Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
3Activity
0 of .
Results for:
No results containing your search query
P. 1
ARTICLE ON IFRS 3

ARTICLE ON IFRS 3

Ratings: (0)|Views: 33|Likes:
Published by umesar001

More info:

Published by: umesar001 on Mar 05, 2011
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

10/14/2011

pdf

text

original

 
IFRS 3 - Business Combination : In Brief.Objective
The objective of International Financial Reporting Standard - 3 (IFRS 3) is to set outthe accounting and disclosure requirements for a business combination, to improvethe relevance, reliability and comparability of information presented in the financialstatements, which is achieved by establishing principles and requirements as to how
an acquirer 
should
(a)
 
recognise and measure :
(i) in
its
 
financial statements the identifiable assets acquired, the liabilitiesassumed and any non-controlling interest ( minority interest) in the
acquiree;
(ii) the goodwill acquired in the business combination or a gain from abargain purchase; (“negative goodwill”) and
(b)
 
determine what information to disclose.Since all accounting in business combination need to be done from the point of viewof
an acquirer,
its very important to determine who is
an acquirer.Core Principle
An
acquirer 
of a
business
recognises the assets acquired and liabilities assumed attheir
acquisition-date fair values
and discloses relevant information nature andfinancial effects of the acquisition.
 What is Business Combination ?
A transaction or other event that results in
an acquirer
obtaining
control
over one ormore
businesses.
 
Scope & Exclusion
Transactions or other events that meet the definition of a business combination aresubject to IFRS 3. This standard is
not 
applicable to formation of a joint venture,acquisition of an asset or group of assets that do
not 
constitute business, andcombinations between entities or businesses under common control.
ARTICLE PRINTED IN : JULY 2010 ICAI STUDENT’S JOURNALTOPIC : IFRS-3 BUSINESS COMBINATIONAUTHOR : CA YAGNESH DESAI (MEMBERSHIP NO. 34975)
 
Application
Each business combination should be accounted for using acquisition method,(earlier knows as “purchase method”) which involves following steps :
1.
 
Identifying
An Acquirer
– One of the parties to the transaction is identified asthe acquirer , other(s) being
acquiree(s).2.
 
Determining
acquisition date
3.
 
Recognising and measuring :(i)
 
The identifiable assets acquired, the liabilitiesassumed and any non-controlling interest in the
acquiree;
(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)
 
 
By contract alone without the transfer of consideration, such as whena. An acquiree business repurchases enough of its own shares to cause one ofits existing investors (the acquirer) to obtain control over it.b. There is a lapse of minority veto rights that had previously prevented theacquirer from controlling an acquiree in which it held a majority votinginterest.c. An acquirer and acquiree contractually agree to combine theirbusinesses without a transfer of consideration between them.
Steps in Business CombinationIdentify an acquirer.
IFRS 3(R) strongly emphasizes the concept that every business combination has anacquirer. And it is presumed that it will always possible to identify an acquirer.Presuming that the transaction or event constitutes business, we need to ascertainwho is
an
 
Acquirer 
, as it is
an acquirer
who has to
recognise and measure
 
in
its
 financial statements , identifiable assets and liabilities of
acquiree
as also goodwill orgain in bargain purchase.
An acquirer
is the entity that obtains control of the entity –
the acquiree.
The powerto govern the financial and operating policies of an entity so as to obtain benefitsfrom its activities.In general, control is presumed to exist when the parent owns, directly or indirectly,
a majority of the voting power 
of another entity, this is not an absolute rule to beapplied in all cases. However, in exceptional circumstances, it can be clearlydemonstrated that majority ownership does not constitute control, but rather thatthe minority ownership may constitute control.When it is not possible to clearly identify an acquirer , one has to take into accountthe facts and circumstances surrounding the transaction and events and follow theindicators given in the standard, to identify who is an acquirer , like1.
Relative size
 2.
Initiator of the transaction
 3.
Roll-ups or put-together transactions
 4.
Non-equity consideration
 5.
Exchange of equity interest.
 
ARTICLE PRINTED IN : JULY 2010 ICAI STUDENT’S JOURNALTOPIC : IFRS-3 BUSINESS COMBINATIONAUTHOR : CA YAGNESH DESAI (MEMBERSHIP NO. 34975)

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->