Each business combination should be accounted for using acquisition method,(earlier knows as “purchase method”) which involves following steps :
– One of the parties to the transaction is identified asthe acquirer , other(s) being
Recognising and measuring :(i)
The identifiable assets acquired, the liabilitiesassumed and any non-controlling interest in the
(ii) goodwill or a gain from a bargain purchase.
Pooling of interest method not permitted under IFRS 3.An entity should assess whether a particular transaction is a business combinationby applying the definition of a business combination, i.e. has the entity gainedcontrol of one or more businesses for making profit ?Control of an entity is where one party (or a number of parties) has the power overanother to
“govern its financial and operating policies so as to obtain the benefitsfrom its activities”.
There will be only one acquirer.
Lots of deliberation and assessment required to assess, whether particulartransaction constitute business or just a bundle of assets ?For application of IFRS 3, emphasis is on
acquisition of business
rather than anasset or group of assets. Purchase of an asset or group of assets, if they do notconstitute business, do not give rise to goodwill, as also not covered by IFRS 3.In a straightforward business combination one entity will acquire another, resultingin a parent-subsidiary relationship.Business combination can be structured in numbers of ways, for example :
one or more businesses become subsidiaries of an acquirer;
one entity transfers its net asset to another entity;
all entities that are party to the business combination transfer their net assetsto a newly formed entity; or
a group of former owners of one of the combining entities obtains control ofthe combined entity.
ARTICLE PRINTED IN : JULY 2010 ICAI STUDENT’S JOURNALTOPIC : IFRS-3 BUSINESS COMBINATIONAUTHOR : CA YAGNESH DESAI (MEMBERSHIP NO. 34975)