Cost of acquisition: The cost of the acquisition has to be measured.

It is the sum of the fair values of the assets given or liabilities incurred at the date of the acquisition plus the equity shares issued by the acquirer in exchange for control of the acquiree plus any costs that are directly related to the business combination. Future losses are not the part of cost of acquisition. Any directly attributable costs, such as professional fees paid to accountants or legal advisers, should be included as part of the cost of acquisition. But general cost are not part of it. Contingent liability can be a part of cost acquisition.

Recognition and measurement of the identifiable net asset acquired:

Identification of net assets acquired

Separate recognition of the acquiree's assets, liabilities and contingent liabilities is required where they meet specific criteria at the acquisition date. The criteria are based on BFRS Framework definitions of an asset and a liability. These are as follows:  Assets other than intangible assets: Where it is probable that any associated future economic benefits will flow to the acquirer, and their fair value can be measured reliably.  Liabilities other than contingent liabilities: Where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and its fair value can be measured reliably.  Intangible assets: Where they meet the definition of an intangible asset in accordance with IAS 38 Intangible assets and their fair value can be measured reliably.
 Contingent liabilities: Where their fair value can be measured reliably.

Any minority interest is stated at the minoritys proportion of the net fair value of the above items.

Recognition of liabilities: Reorganisation plans devised by the acquirer which will only be put into effect once control over the acquiree is gained. Acquirers often plan to create value by changing the cost structure of the acquiree so that the post-acquisition cost base is less than the sum of the acquirer's and acquiree's existing cost bases. The acquirer will evaluate the one-off costs of making these changes when deciding what lower price to offer for the acquiree, but as these costs are neither a

Future losses to be incurred as a result of the business combination (this covers future losses to be incurred by the acquirer as well as by the acquire)

liability nor a contingent liability of the acquiree prior to the date control is gained, they cannot be set up as provisions at the time of acquisition An acquirer will often target a loss-making business, in the expectation that after reorganisation and with new management it will become profitable. But it often takes some time for the benefits of such changes to emerge, during which time further trading losses will be incurred. The reorganisation process may also cause short-term losses within the acquirer. The total of such losses will depress the price to be offered by the acquirer. But no account can be taken of them, because future losses relate to future, not past, events.

Intangible assets: Intangible assets acquired must be recognized as assets separately from goodwill. These intangible assets must meet the definition of an asset in that they should be controlled and provide economic benefits and are (1) Either separable or arise from contractual or other legal rights; and (2) Their fair value can be measured reliably. These asstes are either separable from other assets or arises from contracts:

Separable assets: y Customer lists y Non-contractual customer relationships y Databases

 y y y y y

Assets arising from contractual or other legal rights: Trademarks Internet domain names Newspaper mastheads Non-competition agreements Unfulfilled contracts with customers

y y y y y y y y

Copyrights over plays Books, music, videos, etc Leases Licences to broadcast television and/or radio programmes Licences to fish in certain waters Licences to provide taxi services Patented technology Computer software

Measurement of net assets acquired

Where the BFRS 3 recognition criteria are met the assets, liabilities and contingent liabilities acquired should be measured at fair value as follows:

Asset, liability or contingent liability Financial instruments traded in an active market Financial instruments not traded on an active market Receivables

Fair value Current market values Estimated values based on comparable instruments of entities with similar characteristics Present value of amounts to be received. Financial accounting Selling price less: The costs of disposal and A reasonable profit allowance for the selling effort of the acquirer Selling price of finished goods less: Costs to complete Costs of disposal and A reasonable profit allowance for the completing and selling effort.

Inventories of finished goods

Inventories of work-in-progress

Current replacement costs Inventories of raw materials Land and buildings Plant and equipment Market values Market values( Depreciated replacement cost should be

used where the asset is of a specialised nature and there is no market-based evidence of fair value) Intangible assets Accounts and notes payable, long-term debt, liabilities and accruals. Onerous contracts Contingent liabilities Market value by reference to an active market Present values of amounts to be paid. Present values of amounts to be paid. The amounts that a third party would charge to assume those contingent liabilities.

But followings have some exceptions: Contingent liabilities: should be recognized as per IAS 37 Income tax: as per ias 12 Employee benefit: ias 19 Share based payment: as per IFRS 2. Assets held for sale: IFRS5.

Consequences of recognition at fair value

The consequences of the recognition of the acquiree's assets, liabilities and contingent liabilities at the acquisition date are that:

 The acquirer's consolidated income statement must include the acquiree's profits and losses from the same date.  The fair values of the acquiree's net assets form the basis of all the subsequent accounting in the consolidated financial statements even where fair values are not incorporated into the acquiree's single entity financial statements. For example, depreciation will be based on the fair values of property, plant and equipment which may not be the same as the carrying amount in the acquiree's balance sheet.  Any minority interest in the acquiree is based on the minority interest share of the net assets at their fair values.