding to fair value. Any
difference between fair value and carrying amount is a gain or loss on =
the
disposal, recognised in profit or loss. Thereafter, apply IAS 28, IAS 3=
1,
or IAS 39, as appropriate, to the remaining holding. =
Acq=
uiring
additional shares in the subsidiary after control was obtained.<=
/b> This is accoun=
ted
for as an equity transaction with owners (like acquisition of 'treasury
shares'). Goodwill is not remeasured.
Disclosure
Dis=
closure
of information about current business combinations
The ac=
quirer
shall disclose information that enables users of its financial statemen=
ts
to evaluate the nature and financial effect of a business combination t=
hat
occurs either during the current reporting period or after the end of t=
he
period but before the financial statements are authorised for issue.
Among =
the
disclosures required to meet the foregoing objective are the following:=
- name and a description=
of
the acquiree.
- acquisition date.
- percentage of voting e=
quity
interests acquired.
- primary reasons for the
business combination and a description of how the acquirer obtained
control of the acquiree. description of the factors that make up t=
he
goodwill recognised
- acquisition-date fair =
value
of the total consideration transferred and the acquisition-date fa=
ir
value of each major class of consideration
- details of contingent
consideration arrangements and indemnification assets <=
/span>
- details of acquired
receivables
- the amounts recognised=
as of
the acquisition date for each major class of assets acquired and
liabilities assumed.
- details of contingent
liabilities recognised
- total amount of goodwi=
ll
that is expected to be deductible for tax purposes
- details of any transac=
tions
that are recognised separately from the acquisition of assets and
assumption of liabilities in the business combination <=
/span>
- information about a ba=
rgain
purchase ('negative3 woodwill')
- for each business
combination in which the acquirer holds less than 100 per cent of =
the
equity interests in the acquiree at the acquisition date, various
disclosures are required
- details about a busine=
ss
combination achieved in stages
- information about the
acquiree's revenue and profit or loss
- information about a bu=
siness
combination whose acquisition date is after the end of the reporti=
ng
period but before the financial statements are authorised for issu=
e
Dis=
closure
of information about adjustments of past business combinations
The ac=
quirer
shall disclose information that enables users of its financial statemen=
ts
to evaluate the financial effects of adjustments recognised in the curr=
ent
reporting period that relate to business combinations that occurred in =
the
period or previous reporting periods.
Among =
the
disclosures required to meet the foregoing objective are the following:=
- Details when the initi=
al
accounting for a business combination is incomplete for particular
assets, liabilities, non-controlling interests or items of conside=
ration
(and the amounts recognised in the financial statements for the
business combination thus have been determined only provisionally)=
- Follow-up information =
on
contingent consideration
- Follow-up information =
about
contingent liabilities recognised in a business combination <=
/o:p>
- A reconciliation of the
carrying amount of goodwill at the beginning and end of the report=
ing
period, with various details shown separately
- the amount and an
explanation of any gain or loss recognised in the current reportin=
g period
that both:
- (i) relates to the
identifiable assets acquired or liabilities assumed in a business
combination that was effected in the current or previous reporting
period; and
- (ii) is of such a siz=
e,
nature or incidence that disclosure is relevant to understanding =
the
combined entity's financial statements.
Transition
Requirements
IFRS 3=
(2008)
must generally be applied on a prospective basis, with some exceptions.=
The
prospective application will impact post-transition changes in ownership
interests in subsidiaries and deferred taxes, but will not impact
accounting for contingent consideration related to business combinations
with an acquisition date prior to the date of transition
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