IFRS 3

BUSINESS COMBINATION
 DEFINITION OF KEY TERMS
 SCOPE
 OBJECTİVE
 ACQUİSİTİON METHOD
 DISCLOSURE
DEFINITION OF KEY TERMS

 Business combination: Occurs where several entities are brought together

to form a single reporting entity.

 Acquisition date: The date on which the acquirer obtains control of the
acquiree.

 Acquirer: The entity that obtains control of the acquiree.

 Acquiree: The business or businesses that the acquirer obtains control of in

a business combination.

 Control: The power to govern the financial and operating policies of an

entity so as to obtain benefits from its activities.
SCOPE

 IFRS 3 must be applied when accounting for business

combinations, but does not apply to:

 The formation of a joint venture

  The acquisition of an asset or group of assets that is not a business,

 Combinations of entities or businesses under common control

 Acquisitions by an investment entity of a subsidiary that is required

to be measured at fair value through profit or loss under IFRS 10-
Consolidated Financial Statements.
OBJECTİVE

 The objective of the IFRS is to enhance the relevance,

reliability and comparability of the information about a
business combination and its effects. It does that by
establishing principles and requirements for how an acquirer:

 recognises and measures the identifiable assets acquired, the

liabilities assumed and any non-controlling interest in the acquiree;

 recognises and measures the goodwill acquired in the business

combination or a gain from a bargain purchase; and

 determines what information to disclose about the business

combination.
ACQUİSİTİON METHOD

 An entity shall account for each business combination by applying

the acquisition method.

 Applying the acquisition method requires:

1. identifying the acquirer;

2. determining the acquisition date;
3. recognising and measuring the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree;
and
4. recognising and measuring goodwill or a gain from a bargain
purchase.
1. Identifying an acquirer:
The guidance in IFRS 10- Consolidated Financial
Statements is used to identify an acquirer in a
business combination.

2. Acquisition date:
IFRS 3 does not provide detailed guidance on the
determination of the acquisition date and the date
identified should reflect all relevant facts and
circumstances.
3. Acquired assets and liabilities:
 Identifiable assets acquired, liabilities assumed, and non-
controlling interests in the acquiree, are recognised
separately from goodwill.

 All assets acquired and liabilities assumed in a business

combination are measured at acquisition-date fair value.
 Exceptions to the recognition and measurement principles:

 Contingent liabilities
 Income taxes
 Employee benefits
 Indemnification assets
 Reacquired rights
 Share-based payment transactions
 Assets held for sale
 Non-controlling interest:
 Definition: equity in a subsidiary not attributable directly
or indirectly to a parent.

 Examples:

Parent Subsidiary Parent Subsidiary

NCI= 100%-100%=0
100 % NCI= 100%-90%=10% 90 %
 Measurement of non-controlling interests:

 1.Method: its proportionate share of the fair value of the

subsidiary’s net assets

 2. Method: full (fair value)

(based on market value of shares held by NCI)
4. Goodwill:
 Definition: Asset representing future economic benefits
arising from other assets acquired in a business
combination that are not individually identified and
separately recognized.


 Example:
 Parent pays : CU 100 000
 Subsidiary’s net assets: CU 70 000
 Goodwill= 100 000- 70 000= CU 30 000
DİSCLOSURE

For each business combination, this information should be

disclosed:

• Names and descriptions of the combining entities

• The acquisition date
• The percentage of voting equity instruments acquired
• The cost of the combination and a description of the
components of that cost.
• Amounts recognized at the acquisition date for each class
of the acquiree’s assets, liabilities, and contingent
liabilities and the carrying amounts of each of those
classes immediately before the acquisition unless that is
impracticable
• The amount of any negative goodwill that has been shown
in the income statement
• The factors that contributed to the recognition of
goodwill
• The amount of the acquiree’s profit or loss since
acquisition that has been included in the acquirer’s profit
or loss for the period, unless this is, again, impracticable
• The revenue of the combined entity for the period, as if
the combination had occurred at the beginning of that
period
• The profit or loss of the combined entity for the period
as if the combination had been effected at the
beginning of the period