DRAFT

Business Combinations
Note: This draft FRS 103, pending adoption by the CCDG, is provided solely as a
referene for the !D "roposed #$end$ents to %Draft& FRS 103 '(siness Co$binations )
Co$binations by ontrat alone or involving $(t(al entities*
The follo+ing FRSs as $entioned in this draft FRS 103 are pending the CCDG,s revision:
• FRS - Accounting Policies, Changes in Accounting Estimates and Errors
• FRS 1. Property, Plant and Equipment
• FRS 1/ Leases
• FRS 01 The Efects of Changes in Foreign Exchange Rates
• FRS 0/ Consolidated and eparate Financial tatements
• FRS 0- !n"estments in Associates
• FRS 31 !nterests in #oint $entures
• FRS 30 Finanial 1nstr($ents: Dislos(re and "resentation
• FRS 33 Earnings per hare
• FRS 3. !mpairment of Assets
• FRS 3- !ntangi%le Assets
• FRS 32 Financial !nstruments& Recognition and 'easurement
The follo+ing FRSs as $entioned in this draft FRS 103 are pending the CCDG,s adoption:
• FRS 100 hare(%ased Payment
• FRS 103 !nsurance Contracts
• FRS 104 )on(current Assets *eld for ale and +iscontinued ,perations
DRAFT
FRS 103
FINANCIAL
REPORTING
STANDARD
DRAFT
Contents
Paragraphs
INTRODUCTION IN1 - IN16
Reasons fo issuin! FRS IN" # IN$
%ain featues of t&e FRS IN'
C&an!es fom (e)ious e*uiements IN+ # IN1$
Finan,ia- Re(otin! Stan.a. 103
Business Combinations
OB/ECTI0E 1
SCOPE " 1 13
I.entif2in! a business ,ombination 3 1 4
Business ,ombinations in)o-)in! entities un.e ,ommon ,onto- 10 1 13
%ET5OD OF ACCOUNTING 13 1 16
APPLICATION OF T5E PURC5ASE %ET5OD 1$ 1 $6
I.entif2in! t&e a,*uie 1' 1 "3
Cost of a business ,ombination "3 1 36
#d5(st$ents to the ost of a b(siness o$bination ontingent on f(t(re events 30 )
34
A--o,atin! t&e ,ost of a business ,ombination to t&e assets a,*uie. an.
-iabi-ities an. ,ontin!ent -iabi-ities assume. 3$ 1 $0
#6(iree,s identi7able assets and liabilities 31 ) 33
#6(iree,s intangible assets 34 ) 3.
#6(iree,s ontingent liabilities 3/ ) 40
Good+ill 41 ) 44
!8ess of a6(irer,s interest in the net fair val(e of a6(iree,s identi7able assets,
liabilities and ontingent liabilities over ost 4. ) 4/
'(siness o$bination ahieved in stages 4- ) .0
Initia- a,,ountin! .etemine. (o)isiona--2 $1 1 $6
#d5(st$ents after the initial ao(nting is o$plete .3 ) .3
Reognition of deferred ta8 assets after the initial ao(nting is o$plete .4
DISCLOSURE $$ # ''
0
DRAFT
TRANSITIONAL PRO0ISIONS AND EFFECTI0E DATE '+ 1 +6
Pe)ious-2 e,o!nise. !oo.7i-- '4 1 +0
Pe)ious-2 e,o!nise. ne!ati)e !oo.7i-- +1
Pe)ious-2 e,o!nise. intan!ib-e assets +"
E*uit2 a,,ounte. in)estments +3 1 +3
Limite. etos(e,ti)e a((-i,ation +6
8IT5DRA8AL OF OT5ER PRONOUNCE%ENTS +$ 1 +'
APPENDICES
A De9ne. tems
B A((-i,ation su((-ement
C Amen.ments to ot&e FRSs
ILLUSTRATI0E E:A%PLES -see separate document.
3
DRAFT
Finanial Reporting Standard 103 /usiness Com%inations 9FRS 103: is set o(t in
paragraphs 1;-/ and #ppendies #;C* #ll the paragraphs have e6(al a(thority*
"aragraphs in bo-. t2(e state the $ain priniples* Ter$s de7ned in #ppendi8 # are in
italics the 7rst ti$e they appear in the Standard* De7nitions of other ter$s are given in
the Glossary for Finanial Reporting Standards* FRS 103 sho(ld be read in the onte8t of
its ob5etive, the Preface to Financial Reporting tandards and the Frame0or1 for the
Preparation and Presentation of Financial tatements* FRS - Accounting Policies,
Changes in Accounting Estimates and Errors provides a basis for seleting and applying
ao(nting poliies in the absene of e8pliit g(idane*
3
DRAFT
INTRODUCTION
1N1 Finanial Reporting Standard 103 /usiness Com%inations 9FRS 103: replaes FRS
00 /usiness Com%inations* The FRS also replaes the follo+ing 1nterpretations:
< 1NT FRS 2 /usiness Com%inations2Classi3cation either as Acquisitions or
4nitings of !nterests
< 1NT FRS 00 /usiness Com%inations2u%sequent Ad5ustment of Fair $alues
and 6ood0ill !nitially Reported
< 1NT FRS 0- /usiness Com%inations27+ate of Exchange8 and Fair $alue of
Equity !nstruments*
Reasons fo issuin! t&e FRS
1N0 FRS 00 per$itted b(siness o$binations to be ao(nted for (sing one of t+o
$ethods: the pooling of interests $ethod or the p(rhase $ethod* #ltho(gh FRS
00 restrited the (se of the pooling of interests $ethod to b(siness o$binations
lassi7ed as (nitings of interests, analysts and other (sers of 7nanial state$ents
indiated that per$itting t+o $ethods of ao(nting for s(bstantially si$ilar
transations i$paired the o$parability of 7nanial state$ents* =thers arg(ed
that re6(iring $ore than one $ethod of ao(nting for s(h transations reated
inentives for str(t(ring those transations to ahieve a desired ao(nting
res(lt, parti(larly given that the t+o $ethods prod(e 6(ite di>erent res(lts*
1N3 These fators, o$bined +ith the prohibition of the pooling of interests $ethod in
#(stralia, Canada and the ?nited States, pro$pted the e8a$ination of +hether,
given that fe+ o$binations +ere (nderstood to be ao(nted for in aordane
+ith FRS 00 (sing the pooling of interests $ethod, it +o(ld be advantageo(s for
international standards to onverge +ith those in #(stralia and North #$eria by
also prohibiting the $ethod*
1N3 #o(nting for b(siness o$binations varied aross 5(risditions in other respets
as +ell* These inl(ded the ao(nting for good+ill and intangible assets a6(ired
in a b(siness o$bination, the treat$ent of any e8ess of the a6(irer,s interest
in the fair val(es of identi7able net assets a6(ired over the ost of the b(siness
o$bination, and the reognition of liabilities for ter$inating or red(ing the
ativities of an a6(iree*
1N4 F(rther$ore, FRS 00 ontained an option in respet of ho+ the p(rhase $ethod
o(ld be applied: the identi7able assets a6(ired and liabilities ass($ed o(ld be
$eas(red initially (sing either a benh$ar@ treat$ent or an allo+ed alternative
treat$ent* The benh$ar@ treat$ent res(lted in the identi7able assets a6(ired
and liabilities ass($ed being $eas(red initially at a o$bination of fair val(es 9to
the e8tent of the a6(irer,s o+nership interest: and pre;a6(isition arrying
a$o(nts 9to the e8tent of any $inority interest:* The allo+ed alternative
treat$ent res(lted in the identi7able assets a6(ired and liabilities ass($ed
being $eas(red initially at their fair val(es as at the date of a6(isition* 1t is
believed that per$itting si$ilar transations to be ao(nted for in dissi$ilar
+ays i$pairs the (sef(lness of the infor$ation provided to (sers of 7nanial
state$ents, bea(se both o$parability and reliability are di$inished*
1N. Therefore, this FRS has been iss(ed to i$prove the 6(ality of, and see@
international onvergene on, the ao(nting for b(siness o$binations,
inl(ding:
9a: the $ethod of ao(nting for b(siness o$binationsA
4
DRAFT
9b: the initial $eas(re$ent of the identi7able assets a6(ired and liabilities
and ontingent liabilities ass($ed in a b(siness o$binationA
9: the reognition of liabilities for ter$inating or red(ing the ativities of an
a6(ireeA
9d: the treat$ent of any e8ess of the a6(irer,s interest in the fair val(es of
identi7able net assets a6(ired in a b(siness o$bination over the ost of
the o$binationA and
9e: the ao(nting for good+ill and intangible assets a6(ired in a b(siness
o$bination*
%ain featues of t&e FRS
1N/ This FRS:
9a: re6(ires all b(siness o$binations +ithin its sope to be ao(nted for by
applying the p(rhase $ethod*
9b: re6(ires an a6(irer to be identi7ed for every b(siness o$bination +ithin
its sope* The a6(irer is the o$bining entity that obtains ontrol of the
other o$bining entities or b(sinesses*
9: re6(ires an a6(irer to $eas(re the ost of a b(siness o$bination as the
aggregate of: the fair val(es, at the date of e8hange, of assets given,
liabilities in(rred or ass($ed, and e6(ity instr($ents iss(ed by the
a6(irer, in e8hange for ontrol of the a6(ireeA pl(s any osts diretly
attrib(table to the o$bination*
9d: re6(ires an a6(irer to reognise separately, at the a6(isition date, the
a6(iree,s identi7able assets, liabilities and ontingent liabilities that
satisfy the follo+ing reognition riteria at that date, regardless of +hether
they had been previo(sly reognised in the a6(iree,s 7nanial
state$ents:
9i: in the ase of an asset other than an intangible asset, it is probable
that any assoiated f(t(re eono$i bene7ts +ill Bo+ to the
a6(irer, and its fair val(e an be $eas(red reliablyA
9ii: in the ase of a liability other than a ontingent liability, it is
probable that an o(tBo+ of reso(res e$bodying eono$i bene7ts
+ill be re6(ired to settle the obligation, and its fair val(e an be
$eas(red reliablyA and
9iii: in the ase of an intangible asset or a ontingent liability, its fair
val(e an be $eas(red reliably*
9e: re6(ires the identi7able assets, liabilities and ontingent liabilities that
satisfy the above reognition riteria to be $eas(red initially by the
a6(irer at their fair val(es at the a6(isition date, irrespetive of the
e8tent of any $inority interest*
9f: re6(ires good+ill a6(ired in a b(siness o$bination to be reognised by
the a6(irer as an asset fro$ the a6(isition date, initially $eas(red as
the e8ess of the ost of the b(siness o$bination over the a6(irer,s
interest in the net fair val(e of the a6(iree,s identi7able assets, liabilities
and ontingent liabilities reognised in aordane +ith 9d: above*
9g: prohibits the a$ortisation of good+ill a6(ired in a b(siness o$bination
and instead re6(ires the good+ill to be tested for i$pair$ent ann(ally, or
$ore fre6(ently if events or hanges in ir($stanes indiate that the
asset $ight be i$paired, in aordane +ith FRS 3. !mpairment of Assets*
9h: re6(ires the a6(irer to reassess the identi7ation and $eas(re$ent of
the a6(iree,s identi7able assets, liabilities and ontingent liabilities and
.
DRAFT
the $eas(re$ent of the ost of the b(siness o$bination if the a6(irer,s
interest in the net fair val(e of the ite$s reognised in aordane +ith 9d:
above e8eeds the ost of the o$bination* #ny e8ess re$aining after
that reassess$ent $(st be reognised by the a6(irer i$$ediately in
pro7t or loss*
9i: re6(ires dislos(re of infor$ation that enables (sers of an entity,s 7nanial
state$ents to eval(ate the nat(re and 7nanial e>et of:
9i: b(siness o$binations that +ere e>eted d(ring the periodA
9ii: b(siness o$binations that +ere e>eted after the balane sheet
date b(t before the 7nanial state$ents are a(thoriCed for iss(eA
and
9iii: so$e b(siness o$binations that +ere e>eted in previo(s periods*
95: re6(ires dislos(re of infor$ation that enables (sers of an entity,s 7nanial
state$ents to eval(ate hanges in the arrying a$o(nt of good+ill d(ring
the period*
C&an!es fom (e)ious e*uiements
1N- The $ain hanges fro$ FRS 00 are desribed belo+*
%et&o. of a,,ountin!
1N2 This FRS re6(ires all b(siness o$binations +ithin its sope to be ao(nted for
(sing the p(rhase $ethod* FRS 00 per$itted b(siness o$binations to be
ao(nted for (sing one of t+o $ethods: the pooling of interests $ethod for
o$binations lassi7ed as (nitings of interests and the p(rhase $ethod for
o$binations lassi7ed as a6(isitions*
Re,o!nisin! t&e i.enti9ab-e assets a,*uie. an. -iabi-ities an.
,ontin!ent -iabi-ities assume.
1N10 This FRS hanges the re6(ire$ents in FRS 00 for separately reogniCing as part of
alloating the ost of a b(siness o$bination:
9a: liabilities for ter$inating or red(ing the ativities of the a6(ireeA and
9b: ontingent liabilities of the a6(iree*
This FRS also lari7es the riteria for separately reognising intangible assets of
the a6(iree as part of alloating the ost of a o$bination*
1N11 This FRS re6(ires an a6(irer to reognise liabilities for ter$inating or red(ing
the ativities of the a6(iree as part of alloating the ost of the o$bination only
+hen the a6(iree has, at the a6(isition date, an e8isting liability for
restr(t(ring reognised in aordane +ith FRS 3/ Pro"isions, Contingent
Lia%ilities and Contingent Assets* FRS 00 re6(ired an a6(irer to reognise as
part of alloating the ost of a b(siness o$bination a provision for ter$inating or
red(ing the ativities of the a6(iree that +as not a liability of the a6(iree at
the a6(isition date, provided the a6(irer satis7ed spei7ed riteria*
1N10 This FRS re6(ires an a6(irer to reognise separately the a6(iree,s ontingent
liabilities 9as de7ned in FRS 3/: at the a6(isition date as part of alloating the
ost of a b(siness o$bination, provided their fair val(es an be $eas(red
reliably* S(h ontingent liabilities +ere, in aordane +ith FRS 00, s(bs($ed
+ithin the a$o(nt reognised as good+ill or negative good+ill*
1N13 FRS 00 re6(ired an intangible asset to be reognised if, and only if, it +as
probable that the f(t(re eono$i bene7ts attrib(table to the asset +o(ld Bo+ to
/
DRAFT
the entity, and its ost o(ld be $eas(red reliably* The probability reognition
riterion is not inl(ded in this FRS bea(se it is al+ays onsidered to be satis7ed
for intangible assets a6(ired in b(siness o$binations* #dditionally, this FRS
inl(des g(idane larifying that the fair val(e of an intangible asset a6(ired in a
b(siness o$bination an nor$ally be $eas(red +ith s(Dient reliability to
6(alify for reognition separately fro$ good+ill* 1f an intangible asset a6(ired in
a b(siness o$bination has a 7nite (sef(l life, there is a reb(ttable pres($ption
that its fair val(e an be $eas(red reliably*
%easuin! t&e i.enti9ab-e assets a,*uie. an. -iabi-ities an. ,ontin!ent
-iabi-ities assume.
1N13 FRS 00 inl(ded a benh$ar@ and an allo+ed alternative treat$ent for the initial
$eas(re$ent of the identi7able net assets a6(ired in a b(siness o$bination,
and therefore for the initial $eas(re$ent of any $inority interests* This FRS
re6(ires the a6(iree,s identi7able assets, liabilities and ontingent liabilities
reognised as part of alloating the ost of the o$bination to be $eas(red
initially by the a6(irer at their fair val(es at the a6(isition date* Therefore, any
$inority interest in the a6(iree is stated at the $inority,s proportion of the net
fair val(es of those ite$s* This is onsistent +ith FRS 00,s allo+ed alternative
treat$ent*
Subse*uent a,,ountin! fo !oo.7i--
1N14 This FRS re6(ires good+ill a6(ired in a b(siness o$bination to be $eas(red
after initial reognition at ost less any a($(lated i$pair$ent losses*
Therefore, the good+ill is not a$ortised and instead $(st be tested for
i$pair$ent ann(ally, or $ore fre6(ently if events or hanges in ir($stanes
indiate that it $ight be i$paired* FRS 00 re6(ired a6(ired good+ill to be
syste$atially a$ortised over its (sef(l life, and inl(ded a reb(ttable
pres($ption that its (sef(l life o(ld not e8eed t+enty years fro$ initial
reognition*
E;,ess of a,*uie<s inteest in t&e net fai )a-ue of a,*uiee<s
i.enti9ab-e assets= -iabi-ities an. ,ontin!ent -iabi-ities o)e ,ost
1N1. This FRS re6(ires the a6(irer to reassess the identi7ation and $eas(re$ent of
the a6(iree,s identi7able assets, liabilities and ontingent liabilities and the
$eas(re$ent of the ost of the o$bination if, at the a6(isition date, the
a6(irer,s interest in the net fair val(e of those ite$s e8eeds the ost of the
o$bination* #ny e8ess re$aining after that reassess$ent $(st be reognised
by the a6(irer i$$ediately in pro7t or loss* 1n aordane +ith FRS 00, any
e8ess of the a6(irer,s interest in the net fair val(e of the identi7able assets and
liabilities a6(ired over the ost of the a6(isition +as ao(nted for as negative
good+ill as follo+s:
9a: to the e8tent that it related to e8petations of f(t(re losses and e8penses
identi7ed in the a6(irer,s a6(isition plan, it +as re6(ired to be arried
for+ard and reognised as ino$e in the sa$e period in +hih the f(t(re
losses and e8penses +ere reognised*
9b: to the e8tent that it did not relate to e8petations of f(t(re losses and
e8penses identi7ed in the a6(irer,s a6(isition plan, it +as re6(ired to be
reognised as ino$e as follo+s:
9i: for the a$o(nt of negative good+ill not e8eeding the aggregate
fair val(e of a6(ired identi7able non;$onetary assets, on a
syste$ati basis over the re$aining +eighted average (sef(l life of
the identi7able depreiable assets*
9ii: for any re$aining e8ess, i$$ediately*
-
DRAFT
2
DRAFT
Finan,ia- Re(otin! Stan.a. 103
Business Combinations
OB/ECTI0E
1 The ob5etive of this FRS is to speify the 7nanial reporting by an entity +hen it
(nderta@es a %usiness com%ination* 1n parti(lar, it spei7es that all b(siness
o$binations sho(ld be ao(nted for by applying the p(rhase $ethod*
Therefore, the a6(irer reognises the a6(iree,s identi7able assets, liabilities and
contingent lia%ilities at their fair "alues at the acquisition date, and also
reognises good0ill, +hih is s(bse6(ently tested for i$pair$ent rather than
a$ortised*
SCOPE
0 !8ept as desribed in paragraph 3, entities shall apply this FRS +hen ao(nting
for b(siness o$binations*
3 This FRS does not apply to:
9a: b(siness o$binations in +hih separate entities or %usinesses are
bro(ght together to for$ a 5oint "enture*
9b: %usiness com%inations in"ol"ing entities or %usinesses under common
control*
9: b(siness o$binations involving t+o or $ore mutual entities*
9d: b(siness o$binations in +hih separate entities or b(sinesses are
bro(ght together to for$ a reporting entity by ontrat alone +itho(t the
obtaining of an o+nership interest 9for e8a$ple, o$binations in +hih
separate entities are bro(ght together by ontrat alone to for$ a d(al
listed orporation:*
I.entif2in! a business ,ombination
3 # b(siness o$bination is the bringing together of separate entities or b(sinesses
into one reporting entity* The res(lt of nearly all b(siness o$binations is that
one entity, the a6(irer, obtains control of one or $ore other b(sinesses, the
a6(iree* 1f an entity obtains ontrol of one or $ore other entities that are not
b(sinesses, the bringing together of those entities is not a b(siness o$bination*
Ehen an entity a6(ires a gro(p of assets or net assets that does not onstit(te a
b(siness, it shall alloate the ost of the gro(p bet+een the individ(al identi7able
assets and liabilities in the gro(p based on their relative fair val(es at the date of
a6(isition*
4 # b(siness o$bination $ay be str(t(red in a variety of +ays for legal, ta8ation
or other reasons* 1t $ay involve the p(rhase by an entity of the e6(ity of
another entity, the p(rhase of all the net assets of another entity, the
ass($ption of the liabilities of another entity, or the p(rhase of so$e of the net
assets of another entity that together for$ one or $ore b(sinesses* 1t $ay be
e>eted by the iss(e of e6(ity instr($ents, the transfer of ash, ash e6(ivalents
or other assets, or a o$bination thereof* The transation $ay be bet+een the
shareholders of the o$bining entities or bet+een one entity and the
shareholders of another entity* 1t $ay involve the establish$ent of a ne+ entity
to ontrol the o$bining entities or net assets transferred, or the restr(t(ring of
one or $ore of the o$bining entities*
1
DRAFT
. # b(siness o$bination $ay res(lt in a parent;s(bsidiary relationship in +hih the
a6(irer is the parent and the a6(iree a su%sidiary of the a6(irer* 1n s(h
ir($stanes, the a6(irer applies this FRS in its onsolidated 7nanial
state$ents* 1t inl(des its interest in the a6(iree in any separate 7nanial
state$ents it iss(es as an invest$ent in a s(bsidiary 9see FRS 0/ Consolidated
and eparate Financial tatements:*
/ # b(siness o$bination $ay involve the p(rhase of the net assets, inl(ding any
good+ill, of another entity rather than the p(rhase of the e6(ity of the other
entity* S(h a o$bination does not res(lt in a parent;s(bsidiary relationship*
- 1nl(ded +ithin the de7nition of a b(siness o$bination, and therefore the sope
of this FRS, are b(siness o$binations in +hih one entity obtains ontrol of
another entity b(t for +hih the date of obtaining ontrol 9i*e* the a6(isition
date: does not oinide +ith the date or dates of a6(iring an o+nership interest
9i*e* the date or dates of exchange:* This sit(ation $ay arise, for e8a$ple, +hen
an investee enters into share b(y;ba@ arrange$ents +ith so$e of its investors
and, as a res(lt, ontrol of the investee hanges*
2 This FRS does not speify the ao(nting by vent(rers for interests in 5oint
vent(res 9see FRS 31 !nterests in #oint $entures:*
Business ,ombinations in)o-)in! entities un.e ,ommon
,onto-
10 # b(siness o$bination involving entities or b(sinesses (nder o$$on ontrol is
a b(siness o$bination in +hih all of the o$bining entities or b(sinesses are
(lti$ately ontrolled by the sa$e party or parties both before and after the
b(siness o$bination, and that ontrol is not transitory*
11 # gro(p of individ(als shall be regarded as ontrolling an entity +hen, as a res(lt
of ontrat(al arrange$ents, they olletively have the po+er to govern its
7nanial and operating poliies so as to obtain bene7ts fro$ its ativities*
Therefore, a b(siness o$bination is o(tside the sope of this FRS +hen the sa$e
gro(p of individ(als has, as a res(lt of ontrat(al arrange$ents, (lti$ate
olletive po+er to govern the 7nanial and operating poliies of eah of the
o$bining entities so as to obtain bene7ts fro$ their ativities, and that (lti$ate
olletive po+er is not transitory*
10 #n entity an be ontrolled by an individ(al, or by a gro(p of individ(als ating
together (nder a ontrat(al arrange$ent, and that individ(al or gro(p of
individ(als $ay not be s(b5et to the 7nanial reporting re6(ire$ents of FRSs*
Therefore, it is not neessary for o$bining entities to be inl(ded as part of the
sa$e onsolidated 7nanial state$ents for a b(siness o$bination to be regarded
as one involving entities (nder o$$on ontrol*
13 The e8tent of minority interests in eah of the o$bining entities before and after
the b(siness o$bination is not relevant to deter$ining +hether the o$bination
involves entities (nder o$$on ontrol* Si$ilarly, the fat that one of the
o$bining entities is a s(bsidiary that has been e8l(ded fro$ the onsolidated
7nanial state$ents of the gro(p in aordane +ith FRS 0/ is not relevant to
deter$ining +hether a o$bination involves entities (nder o$$on ontrol*
%ET5OD OF ACCOUNTING
13 A-- business ,ombinations s&a-- be a,,ounte. fo b2 a((-2in! t&e
(u,&ase met&o.>
0
DRAFT
14 The p(rhase $ethod vie+s a b(siness o$bination fro$ the perspetive of the
o$bining entity that is identi7ed as the a6(irer* The a6(irer p(rhases net
assets and reognises the assets a6(ired and liabilities and ontingent liabilities
ass($ed, inl(ding those not previo(sly reognised by the a6(iree* The
$eas(re$ent of the a6(irer,s assets and liabilities is not a>eted by the
transation, nor are any additional assets or liabilities of the a6(irer reognised
as a res(lt of the transation, bea(se they are not the s(b5ets of the
transation*
APPLICATION OF T5E PURC5ASE %ET5OD
1. #pplying the p(rhase $ethod involves the follo+ing steps:
9a: identifying an a6(irerA
9b: $eas(ring the ost of the b(siness o$binationA and
9: alloating, at the a6(isition date, the ost of the b(siness o$bination to
the assets a6(ired and liabilities and ontingent liabilities ass($ed*
I.entif2in! t&e a,*uie
1' An a,*uie s&a-- be i.enti9e. fo a-- business ,ombinations> T&e
a,*uie is t&e ,ombinin! entit2 t&at obtains ,onto- of t&e ot&e
,ombinin! entities o businesses>
1- 'ea(se the p(rhase $ethod vie+s a b(siness o$bination fro$ the a6(irer,s
perspetive, it ass($es that one of the parties to the transation an be identi7ed
as the a6(irer*
12 Control is the po+er to govern the 7nanial and operating poliies of an entity or
b(siness so as to obtain bene7ts fro$ its ativities* # o$bining entity shall be
pres($ed to have obtained ontrol of another o$bining entity +hen it a6(ires
$ore than one;half of that other entity,s voting rights, (nless it an be
de$onstrated that s(h o+nership does not onstit(te ontrol* !ven if one of the
o$bining entities does not a6(ire $ore than one;half of the voting rights of
another o$bining entity, it $ight have obtained ontrol of that other entity if, as
a res(lt of the o$bination, it obtains:
9a: po+er over $ore than one;half of the voting rights of the other entity by
virt(e of an agree$ent +ith other investorsA or
9b: po+er to govern the 7nanial and operating poliies of the other entity
(nder a stat(te or an agree$entA or
9: po+er to appoint or re$ove the $a5ority of the $e$bers of the board of
diretors or e6(ivalent governing body of the other entityA or
9d: po+er to ast the $a5ority of votes at $eetings of the board of diretors or
e6(ivalent governing body of the other entity*
00 #ltho(gh so$eti$es it $ay be diD(lt to identify an a6(irer, there are (s(ally
indiations that one e8ists* For e8a$ple:
9a: if the fair val(e of one of the o$bining entities is signi7antly greater
than that of the other o$bining entity, the entity +ith the greater fair
val(e is li@ely to be the a6(irerA
9b: if the b(siness o$bination is e>eted thro(gh an e8hange of voting
ordinary e6(ity instr($ents for ash or other assets, the entity giving (p
ash or other assets is li@ely to be the a6(irerA and
9: if the b(siness o$bination res(lts in the $anage$ent of one of the
o$bining entities being able to do$inate the seletion of the
3
DRAFT
$anage$ent tea$ of the res(lting o$bined entity, the entity +hose
$anage$ent is able so to do$inate is li@ely to be the a6(irer*
01 1n a b(siness o$bination e>eted thro(gh an e8hange of e6(ity interests, the
entity that iss(es the e6(ity interests is nor$ally the a6(irer* Fo+ever, all
pertinent fats and ir($stanes shall be onsidered to deter$ine +hih of the
o$bining entities has the po+er to govern the 7nanial and operating poliies of
the other entity 9or entities: so as to obtain bene7ts fro$ its 9or their: ativities*
1n so$e b(siness o$binations, o$$only referred to as reverse a6(isitions, the
a6(irer is the entity +hose e6(ity interests have been a6(ired and the iss(ing
entity is the a6(iree* This $ight be the ase +hen, for e8a$ple, a private entity
arranges to have itself Ga6(ired, by a s$aller p(bli entity as a $eans of
obtaining a sto@ e8hange listing* #ltho(gh legally the iss(ing p(bli entity is
regarded as the parent and the private entity is regarded as the s(bsidiary, the
legal s(bsidiary is the a6(irer if it has the po+er to govern the 7nanial and
operating poliies of the legal parent so as to obtain bene7ts fro$ its ativities*
Co$$only the a6(irer is the larger entityA ho+ever, the fats and ir($stanes
s(rro(nding a o$bination so$eti$es indiate that a s$aller entity a6(ires a
larger entity* G(idane on the ao(nting for reverse a6(isitions is provided in
paragraphs '1;'14 of #ppendi8 '*
00 Ehen a ne+ entity is for$ed to iss(e e6(ity instr($ents to e>et a b(siness
o$bination, one of the o$bining entities that e8isted before the o$bination
shall be identi7ed as the a6(irer on the basis of the evidene available*
03 Si$ilarly, +hen a b(siness o$bination involves $ore than t+o o$bining
entities, one of the o$bining entities that e8isted before the o$bination shall
be identi7ed as the a6(irer on the basis of the evidene available* Deter$ining
the a6(irer in s(h ases shall inl(de a onsideration of, a$ongst other things,
+hih of the o$bining entities initiated the o$bination and +hether the assets
or reven(es of one of the o$bining entities signi7antly e8eed those of the
others*
Cost of a business ,ombination
"3 T&e a,*uie s&a-- measue t&e ,ost of a business ,ombination as t&e
a!!e!ate of?
@aA t&e fai )a-ues= at t&e .ate of e;,&an!e= of assets !i)en= -iabi-ities
in,ue. o assume.= an. e*uit2 instuments issue. b2 t&e
a,*uie= in e;,&an!e fo ,onto- of t&e a,*uieeB (-us
@bA an2 ,osts .ie,t-2 attibutab-e to t&e business ,ombination>
04 The a6(isition date is the date on +hih the a6(irer e>etively obtains ontrol
of the a6(iree* Ehen this is ahieved thro(gh a single e8hange transation, the
date of e8hange oinides +ith the a6(isition date* Fo+ever, a b(siness
o$bination $ay involve $ore than one e8hange transation, for e8a$ple +hen
it is ahieved in stages by s(essive share p(rhases* Ehen this o(rs:
9a: the ost of the o$bination is the aggregate ost of the individ(al
transationsA and
9b: the date of e8hange is the date of eah e8hange transation 9i*e* the
date that eah individ(al invest$ent is reognised in the 7nanial
state$ents of the a6(irer:, +hereas the a6(isition date is the date on
+hih the a6(irer obtains ontrol of the a6(iree*
0. #ssets given and liabilities in(rred or ass($ed by the a6(irer in e8hange for
ontrol of the a6(iree are re6(ired by paragraph 03 to be $eas(red at their fair
val(es at the date of e8hange* Therefore, +hen settle$ent of all or any part of
3
DRAFT
the ost of a b(siness o$bination is deferred, the fair val(e of that deferred
o$ponent shall be deter$ined by diso(nting the a$o(nts payable to their
present val(e at the date of e8hange, ta@ing into ao(nt any pre$i($ or
diso(nt li@ely to be in(rred in settle$ent*
0/ The p(blished prie at the date of e8hange of a 6(oted e6(ity instr($ent
provides the best evidene of the instr($ent,s fair val(e and shall be (sed,
e8ept in rare ir($stanes* =ther evidene and val(ation $ethods shall be
onsidered only in the rare ir($stanes +hen the a6(irer an de$onstrate
that the p(blished prie at the date of e8hange is an (nreliable indiator of fair
val(e, and that the other evidene and val(ation $ethods provide a $ore reliable
$eas(re of the e6(ity instr($ent,s fair val(e* The p(blished prie at the date of
e8hange is an (nreliable indiator only +hen it has been a>eted by the thinness
of the $ar@et* 1f the p(blished prie at the date of e8hange is an (nreliable
indiator or if a p(blished prie does not e8ist for e6(ity instr($ents iss(ed by the
a6(irer, the fair val(e of those instr($ents o(ld, for e8a$ple, be esti$ated by
referene to their proportional interest in the fair val(e of the a6(irer or by
referene to the proportional interest in the fair val(e of the a6(iree obtained,
+hihever is the $ore learly evident* The fair val(e at the date of e8hange of
$onetary assets given to e6(ity holders of the a6(iree as an alternative to
e6(ity instr($ents $ay also provide evidene of the total fair val(e given by the
a6(irer in e8hange for ontrol of the a6(iree* 1n any event, all aspets of the
o$bination, inl(ding signi7ant fators inB(ening the negotiations, shall be
onsidered* F(rther g(idane on deter$ining the fair val(e of e6(ity instr($ents
is set o(t in FRS 32 Financial !nstruments& Recognition and 'easurement*
0- The ost of a b(siness o$bination inl(des liabilities in(rred or ass($ed by the
a6(irer in e8hange for ontrol of the a6(iree* F(t(re losses or other osts
e8peted to be in(rred as a res(lt of a o$bination are not liabilities in(rred or
ass($ed by the a6(irer in e8hange for ontrol of the a6(iree, and are not,
therefore, inl(ded as part of the ost of the o$bination*
02 The ost of a b(siness o$bination inl(des any osts diretly attrib(table to the
o$bination, s(h as professional fees paid to ao(ntants, legal advisers,
val(ers and other ons(ltants to e>et the o$bination* General ad$inistrative
osts, inl(ding the osts of $aintaining an a6(isitions depart$ent, and other
osts that annot be diretly attrib(ted to the parti(lar o$bination being
ao(nted for are not inl(ded in the ost of the o$bination: they are reognised
as an e8pense +hen in(rred*
30 The osts of arranging and iss(ing 7nanial liabilities are an integral part of the
liability iss(e transation, even +hen the liabilities are iss(ed to e>et a b(siness
o$bination, rather than osts diretly attrib(table to the o$bination*
Therefore, entities shall not inl(de s(h osts in the ost of a b(siness
o$bination* 1n aordane +ith FRS 32, s(h osts shall be inl(ded in the initial
$eas(re$ent of the liability*
31 Si$ilarly, the osts of iss(ing e6(ity instr($ents are an integral part of the e6(ity
iss(e transation, even +hen the e6(ity instr($ents are iss(ed to e>et a
b(siness o$bination, rather than osts diretly attrib(table to the o$bination*
Therefore, entities shall not inl(de s(h osts in the ost of a b(siness
o$bination* 1n aordane +ith FRS 30 Financial !nstruments& +isclosure and
Presentation, s(h osts red(e the proeeds fro$ the e6(ity iss(e*
A.Custments to t&e ,ost of a business ,ombination ,ontin!ent on futue
e)ents
3" 8&en a business ,ombination a!eement (o)i.es fo an a.Custment to
t&e ,ost of t&e ,ombination ,ontin!ent on futue e)ents= t&e a,*uie
4
DRAFT
s&a-- in,-u.e t&e amount of t&at a.Custment in t&e ,ost of t&e
,ombination at t&e a,*uisition .ate if t&e a.Custment is probable an.
,an be measue. e-iab-2>
33 # b(siness o$bination agree$ent $ay allo+ for ad5(st$ents to the ost of the
o$bination that are ontingent on one or $ore f(t(re events* The ad5(st$ent
$ight, for e8a$ple, be ontingent on a spei7ed level of pro7t being $aintained
or ahieved in f(t(re periods, or on the $ar@et prie of the instr($ents iss(ed
being $aintained* 1t is (s(ally possible to esti$ate the a$o(nt of any s(h
ad5(st$ent at the ti$e of initially ao(nting for the o$bination +itho(t
i$pairing the reliability of the infor$ation, even tho(gh so$e (nertainty e8ists*
1f the f(t(re events do not o(r or the esti$ate needs to be revised, the ost of
the b(siness o$bination shall be ad5(sted aordingly*
33 Fo+ever, +hen a b(siness o$bination agree$ent provides for s(h an
ad5(st$ent, that ad5(st$ent is not inl(ded in the ost of the o$bination at the
ti$e of initially ao(nting for the o$bination if it either is not probable or
annot be $eas(red reliably* 1f that ad5(st$ent s(bse6(ently beo$es probable
and an be $eas(red reliably, the additional onsideration shall be treated as an
ad5(st$ent to the ost of the o$bination*
34 1n so$e ir($stanes, the a6(irer $ay be re6(ired to $a@e a s(bse6(ent
pay$ent to the seller as o$pensation for a red(tion in the val(e of the assets
given, e6(ity instr($ents iss(ed or liabilities in(rred or ass($ed by the a6(irer
in e8hange for ontrol of the a6(iree* This is the ase, for e8a$ple, +hen the
a6(irer g(arantees the $ar@et prie of e6(ity or debt instr($ents iss(ed as part
of the ost of the b(siness o$bination and is re6(ired to iss(e additional e6(ity
or debt instr($ents to restore the originally deter$ined ost* 1n s(h ases, no
inrease in the ost of the b(siness o$bination is reognised* 1n the ase of
e6(ity instr($ents, the fair val(e of the additional pay$ent is o>set by an e6(al
red(tion in the val(e attrib(ted to the instr($ents initially iss(ed* 1n the ase of
debt instr($ents, the additional pay$ent is regarded as a red(tion in the
pre$i($ or an inrease in the diso(nt on the initial iss(e*
.
DRAFT
A--o,atin! t&e ,ost of a business ,ombination to t&e assets
a,*uie. an. -iabi-ities an. ,ontin!ent -iabi-ities assume.
3$ T&e a,*uie s&a--= at t&e a,*uisition .ate= a--o,ate t&e ,ost of a
business ,ombination b2 e,o!nisin! t&e a,*uiee<s i.enti9ab-e assets=
-iabi-ities an. ,ontin!ent -iabi-ities t&at satisf2 t&e e,o!nition ,iteia in
(aa!a(& 3' at t&ei fai )a-ues at t&at .ate= e;,e(t fo non#,uent
assets @o .is(osa- !ou(sA t&at ae ,-assi9e. as &e-. fo sa-e in
a,,o.an,e 7it& FRS 106 Non-current Assets Held for Sale and
Discontinued Operations= 7&i,& s&a-- be e,o!nise. at fai )a-ue -ess
,osts to se--> An2 .iDeen,e bet7een t&e ,ost of t&e business
,ombination an. t&e a,*uie<s inteest in t&e net fai )a-ue of t&e
i.enti9ab-e assets= -iabi-ities an. ,ontin!ent -iabi-ities so e,o!niEe.
s&a-- be a,,ounte. fo in a,,o.an,e 7it& (aa!a(&s 61#6'>
3' T&e a,*uie s&a-- e,o!nise se(aate-2 t&e a,*uiee<s i.enti9ab-e
assets= -iabi-ities an. ,ontin!ent -iabi-ities at t&e a,*uisition .ate on-2 if
t&e2 satisf2 t&e fo--o7in! ,iteia at t&at .ate?
@aA in t&e ,ase of an asset ot&e t&an an intangible asset= it is
(obab-e t&at an2 asso,iate. futue e,onomi, bene9ts 7i-- Fo7 to
t&e a,*uie= an. its fai )a-ue ,an be measue. e-iab-2B
@bA in t&e ,ase of a -iabi-it2 ot&e t&an a ,ontin!ent -iabi-it2= it is
(obab-e t&at an outFo7 of esou,es embo.2in! e,onomi,
bene9ts 7i-- be e*uie. to sett-e t&e ob-i!ation= an. its fai )a-ue
,an be measue. e-iab-2B
@,A in t&e ,ase of an intan!ib-e asset o a ,ontin!ent -iabi-it2= its fai
)a-ue ,an be measue. e-iab-2>
3- The a6(irer,s ino$e state$ent shall inorporate the a6(iree,s pro7ts and
losses after the a6(isition date by inl(ding the a6(iree,s ino$e and e8penses
based on the ost of the b(siness o$bination to the a6(irer* For e8a$ple,
depreiation e8pense inl(ded after the a6(isition date in the a6(irer,s ino$e
state$ent that relates to the a6(iree,s depreiable assets shall be based on the
fair val(es of those depreiable assets at the a6(isition date, i*e* their ost to the
a6(irer*
32 #ppliation of the p(rhase $ethod starts fro$ the a6(isition date, +hih is the
date on +hih the a6(irer e>etively obtains ontrol of the a6(iree* 'ea(se
ontrol is the po+er to govern the 7nanial and operating poliies of an entity or
b(siness so as to obtain bene7ts fro$ its ativities, it is not neessary for a
transation to be losed or 7nalised at la+ before the a6(irer obtains ontrol* #ll
pertinent fats and ir($stanes s(rro(nding a b(siness o$bination shall be
onsidered in assessing +hen the a6(irer has obtained ontrol*
30 'ea(se the a6(irer reognises the a6(iree,s identi7able assets, liabilities and
ontingent liabilities that satisfy the reognition riteria in paragraph 3/ at their
fair val(es at the a6(isition date, any $inority interest in the a6(iree is stated
at the $inority,s proportion of the net fair val(e of those ite$s* "aragraphs '1.
and '1/ of #ppendi8 ' provide g(idane on deter$ining the fair val(es of the
a6(iree,s identi7able assets, liabilities and ontingent liabilities for the p(rpose
of alloating the ost of a b(siness o$bination*
A,*uiee<s i.enti9ab-e assets an. -iabi-ities
31 1n aordane +ith paragraph 3., the a6(irer reognises separately as part of
alloating the ost of the o$bination only the identi7able assets, liabilities and
/
DRAFT
ontingent liabilities of the a6(iree that e8isted at the a6(isition date and
satisfy the reognition riteria in paragraph 3/* Therefore:
9a: the a6(irer shall reognise liabilities for ter$inating or red(ing the
ativities of the a6(iree as part of alloating the ost of the o$bination
only +hen the a6(iree has, at the a6(isition date, an e8isting liability for
restr(t(ring reognised in aordane +ith FRS 3/ Pro"isions, Contingent
Lia%ilities and Contingent AssetsA and
9b: the a6(irer, +hen alloating the ost of the o$bination, shall not
reognise liabilities for f(t(re losses or other osts e8peted to be in(rred
as a res(lt of the b(siness o$bination*
30 # pay$ent that an entity is ontrat(ally re6(ired to $a@e, for e8a$ple, to its
e$ployees or s(ppliers in the event that it is a6(ired in a b(siness o$bination
is a present obligation of the entity that is regarded as a ontingent liability (ntil it
beo$es probable that a b(siness o$bination +ill ta@e plae* The ontrat(al
obligation is reognised as a liability by that entity in aordane +ith FRS 3/
+hen a b(siness o$bination beo$es probable and the liability an be $eas(red
reliably* Therefore, +hen the b(siness o$bination is e>eted, that liability of the
a6(iree is reogniCed by the a6(irer as part of alloating the ost of the
o$bination*
33 Fo+ever, an a6(iree,s restr(t(ring plan +hose e8e(tion is onditional (pon its
being a6(ired in a b(siness o$bination is not, i$$ediately before the b(siness
o$bination, a present obligation of the a6(iree* Nor is it a ontingent liability of
the a6(iree i$$ediately before the o$bination bea(se it is not a possible
obligation arising fro$ a past event +hose e8istene +ill be on7r$ed only by the
o(rrene or non;o(rrene of one or $ore (nertain f(t(re events not +holly
+ithin the ontrol of the a6(iree* Therefore, an a6(irer shall not reognise a
liability for s(h restr(t(ring plans as part of alloating the ost of the
o$bination*
33 The identi7able assets and liabilities that are reognised in aordane +ith
paragraph 3. inl(de all of the a6(iree,s assets and liabilities that the a6(irer
p(rhases or ass($es, inl(ding all of its 7nanial assets and 7nanial liabilities*
They $ight also inl(de assets and liabilities not previo(sly reognised in the
a6(iree,s 7nanial state$ents, e*g* bea(se they did not 6(alify for reognition
before the a6(isition* For e8a$ple, a ta8 bene7t arising fro$ the a6(iree,s ta8
losses that +as not reogniCed by the a6(iree before the b(siness o$bination
6(ali7es for reognition as an identi7able asset in aordane +ith paragraph 3.
if it is probable that the a6(irer +ill have f(t(re ta8able pro7ts against +hih the
(nreognised ta8 bene7t an be applied*
A,*uiee<s intan!ib-e assets
34 1n aordane +ith paragraph 3/, the a6(irer reognises separately an intangible
asset of the a6(iree at the a6(isition date only if it $eets the de7nition of an
intangible asset in FRS 3- !ntangi%le Assets and its fair val(e an be $eas(red
reliably* This $eans that the a6(irer reognises as an asset separately fro$
good+ill an in;proess researh and develop$ent pro5et of the a6(iree if the
pro5et $eets the de7nition of an intangible asset and its fair val(e an be
$eas(red reliably* FRS 3- provides g(idane on deter$ining +hether the fair
val(e of an intangible asset a6(ired in a b(siness o$bination an be $eas(red
reliably*
3. # non;$onetary asset +itho(t physial s(bstane $(st be identi7able to $eet the
de7nition of an intangible asset* 1n aordane +ith FRS 3-, an asset $eets the
identi7ability riterion in the de7nition of an intangible asset only if it:
-
DRAFT
9a: is separable, i*e* apable of being separated or divided fro$ the entity and
sold, transferred, liensed, rented or e8hanged, either individ(ally or
together +ith a related ontrat, asset or liabilityA or
9b: arises fro$ ontrat(al or other legal rights, regardless of +hether those
rights are transferable or separable fro$ the entity or fro$ other rights
and obligations*
A,*uiee<s ,ontin!ent -iabi-ities
3/ "aragraph 3/ spei7es that the a6(irer reognises separately a ontingent
liability of the a6(iree as part of alloating the ost of a b(siness o$bination
only if its fair val(e an be $eas(red reliably* 1f its fair val(e annot be $eas(red
reliably:
9a: there is a res(lting e>et on the a$o(nt reognised as good+ill or
ao(nted for in aordane +ith paragraph 4.A and
9b: the a6(irer shall dislose the infor$ation abo(t that ontingent liability
re6(ired to be dislosed by FRS 3/*
"aragraph '1.9l: of #ppendi8 ' provides g(idane on deter$ining the fair val(e of
a ontingent liability*
3+ Afte t&ei initia- e,o!nition= t&e a,*uie s&a-- measue ,ontin!ent
-iabi-ities t&at ae e,o!nise. se(aate-2 in a,,o.an,e 7it& (aa!a(&
3$ at t&e &i!&e of?
@aA t&e amount t&at 7ou-. be e,o!nise. in a,,o.an,e 7it& FRS 3'=
an.
@bA t&e amount initia--2 e,o!nise. -ess= 7&en a((o(iate=
,umu-ati)e amotisation e,o!nise. in a,,o.an,e 7it& FRS 1+
Revenue>
32 The re6(ire$ent in paragraph 3- does not apply to ontrats ao(nted for in
aordane +ith FRS 32 Financial !nstruments& Recognition and 'easurement*
Fo+ever, loan o$$it$ents e8l(ded fro$ the sope of FRS 32 that are not
o$$it$ents to provide loans at belo+;$ar@et interest rates are ao(nted for as
ontingent liabilities of the a6(iree if, at the a6(isition date, it is not probable
that an o(tBo+ of reso(res e$bodying eono$i bene7ts +ill be re6(ired to
settle the obligation or if the a$o(nt of the obligation annot be $eas(red +ith
s(Dient reliability* S(h a loan o$$it$ent is, in aordane +ith paragraph 3/,
reognised separately as part of alloating the ost of a o$bination only if its fair
val(e an be $eas(red reliably*
40 Contingent liabilities reognised separately as part of alloating the ost of a
b(siness o$bination are e8l(ded fro$ the sope of FRS 3/* Fo+ever, the
a6(irer shall dislose for those ontingent liabilities the infor$ation re6(ired to
be dislosed by FRS 3/ for eah lass of provision*
Goo.7i--
61 T&e a,*uie s&a--= at t&e a,*uisition .ate?
@aA e,o!nise !oo.7i-- a,*uie. in a business ,ombination as an
assetB an.
@bA initia--2 measue t&at !oo.7i-- at its ,ost= bein! t&e e;,ess of t&e
,ost of t&e business ,ombination o)e t&e a,*uie<s inteest in
t&e net fai )a-ue of t&e i.enti9ab-e assets= -iabi-ities an.
,ontin!ent -iabi-ities e,o!nise. in a,,o.an,e 7it& (aa!a(& 3$>
2
DRAFT
40 Good+ill a6(ired in a b(siness o$bination represents a pay$ent $ade by the
a6(irer in antiipation of f(t(re eono$i bene7ts fro$ assets that are not
apable of being individ(ally identi7ed and separately reognised*
43 To the e8tent that the a6(iree,s identi7able assets, liabilities or ontingent
liabilities do not satisfy the riteria in paragraph 3/ for separate reognition at the
a6(isition date, there is a res(lting e>et on the a$o(nt reogniCed as good+ill
9or ao(nted for in aordane +ith paragraph 4.:* This is bea(se good+ill is
$eas(red as the resid(al ost of the b(siness o$bination after reognising the
a6(iree,s identi7able assets, liabilities and ontingent liabilities*
63 Afte initia- e,o!nition= t&e a,*uie s&a-- measue !oo.7i-- a,*uie. in
a business ,ombination at ,ost -ess an2 a,,umu-ate. im(aiment -osses>
44 Good+ill a6(ired in a b(siness o$bination shall not be a$ortised* 1nstead, the
a6(irer shall test it for i$pair$ent ann(ally, or $ore fre6(ently if events or
hanges in ir($stanes indiate that it $ight be i$paired, in aordane +ith
FRS 3. !mpairment of Assets*
10
DRAFT
E;,ess of a,*uie<s inteest in t&e net fai )a-ue of a,*uiee<s
i.enti9ab-e assets= -iabi-ities an. ,ontin!ent -iabi-ities o)e ,ost
6$ If t&e a,*uie<s inteest in t&e net fai )a-ue of t&e i.enti9ab-e assets=
-iabi-ities an. ,ontin!ent -iabi-ities e,o!nise. in a,,o.an,e 7it&
(aa!a(& 3$ e;,ee.s t&e ,ost of t&e business ,ombination= t&e a,*uie
s&a--?
@aA eassess t&e i.enti9,ation an. measuement of t&e a,*uiee<s
i.enti9ab-e assets= -iabi-ities an. ,ontin!ent -iabi-ities an. t&e
measuement of t&e ,ost of t&e ,ombinationB an.
@bA e,o!nise imme.iate-2 in (o9t o -oss an2 e;,ess emainin! afte
t&at eassessment>
4/ # gain reognised in aordane +ith paragraph 4. o(ld o$prise one or $ore of
the follo+ing o$ponents:
9a: errors in $eas(ring the fair val(e of either the ost of the o$bination or
the a6(iree,s identi7able assets, liabilities or ontingent liabilities*
"ossible f(t(re osts arising in respet of the a6(iree that have not been
reBeted orretly in the fair val(e of the a6(iree,s identi7able assets,
liabilities or ontingent liabilities are a potential a(se of s(h errors*
9b: a re6(ire$ent in an ao(nting standard to $eas(re identi7able net assets
a6(ired at an a$o(nt that is not fair val(e, b(t is treated as tho(gh it is
fair val(e for the p(rpose of alloating the ost of the o$bination* For
e8a$ple, the g(idane in #ppendi8 ' on deter$ining the fair val(es of the
a6(iree,s identi7able assets and liabilities re6(ires the a$o(nt assigned
to ta8 assets and liabilities to be (ndiso(nted*
9: a bargain p(rhase*
Business ,ombination a,&ie)e. in sta!es
4- # b(siness o$bination $ay involve $ore than one e8hange transation, for
e8a$ple +hen it o(rs in stages by s(essive share p(rhases* 1f so, eah
e8hange transation shall be treated separately by the a6(irer, (sing the ost of
the transation and fair val(e infor$ation at the date of eah e8hange
transation, to deter$ine the a$o(nt of any good+ill assoiated +ith that
transation* This res(lts in a step;by;step o$parison of the ost of the individ(al
invest$ents +ith the a6(irer,s interest in the fair val(es of the a6(iree,s
identi7able assets, liabilities and ontingent liabilities at eah step*
42 Ehen a b(siness o$bination involves $ore than one e8hange transation, the
fair val(es of the a6(iree,s identi7able assets, liabilities and ontingent liabilities
$ay be di>erent at the date of eah e8hange transation* 'ea(se:
9a: the a6(iree,s identi7able assets, liabilities and ontingent liabilities are
notionally restated to their fair val(es at the date of eah e8hange
transation to deter$ine the a$o(nt of any good+ill assoiated +ith eah
transationA and
9b: the a6(iree,s identi7able assets, liabilities and ontingent liabilities $(st
then be reognised by the a6(irer at their fair val(es at the a6(isition
date,
any ad5(st$ent to those fair val(es relating to previo(sly held interests of the
a6(irer is a eval(ation and shall be ao(nted for as s(h* Fo+ever, bea(se this
reval(ation arises on the initial reognition by the a6(irer of the a6(iree,s
assets, liabilities and ontingent liabilities, it does not signify that the a6(irer has
eleted to apply an ao(nting poliy of reval(ing those ite$s after initial
11
DRAFT
reognition in aordane +ith, for e8a$ple, FRS 1. Property, Plant and
Equipment*
.0 'efore 6(alifying as a b(siness o$bination, a transation $ay 6(alify as an
invest$ent in an assoiate and be ao(nted for in aordane +ith FRS 0-
!n"estments in Associates (sing the e6(ity $ethod* 1f so, the fair val(es of the
investee,s identi7able net assets at the date of eah earlier e8hange transation
+ill have been deter$ined previo(sly in applying the e6(ity $ethod to the
invest$ent*
Initia- a,,ountin! .etemine. (o)isiona--2
.1 The initial ao(nting for a b(siness o$bination involves identifying and
deter$ining the fair val(es to be assigned to the a6(iree,s identi7able assets,
liabilities and ontingent liabilities and the ost of the o$bination*
.0 1f the initial ao(nting for a b(siness o$bination an be deter$ined only
provisionally by the end of the period in +hih the o$bination is e>eted
bea(se either the fair val(es to be assigned to the a6(iree,s identi7able assets,
liabilities or ontingent liabilities or the ost of the o$bination an be deter$ined
only provisionally, the a6(irer shall ao(nt for the o$bination (sing those
provisional val(es* The a6(irer shall reogniCe any ad5(st$ents to those
provisional val(es as a res(lt of o$pleting the initial ao(nting:
9a: +ithin t+elve $onths of the a6(isition dateA and
9b: fro$ the a6(isition date* Therefore:
9i: the arrying a$o(nt of an identi7able asset, liability or ontingent
liability that is reognised or ad5(sted as a res(lt of o$pleting the
initial ao(nting shall be al(lated as if its fair val(e at the
a6(isition date had been reognised fro$ that date*
9ii: good+ill or any gain reognised in aordane +ith paragraph 4.
shall be ad5(sted fro$ the a6(isition date by an a$o(nt e6(al to
the ad5(st$ent to the fair val(e at the a6(isition date of the
identi7able asset, liability or ontingent liability being reognised or
ad5(sted*
9iii: o$parative infor$ation presented for the periods before the initial
ao(nting for the o$bination is o$plete shall be presented as if
the initial ao(nting had been o$pleted fro$ the a6(isition
date* This inl(des any additional depreiation, a$ortisation or
other pro7t or loss e>et reognised as a res(lt of o$pleting the
initial ao(nting*
A.Custments afte t&e initia- a,,ountin! is ,om(-ete
.3 !8ept as o(tlined in paragraphs 33, 33 and .4, ad5(st$ents to the initial
ao(nting for a b(siness o$bination after that initial ao(nting is o$plete
shall be reognised only to orret an error in aordane +ith FRS - Accounting
Policies, Changes in Accounting Estimates and Errors* #d5(st$ents to the initial
ao(nting for a b(siness o$bination after that ao(nting is o$plete shall not
be reognised for the e>et of hanges in esti$ates* 1n aordane +ith FRS -,
the e>et of a hange in esti$ates shall be reognised in the (rrent and f(t(re
periods*
.3 FRS - re6(ires an entity to ao(nt for an error orretion retrospetively, and to
present 7nanial state$ents as if the error had never o(rred by restating the
o$parative infor$ation for the prior period9s: in +hih the error o(rred*
Therefore, the arrying a$o(nt of an identi7able asset, liability or ontingent
liability of the a6(iree that is reognised or ad5(sted as a res(lt of an error
10
DRAFT
orretion shall be al(lated as if its fair val(e or ad5(sted fair val(e at the
a6(isition date had been reognised fro$ that date* Good+ill or any gain
reognised in a prior period in aordane +ith paragraph 4. shall be ad5(sted
retrospetively by an a$o(nt e6(al to the fair val(e at the a6(isition date 9or the
ad5(st$ent to the fair val(e at the a6(isition date: of the identi7able asset,
liability or ontingent liability being reognised 9or ad5(sted:*
Re,o!nition of .efee. ta; assets afte t&e initia- a,,ountin! is
,om(-ete
.4 1f the potential bene7t of the a6(iree,s ino$e ta8 loss arry;for+ards or other
deferred ta8 assets did not satisfy the riteria in paragraph 3/ for separate
reognition +hen a b(siness o$bination is initially ao(nted for b(t is
s(bse6(ently realised, the a6(irer shall reognise that bene7t as ino$e in
aordane +ith FRS 10 !ncome Taxes* 1n addition, the a6(irer shall:
9a: red(e the arrying a$o(nt of good+ill to the a$o(nt that +o(ld have
been reognised if the deferred ta8 asset had been reogniCed as an
identi7able asset fro$ the a6(isition dateA and
9b: reognise the red(tion in the arrying a$o(nt of the good+ill as an
e8pense*
Fo+ever, this proed(re shall not res(lt in the reation of an e8ess as desribed
in paragraph 4., nor shall it inrease the a$o(nt of any gain previo(sly
reognised in aordane +ith paragraph 4.*
DISCLOSURE
$$ An a,*uie s&a-- .is,-ose infomation t&at enab-es uses of its 9nan,ia-
statements to e)a-uate t&e natue an. 9nan,ia- eDe,t of business
,ombinations t&at 7ee eDe,te.?
@aA .uin! t&e (eio.>
@bA afte t&e ba-an,e s&eet .ate but befoe t&e 9nan,ia- statements
ae aut&oise. fo issue>
./ To give e>et to the priniple in paragraph ..9a:, the a6(irer shall dislose the
follo+ing infor$ation for eah b(siness o$bination that +as e>eted d(ring the
period:
9a: the na$es and desriptions of the o$bining entities or b(sinesses*
9b: the a6(isition date*
9: the perentage of voting e6(ity instr($ents a6(ired*
9d: the ost of the o$bination and a desription of the o$ponents of that
ost, inl(ding any osts diretly attrib(table to the o$bination* Ehen
e6(ity instr($ents are iss(ed or iss(able as part of the ost, the follo+ing
shall also be dislosed:
9i: the n($ber of e6(ity instr($ents iss(ed or iss(ableA and
9ii: the fair val(e of those instr($ents and the basis for deter$ining
that fair val(e* 1f a p(blished prie does not e8ist for the
instr($ents at the date of e8hange, the signi7ant ass($ptions
(sed to deter$ine fair val(e shall be dislosed* 1f a p(blished prie
e8ists at the date of e8hange b(t +as not (sed as the basis for
deter$ining the ost of the o$bination, that fat shall be dislosed
together +ith: the reasons the p(blished prie +as not (sedA the
$ethod and signi7ant ass($ptions (sed to attrib(te a val(e to the
e6(ity instr($entsA and the aggregate a$o(nt of the di>erene
13
DRAFT
bet+een the val(e attrib(ted to, and the p(blished prie of, the
e6(ity instr($ents*
9e: details of any operations the entity has deided to dispose of as a res(lt of
the o$bination*
9f: the a$o(nts reognised at the a6(isition date for eah lass of the
a6(iree,s assets, liabilities and ontingent liabilities, and, (nless
dislos(re +o(ld be i$pratiable, the arrying a$o(nts of eah of those
lasses, deter$ined in aordane +ith FRSs, i$$ediately before the
o$bination* 1f s(h dislos(re +o(ld be i$pratiable, that fat shall be
dislosed, together +ith an e8planation of +hy this is the ase*
9g: the a$o(nt of any e8ess reognised in pro7t or loss in aordane +ith
paragraph 4., and the line ite$ in the ino$e state$ent in +hih the
e8ess is reognised*
9h: a desription of the fators that ontrib(ted to a ost that res(lts in the
reognition of good+illHa desription of eah intangible asset that +as not
reognised separately fro$ good+ill and an e8planation of +hy the
intangible asset,s fair val(e o(ld not be $eas(red reliablyHor a
desription of the nat(re of any e8ess reognised in pro7t or loss in
aordane +ith paragraph 4.*
9i: the a$o(nt of the a6(iree,s pro7t or loss sine the a6(isition date
inl(ded in the a6(irer,s pro7t or loss for the period, (nless dislos(re
+o(ld be i$pratiable* 1f s(h dislos(re +o(ld be i$pratiable, that
fat shall be dislosed, together +ith an e8planation of +hy this is the
ase*
.- The infor$ation re6(ired to be dislosed by paragraph ./ shall be dislosed in
aggregate for b(siness o$binations e>eted d(ring the reporting period that are
individ(ally i$$aterial*
.2 1f the initial ao(nting for a b(siness o$bination that +as e>eted d(ring the
period +as deter$ined only provisionally as desribed in paragraph .0, that fat
shall also be dislosed together +ith an e8planation of +hy this is the ase*
/0 To give e>et to the priniple in paragraph ..9a:, the a6(irer shall dislose the
follo+ing infor$ation, (nless s(h dislos(re +o(ld be i$pratiable:
9a: the reven(e of the o$bined entity for the period as tho(gh the a6(isition
date for all b(siness o$binations e>eted d(ring the period had been the
beginning of that period*
9b: the pro7t or loss of the o$bined entity for the period as tho(gh the
a6(isition date for all b(siness o$binations e>eted d(ring the period
had been the beginning of the period*
1f dislos(re of this infor$ation +o(ld be i$pratiable, that fat shall be
dislosed, together +ith an e8planation of +hy this is the ase*
/1 To give e>et to the priniple in paragraph ..9b:, the a6(irer shall dislose the
infor$ation re6(ired by paragraph ./ for eah b(siness o$bination e>eted
after the balane sheet date b(t before the 7nanial state$ents are a(thorised
for iss(e, (nless s(h dislos(re +o(ld be i$pratiable* 1f dislos(re of any of
that infor$ation +o(ld be i$pratiable, that fat shall be dislosed, together
+ith an e8planation of +hy this is the ase*
'" An a,*uie s&a-- .is,-ose infomation t&at enab-es uses of its 9nan,ia-
statements to e)a-uate t&e 9nan,ia- eDe,ts of !ains= -osses= eo
,oe,tions an. ot&e a.Custments e,o!nise. in t&e ,uent (eio. t&at
13
DRAFT
e-ate to business ,ombinations t&at 7ee eDe,te. in t&e ,uent o in
(e)ious (eio.s>
/3 To give e>et to the priniple in paragraph /0, the a6(irer shall dislose the
follo+ing infor$ation:
9a: the a$o(nt and an e8planation of any gain or loss reognised in the
(rrent period that:
9i: relates to the identi7able assets a6(ired or liabilities or ontingent
liabilities ass($ed in a b(siness o$bination that +as e>eted in
the (rrent or a previo(s periodA and
9ii: is of s(h siCe, nat(re or inidene that dislos(re is relevant to an
(nderstanding of the o$bined entity,s 7nanial perfor$ane*
9b: if the initial ao(nting for a b(siness o$bination that +as e>eted in the
i$$ediately preeding period +as deter$ined only provisionally at the
end of that period, the a$o(nts and e8planations of the ad5(st$ents to
the provisional val(es reognised d(ring the (rrent period*
9: the infor$ation abo(t error orretions re6(ired to be dislosed by FRS -
for any of the a6(iree,s identi7able assets, liabilities or ontingent
liabilities, or hanges in the val(es assigned to those ite$s, that the
a6(irer reognises d(ring the (rrent period in aordane +ith
paragraphs .3 and .3*
'3 An entit2 s&a-- .is,-ose infomation t&at enab-es uses of its 9nan,ia-
statements to e)a-uate ,&an!es in t&e ,a2in! amount of !oo.7i--
.uin! t&e (eio.>
/4 To give e>et to the priniple in paragraph /3, the entity shall dislose a
reoniliation of the arrying a$o(nt of good+ill at the beginning and end of the
period, sho+ing separately:
9a: the gross a$o(nt and a($(lated i$pair$ent losses at the beginning of
the periodA
9b: additional good+ill reognised d(ring the period e8ept good+ill inl(ded
in a disposal gro(p that, on a6(isition, $eets the riteria to be lassi7ed
as held for sale in aordane +ith FRS 104A
9: ad5(st$ents res(lting fro$ the s(bse6(ent reognition of deferred ta8
assets d(ring the period in aordane +ith paragraph .4A
9d: good+ill inl(ded in a disposal gro(p lassi7ed as held for sale in
aordane +ith FRS 104 and good+ill dereognised d(ring the period
+itho(t having previo(sly been inl(ded in a disposal gro(p lassi7ed as
held for saleA
9e: i$pair$ent losses reognised d(ring the period in aordane +ith FRS 3.A
9f: net e8hange di>erenes arising d(ring the period in aordane +ith FRS
01 The Efects of Changes in Foreign Exchange RatesA
9g: any other hanges in the arrying a$o(nt d(ring the periodA and
9h: the gross a$o(nt and a($(lated i$pair$ent losses at the end of the
period*
/. The entity disloses infor$ation abo(t the reoverable a$o(nt and i$pair$ent of
good+ill in aordane +ith FRS 3. in addition to the infor$ation re6(ired to be
dislosed by paragraph /49e:*
14
DRAFT
// 1f in any sit(ation the infor$ation re6(ired to be dislosed by this FRS does not
satisfy the ob5etives set o(t in paragraphs .., /0 and /3, the entity shall dislose
s(h additional infor$ation as is neessary to $eet those ob5etives*
TRANSITIONAL PRO0ISIONS AND EFFECTI0E DATE
/- !8ept as provided in paragraph -4, this FRS shall apply to the ao(nting for
b(siness o$binations for +hih the agreement date is on or after 31 Iarh 0003*
This FRS shall also apply to the ao(nting for:
9a: good+ill arising fro$ a b(siness o$bination for +hih the agree$ent date
is on or after 31 Iarh 0003A or
9b: any e8ess of the a6(irer,s interest in the net fair val(e of the a6(iree,s
identi7able assets, liabilities and ontingent liabilities over the ost of a
b(siness o$bination for +hih the agree$ent date is on or after 31 Iarh
0003*
Pe)ious-2 e,o!nise. !oo.7i--
/2 #n entity shall apply this FRS prospetively, fro$ the beginning of the 7rst ann(al
period beginning on or after 31 Iarh 0003, to good+ill a6(ired in a b(siness
o$bination for +hih the agree$ent date +as before 31 Iarh 0003, and to
good+ill arising fro$ an interest in a 5ointly ontrolled entity obtained before 31
Iarh 0003 and ao(nted for by applying proportionate onsolidation*
Therefore, an entity shall:
9a: fro$ the beginning of the 7rst ann(al period beginning on or after 31
Iarh 0003, disontin(e a$ortising s(h good+illA
9b: at the beginning of the 7rst ann(al period beginning on or after 31 Iarh
0003, eli$inate the arrying a$o(nt of the related a($(lated
a$ortisation +ith a orresponding derease in good+illA and
9: fro$ the beginning of the 7rst ann(al period beginning on or after 31
Iarh 0003, test the good+ill for i$pair$ent in aordane +ith FRS 3.
9pending revision in 0003:*
-0 1f an entity previo(sly reognised good+ill as a ded(tion fro$ e6(ity, it shall not
reognise that good+ill in pro7t or loss +hen it disposes of all or part of the
b(siness to +hih that good+ill relates or +hen a ash;generating (nit to +hih
the good+ill relates beo$es i$paired*
Pe)ious-2 e,o!nise. ne!ati)e !oo.7i--
-1 The arrying a$o(nt of negative good+ill at the beginning of the 7rst ann(al
period beginning on or after 31 Iarh 0003 that arose fro$ either
9a: a b(siness o$bination for +hih the agree$ent date +as before 31 Iarh
0003 or
9b: an interest in a 5ointly ontrolled entity obtained before 31 Iarh 0003 and
ao(nted for by applying proportionate onsolidation
shall be dereognised at the beginning of that period, +ith a orresponding
ad5(st$ent to the opening balane of retained earnings*
Pe)ious-2 e,o!nise. intan!ib-e assets
-0 The arrying a$o(nt of an ite$ lassi7ed as an intangible asset that either
9a: +as a6(ired in a b(siness o$bination for +hih the agree$ent date +as
before 31 Iarh 0003 or
1.
DRAFT
9b: arises fro$ an interest in a 5ointly ontrolled entity obtained before 31
Iarh 0003 and ao(nted for by applying proportionate onsolidation
shall be relassi7ed as good+ill at the beginning of the 7rst ann(al period
beginning on or after 31 Iarh 0003, if that intangible asset does not at that date
$eet the identi7ability riterion in FRS 3- 9pending revision in 0003:*
E*uit2 a,,ounte. in)estments
-3 For invest$ents ao(nted for by applying the e6(ity $ethod and a6(ired on or
after 31 Iarh 0003, an entity shall apply this FRS in the ao(nting for:
9a: any a6(ired good+ill inl(ded in the arrying a$o(nt of that invest$ent*
Therefore, a$ortisation of that notional good+ill shall not be inl(ded in
the deter$ination of the entity,s share of the investee,s pro7ts or losses*
9b: any e8ess inl(ded in the arrying a$o(nt of the invest$ent of the
entity,s interest in the net fair val(e of the investee,s identi7able assets,
liabilities and ontingent liabilities over the ost of the invest$ent*
Therefore, an entity shall inl(de that e8ess as ino$e in the
deter$ination of the entity,s share of the investee,s pro7ts or losses in the
period in +hih the invest$ent is a6(ired*
-3 For invest$ents ao(nted for by applying the e6(ity $ethod and a6(ired before
31 Iarh 0003:
9a: an entity shall apply this FRS on a prospetive basis, fro$ the beginning of
the 7rst ann(al period beginning on or after 31 Iarh 0003, to any
a6(ired good+ill inl(ded in the arrying a$o(nt of that invest$ent*
Therefore, an entity shall, fro$ that date, disontin(e inl(ding the
a$ortisation of that good+ill in the deter$ination of the entity,s share of
the investee,s pro7ts or losses*
9b: an entity shall dereognise any negative good+ill inl(ded in the arrying
a$o(nt of that invest$ent at the beginning of the 7rst ann(al period
beginning on or after 31 Iarh 0003, +ith a orresponding ad5(st$ent to
the opening balane of retained earnings*
Limite. etos(e,ti)e a((-i,ation
-4 #n entity is per$itted to apply the re6(ire$ents of this FRS to good+ill e8isting at
or a6(ired after, and to b(siness o$binations o(rring fro$, any date before
the e>etive dates o(tlined in paragraphs /-;-3, provided:
9a: the val(ations and other infor$ation needed to apply the FRS to past
b(siness o$binations +ere obtained at the ti$e those o$binations +ere
initially ao(nted forA and
9b: the entity also applies FRS 3. 9pending revision in 0003: and FRS 3-
9pending revision in 0003: prospetively fro$ that sa$e date, and the
val(ations and other infor$ation needed to apply those Standards fro$
that date +ere previo(sly obtained by the entity so that there is no need to
deter$ine esti$ates that +o(ld need to have been $ade at a prior date*
8IT5DRA8AL OF OT5ER PRONOUNCE%ENTS
-. This FRS s(persedes FRS 00 /usiness Com%inations 9as iss(ed in 0003:*
-/ This FRS s(persedes the follo+ing 1nterpretations:
9a: 1NT FRS 2 /usiness Com%inations2Classi3cation either as Acquisitions or
4nitings of !nterestsA
1/
DRAFT
9b: 1NT FRS 00 /usiness Com%inations2u%sequent Ad5ustment of Fair $alues
and 6ood0ill !nitially ReportedA and
9: 1NT FRS 0- /usiness Com%inations27+ate of Exchange8 and Fair $alue of
Equity !nstruments*
1-
DRAFT
A((en.i; A
De9ne. tems
This appendix is an integral part of the FR9
a,*uisition .ate The date on +hih the a6(irer e>etively obtains ,onto- of
the a6(iree*
a!eement .ate The date that a s(bstantive agree$ent bet+een the
o$bining parties is reahed and, in the ase of p(blily
listed entities, anno(ned to the p(bli* 1n the ase of a
hostile ta@eover, the earliest date that a s(bstantive
agree$ent bet+een the o$bining parties is reahed is the
date that a s(Dient n($ber of the a6(iree,s o+ners have
aepted the a6(irer,s o>er for the a6(irer to obtain
,onto- of the a6(iree*
business #n integrated set of ativities and assets ond(ted and
$anaged for the p(rpose of providing:
9a: a ret(rn to investorsA or
9b: lo+er osts or other eono$i bene7ts diretly and
proportionately to poliyholders or partiipants*
# b(siness generally onsists of inp(ts, proesses applied to
those inp(ts, and res(lting o(tp(ts that are, or +ill be, (sed
to generate reven(es* 1f !oo.7i-- is present in a transferred
set of ativities and assets, the transferred set shall be
pres($ed to be a b(siness*
business ,ombination The bringing together of separate entities or businesses
into one e(otin! entit2*
business ,ombination
in)o-)in! entities o
businesses un.e
,ommon ,onto-
# business ,ombination in +hih all of the o$bining
entities or businesses (lti$ately are ,onto--e. by the
sa$e party or parties both before and after the o$bination,
and that ,onto- is not transitory*
,ontin!ent -iabi-it2 Contingent liability has the $eaning given to it in FRS 3/
Pro"isions, Contingent Lia%ilities and Contingent Assets, i*e*:
9a: a possible obligation that arises fro$ past events and
+hose e8istene +ill be on7r$ed only by the
o(rrene or non;o(rrene of one or $ore (nertain
f(t(re events not +holly +ithin the ontrol of the entityA
or
9b: a present obligation that arises fro$ past events b(t is
not reognised bea(se:
9i: it is not (obab-e that an o(tBo+ of reso(res
e$bodying eono$i bene7ts +ill be re6(ired to
settle the obligationA or
9ii: the a$o(nt of the obligation annot be $eas(red
+ith s(Dient reliability*
12
DRAFT
,onto- The po+er to govern the 7nanial and operating poliies of
an entity or business so as to obtain bene7ts fro$ its
ativities*
.ate of e;,&an!e Ehen a business ,ombination is ahieved in a single
e8hange transation, the date of e8hange is the
a,*uisition .ate* Ehen a business ,ombination involves
$ore than one e8hange transation, for e8a$ple +hen it is
ahieved in stages by s(essive share p(rhases, the date
of e8hange is the date that eah individ(al invest$ent is
reognised in the 7nanial state$ents of the a6(irer*
fai )a-ue The a$o(nt for +hih an asset o(ld be e8hanged, or a
liability settled, bet+een @no+ledgeable, +illing parties in an
ar$,s length transation*
!oo.7i-- F(t(re eono$i bene7ts arising fro$ assets that are not
apable of being individ(ally identi7ed and separately
reognised*
intan!ib-e asset 1ntangible asset has the $eaning given to it in FRS 3-
!ntangi%le Assets, i*e* an identi7able non;$onetary asset
+itho(t physial s(bstane*
Coint )entue Joint vent(re has the $eaning given to it in FRS 31 !nterests
in #oint $entures, i*e* a ontrat(al arrange$ent +hereby t+o
or $ore parties (nderta@e an eono$i ativity that is
s(b5et to 5oint ontrol*
minoit2 inteest That portion of the pro7t or loss and net assets of a
subsi.ia2 attrib(table to e6(ity interests that are not
o+ned, diretly or indiretly thro(gh subsi.iaies, by the
(aent*
mutua- entit2 #n entity other than an investor;o+ned entity, s(h as a
$(t(al ins(rane o$pany or a $(t(al ooperative entity,
that provides lo+er osts or other eono$i bene7ts diretly
and proportionately to its poliyholders or partiipants*
(aent #n entity that has one or $ore subsi.iaies*
(obab-e Iore li@ely than not*
e(otin! entit2 #n entity for +hih there are (sers +ho rely on the entity,s
general p(rpose 7nanial state$ents for infor$ation that +ill
be (sef(l to the$ for $a@ing deisions abo(t the alloation
of reso(res* # reporting entity an be a single entity or a
gro(p o$prising a (aent and all of its subsi.iaies*
subsi.ia2 #n entity, inl(ding an (ninorporated entity s(h as a
partnership, that is ,onto--e. by another entity 9@no+n as
the (aent:*
00
DRAFT
A((en.i; B
A((-i,ation su((-ement
This appendix is an integral part of the FR9
Re)ese a,*uisitions
'1 #s noted in paragraph 01, in so$e b(siness o$binations, o$$only referred to
as reverse a6(isitions, the a6(irer is the entity +hose e6(ity interests have
been a6(ired and the iss(ing entity is the a6(iree* This $ight be the ase
+hen, for e8a$ple, a private entity arranges to have itself Ga6(ired, by a s$aller
p(bli entity as a $eans of obtaining a sto@ e8hange listing* #ltho(gh legally
the iss(ing p(bli entity is regarded as the parent and the private entity is
regarded as the s(bsidiary, the legal s(bsidiary is the a6(irer if it has the po+er
to govern the 7nanial and operating poliies of the legal parent so as to obtain
bene7ts fro$ its ativities*
'0 #n entity shall apply the g(idane in paragraphs '3;'14 +hen ao(nting for a
reverse a6(isition*
'3 Reverse a6(isition ao(nting deter$ines the alloation of the ost of the
b(siness o$bination as at the a6(isition date and does not apply to
transations after the o$bination*
Cost of t&e business ,ombination
'3 Ehen e6(ity instr($ents are iss(ed as part of the ost of the b(siness
o$bination, paragraph 03 re6(ires the ost of the o$bination to inl(de the fair
val(e of those e6(ity instr($ents at the date of e8hange* "aragraph 0/ notes
that, in the absene of a reliable p(blished prie, the fair val(e of the e6(ity
instr($ents an be esti$ated by referene to the fair val(e of the a6(irer or the
fair val(e of the a6(iree, +hihever is $ore learly evident*
'4 1n a reverse a6(isition, the ost of the b(siness o$bination is dee$ed to have
been in(rred by the legal s(bsidiary 9i*e* the a6(irer for ao(nting p(rposes: in
the for$ of e6(ity instr($ents iss(ed to the o+ners of the legal parent 9i*e* the
a6(iree for ao(nting p(rposes:* 1f the p(blished prie of the e6(ity
instr($ents of the legal s(bsidiary is (sed to deter$ine the ost of the
o$bination, a al(lation shall be $ade to deter$ine the n($ber of e6(ity
instr($ents the legal s(bsidiary +o(ld have had to iss(e to provide the sa$e
perentage o+nership interest of the o$bined entity to the o+ners of the legal
parent as they have in the o$bined entity as a res(lt of the reverse a6(isition*
The fair val(e of the n($ber of e6(ity instr($ents so al(lated shall be (sed as
the ost of the o$bination*
'. 1f the fair val(e of the e6(ity instr($ents of the legal s(bsidiary is not other+ise
learly evident, the total fair val(e of all the iss(ed e6(ity instr($ents of the legal
parent before the b(siness o$bination shall be (sed as the basis for deter$ining
the ost of the o$bination*
Pe(aation an. (esentation of ,onso-i.ate. 9nan,ia- statements
'/ Consolidated 7nanial state$ents prepared follo+ing a reverse a6(isition shall
be iss(ed (nder the na$e of the legal parent, b(t desribed in the notes as a
ontin(ation of the 7nanial state$ents of the legal s(bsidiary 9i*e* the a6(irer
for ao(nting p(rposes:* 'ea(se s(h onsolidated 7nanial state$ents
represent a ontin(ation of the 7nanial state$ents of the legal s(bsidiary:
01
DRAFT
9a: the assets and liabilities of the legal s(bsidiary shall be reogniCed and
$eas(red in those onsolidated 7nanial state$ents at their pre;
o$bination arrying a$o(nts*
9b: the retained earnings and other e6(ity balanes reognised in those
onsolidated 7nanial state$ents shall be the retained earnings and other
e6(ity balanes of the legal s(bsidiary i$$ediately before the b(siness
o$bination*
9: the a$o(nt reognised as iss(ed e6(ity instr($ents in those onsolidated
7nanial state$ents shall be deter$ined by adding to the iss(ed e6(ity of
the legal s(bsidiary i$$ediately before the b(siness o$bination the ost
of the o$bination deter$ined as desribed in paragraphs '3;'.*
Fo+ever, the e6(ity str(t(re appearing in those onsolidated 7nanial
state$ents 9i*e* the n($ber and type of e6(ity instr($ents iss(ed: shall
reBet the e6(ity str(t(re of the legal parent, inl(ding the e6(ity
instr($ents iss(ed by the legal parent to e>et the o$bination*
9d: o$parative infor$ation presented in those onsolidated 7nanial
state$ents shall be that of the legal s(bsidiary*
'- Reverse a6(isition ao(nting applies only in the onsolidated 7nanial
state$ents* Therefore, in the legal parent,s separate 7nanial state$ents, if any,
the invest$ent in the legal s(bsidiary is ao(nted for in aordane +ith the
re6(ire$ents in FRS 0/ Consolidated and eparate Financial tatements on
ao(nting for invest$ents in an investor,s separate 7nanial state$ents*
'2 Consolidated 7nanial state$ents prepared follo+ing a reverse a6(isition shall
reBet the fair val(es of the assets, liabilities and ontingent liabilities of the legal
parent 9i*e* the a6(iree for ao(nting p(rposes:* Therefore, the ost of the
b(siness o$bination shall be alloated by $eas(ring the identi7able assets,
liabilities and ontingent liabilities of the legal parent that satisfy the reognition
riteria in paragraph 3/ at their fair val(es at the a6(isition date* #ny e8ess of
the ost of the o$bination over the a6(irer,s interest in the net fair val(e of
those ite$s shall be ao(nted for in aordane +ith paragraphs 41;44* #ny
e8ess of the a6(irer,s interest in the net fair val(e of those ite$s over the ost
of the o$bination shall be ao(nted for in aordane +ith paragraph 4.*
%inoit2 inteest
'10 1n so$e reverse a6(isitions, so$e of the o+ners of the legal s(bsidiary do not
e8hange their e6(ity instr($ents for e6(ity instr($ents of the legal parent*
#ltho(gh the entity in +hih those o+ners hold e6(ity instr($ents 9the legal
s(bsidiary: a6(ired another entity 9the legal parent:, those o+ners shall be
treated as a $inority interest in the onsolidated 7nanial state$ents prepared
after the reverse a6(isition* This is bea(se the o+ners of the legal s(bsidiary
that do not e8hange their e6(ity instr($ents for e6(ity instr($ents of the legal
parent have an interest only in the res(lts and net assets of the legal s(bsidiary,
and not in the res(lts and net assets of the o$bined entity* Conversely, all of the
o+ners of the legal parent, not+ithstanding that the legal parent is regarded as
the a6(iree, have an interest in the res(lts and net assets of the o$bined entity*
'11 'ea(se the assets and liabilities of the legal s(bsidiary are reognised and
$eas(red in the onsolidated 7nanial state$ents at their pre;o$bination
arrying a$o(nts, the $inority interest shall reBet the $inority shareholders,
proportionate interest in the pre;o$bination arrying a$o(nts of the legal
s(bsidiary,s net assets*
Eanin!s (e s&ae
00
DRAFT
'10 #s noted in paragraph '/9:, the e6(ity str(t(re appearing in the onsolidated
7nanial state$ents prepared follo+ing a reverse a6(isition reBets the e6(ity
str(t(re of the legal parent, inl(ding the e6(ity instr($ents iss(ed by the legal
parent to e>et the b(siness o$bination*
'13 For the p(rpose of al(lating the +eighted average n($ber of ordinary shares
o(tstanding 9the deno$inator: d(ring the period in +hih the reverse a6(isition
o(rs:
9a: the n($ber of ordinary shares o(tstanding fro$ the beginning of that
period to the a6(isition date shall be dee$ed to be the n($ber of
ordinary shares iss(ed by the legal parent to the o+ners of the legal
s(bsidiaryA and
9b: the n($ber of ordinary shares o(tstanding fro$ the a6(isition date to the
end of that period shall be the at(al n($ber of ordinary shares of the
legal parent o(tstanding d(ring that period*
'13 The basi earnings per share dislosed for eah o$parative period before the
a6(isition date that is presented in the onsolidated 7nanial state$ents
follo+ing a reverse a6(isition shall be al(lated by dividing the pro7t or loss of
the legal s(bsidiary attrib(table to ordinary shareholders in eah of those periods
by the n($ber of ordinary shares iss(ed by the legal parent to the o+ners of the
legal s(bsidiary in the reverse a6(isition*
'14 The al(lations o(tlined in paragraphs '13 and '13 ass($e that there +ere no
hanges in the n($ber of the legal s(bsidiary,s iss(ed ordinary shares d(ring the
o$parative periods and d(ring the period fro$ the beginning of the period in
+hih the reverse a6(isition o(rred to the a6(isition date* The al(lation of
earnings per share shall be appropriately ad5(sted to ta@e into ao(nt the e>et
of a hange in the n($ber of the legal s(bsidiary,s iss(ed ordinary shares d(ring
those periods*
A--o,atin! t&e ,ost of a business ,ombination
'1. This FRS re6(ires an a6(irer to reognise the a6(iree,s identi7able assets,
liabilities and ontingent liabilities that satisfy the relevant reognition riteria at
their fair val(es at the a6(isition date* For the p(rpose of alloating the ost of a
b(siness o$bination, the a6(irer shall treat the follo+ing $eas(res as fair
val(es:
9a: for 7nanial instr($ents traded in an ative $ar@et the a6(irer shall (se
(rrent $ar@et val(es*
9b: for 7nanial instr($ents not traded in an ative $ar@et the a6(irer shall
(se esti$ated val(es that ta@e into onsideration feat(res s(h as prie;
earnings ratios, dividend yields and e8peted gro+th rates of o$parable
instr($ents of entities +ith si$ilar harateristis*
9: for reeivables, bene7ial ontrats and other identi7able assets the
a6(irer shall (se the present val(es of the a$o(nts to be reeived,
deter$ined at appropriate (rrent interest rates, less allo+anes for
(nolletibility and olletion osts, if neessary* Fo+ever, diso(nting is
not re6(ired for short;ter$ reeivables, bene7ial ontrats and other
identi7able assets +hen the di>erene bet+een the no$inal and
diso(nted a$o(nts is not $aterial*
9d: for inventories of:
9i: 7nished goods and $erhandise the a6(irer shall (se selling pries
less the s($ of 91: the osts of disposal and 90: a reasonable pro7t
allo+ane for the selling e>ort of the a6(irer based on pro7t for
si$ilar 7nished goods and $erhandiseA
03
DRAFT
9ii: +or@ in progress the a6(irer shall (se selling pries of 7nished
goods less the s($ of 91: osts to o$plete, 90: osts of disposal
and 93: a reasonable pro7t allo+ane for the o$pleting and selling
e>ort based on pro7t for si$ilar 7nished goodsA and
9iii: ra+ $aterials the a6(irer shall (se (rrent replae$ent osts*
9e: for land and b(ildings the a6(irer shall (se $ar@et val(es*
9f: for plant and e6(ip$ent the a6(irer shall (se $ar@et val(es, nor$ally
deter$ined by appraisal* 1f there is no $ar@et;based evidene of fair val(e
bea(se of the speialised nat(re of the ite$ of plant and e6(ip$ent and
the ite$ is rarely sold, e8ept as part of a ontin(ing b(siness, an a6(irer
$ay need to esti$ate fair val(e (sing an ino$e or a depreiated
replae$ent ost approah*
9g: for intangible assets the a6(irer shall deter$ine fair val(e:
9i: by referene to an ative $ar@et as de7ned in FRS 3- !ntangi%le
AssetsA or
9ii: if no ative $ar@et e8ists, on a basis that reBets the a$o(nts the
a6(irer +o(ld have paid for the assets in ar$,s length transations
bet+een @no+ledgeable +illing parties, based on the best
infor$ation available 9see FRS 3- for f(rther g(idane on
deter$ining the fair val(es of intangible assets a6(ired in b(siness
o$binations:*
9h: for net e$ployee bene7t assets or liabilities for de7ned bene7t plans the
a6(irer shall (se the present val(e of the de7ned bene7t obligation less
the fair val(e of any plan assets* Fo+ever, an asset is reognised only to
the e8tent that it is probable it +ill be available to the a6(irer in the for$
of ref(nds fro$ the plan or a red(tion in f(t(re ontrib(tions*
9i: for ta8 assets and liabilities the a6(irer shall (se the a$o(nt of the ta8
bene7t arising fro$ ta8 losses or the ta8es payable in respet of pro7t or
loss in aordane +ith FRS 10 !ncome Taxes, assessed fro$ the
perspetive of the o$bined entity* The ta8 asset or liability is deter$ined
after allo+ing for the ta8 e>et of restating identi7able assets, liabilities
and ontingent liabilities to their fair val(es and is not diso(nted*
95: for ao(nts and notes payable, long;ter$ debt, liabilities, ar(als and
other lai$s payable the a6(irer shall (se the present val(es of a$o(nts
to be disb(rsed in settling the liabilities deter$ined at appropriate (rrent
interest rates* Fo+ever, diso(nting is not re6(ired for short;ter$
liabilities +hen the di>erene bet+een the no$inal and diso(nted
a$o(nts is not $aterial*
9@: for onero(s ontrats and other identi7able liabilities of the a6(iree the
a6(irer shall (se the present val(es of a$o(nts to be disb(rsed in settling
the obligations deter$ined at appropriate (rrent interest rates*
9l: for ontingent liabilities of the a6(iree the a6(irer shall (se the a$o(nts
that a third party +o(ld harge to ass($e those ontingent liabilities*
S(h an a$o(nt shall reBet all e8petations abo(t possible ash Bo+s and
not the single $ost li@ely or the e8peted $a8i$($ or $ini$($ ash Bo+*
'1/ So$e of the above g(idane re6(ires fair val(es to be esti$ated (sing present
val(e tehni6(es* 1f the g(idane for a parti(lar ite$ does not refer to the (se of
present val(e tehni6(es, s(h tehni6(es $ay be (sed in esti$ating the fair
val(e of that ite$*
03
DRAFT
A((en.i; C
Amen.ments to ot&e FRSs
The amendments in this appendix shall %e applied to the accounting for %usiness
com%inations for 0hich the agreement date is on or after :; 'arch <==>, and to the
accounting for any good0ill and intangi%le assets acquired in those %usiness
com%inations9 !n all other respects, these amendments shall %e applied for annual
periods %eginning on or after :; 'arch <==>9
*o0e"er, if an entity elects in accordance 0ith paragraph ?@ to apply FR ;=: from any
date %efore the efecti"e dates outlined in paragraphs A?(?>, it shall also apply these
amendments prospecti"ely from that same date9
C1 1n Finanial Reporting Standards, inl(ding 1nterpretations of Finanial Reporting
Standards, appliable at 31 Iarh 0003, referenes to the (rrent version of FRS
00 /usiness Com%inations are a$ended to FRS 103 /usiness Com%inations*
C0 1n FRS 101 First(time Adoption of Financial Reporting tandards, paragraph '1 is
a$ended to read as follo+s*
'1 # 7rst;ti$e adopter $ay elet not to apply FRS 103 /usiness
Com%inations retrospetively to past b(siness o$binations 9b(siness
o$binations that o(rred before the date of transition to FRSs:*
Fo+ever, if a 7rst;ti$e adopter restates any b(siness o$bination to
o$ply +ith FRS 103, it shall restate all later b(siness o$binations and
shall also apply FRS 3. !mpairment of Assets 9pending revision in 0003:
and FRS 3- !ntangi%le Assets 9pending revision in 0003: fro$ that sa$e
date* For e8a$ple, if a 7rst;ti$e adopter elets to restate a b(siness
o$bination that o(rred on 30 J(ne 0000, it shall restate all b(siness
o$binations that o(rred bet+een 30 J(ne 0000 and the date of
transition to FRSs, and it shall also apply FRS 3. 9pending revision in 0003:
and FRS 3- 9pending revision in 0003: fro$ 30 J(ne 0000*
C3 The G(idane on 1$ple$enting FRS 101 First(time Adoption of Financial Reporting
tandards is a$ended as desribed belo+*
The heading i$$ediately before paragraph 1G00 is a$ended to read as follo+s:
FRS 103 Business Combinations
1G !8a$ple 0 is a$ended to read as follo+s:
IG E;am(-e "? Business ,ombination
K
#""L1C#T1=N =F R!M?1R!I!NTS
1n its opening 9onsolidated: FRS balane sheet, entity ':
9a: lassi7es the b(siness o$bination as an a6(isition by entity ' even if
the b(siness o$bination +o(ld have 6(ali7ed (nder FRS 103 as a
reverse a6(isition by s(bsidiary C 9paragraph '09a: of the FRS:*
K
1n 1G !8a$ple 3, the referene to FRS 00 is a$ended to FRS 103*
04
DRAFT
1G !8a$ple 3 is a$ended to read as follo+s:
IG E;am(-e 3? Business ,ombination G intan!ib-e assets
'#CNGR=?ND
!ntity F,s 7rst FRS 7nanial state$ents have a reporting date of 31 Dee$ber
0004 and inl(de o$parative infor$ation for 0003 only* =n 1 J(ly 0001, entity F
a6(ired /4 per ent of s(bsidiary G* ?nder its previo(s G##", entity F assigned
an initial arrying a$o(nt of 000 to intangible assets that +o(ld not have
6(ali7ed for reognition (nder FRS 3- !ntangi%le Assets* The ta8 base of the
intangible assets +as nil, giving rise to a deferred ta8 liability 9at 30 per ent: of
.0*
=n 31 Dee$ber 0003 9the date of transition to FRSs:, K
C3 FRS 10 !ncome Taxes is a$ended as desribed belo+*
Stan.a.
1n the =b5etive, the third paragraph is a$ended to read as follo+s:
This Standard re6(ires an entity to ao(nt for the ta8 onse6(enes of
transations and other events in the sa$e +ay that it ao(nts for the
transations and other events the$selves* Th(s, for transations and
other events reognised in pro7t or loss, any related ta8 e>ets are also
reognised in pro7t or loss* For transations and other events reognised
diretly in e6(ity, any related ta8 e>ets are also reognised diretly in
e6(ity* Si$ilarly, the reognition of deferred ta8 assets and liabilities in a
b(siness o$bination a>ets the a$o(nt of good+ill arising in that
b(siness o$bination or the a$o(nt of any e8ess of the a6(irer,s
interest in the net fair val(e of the a6(iree,s identi7able assets, liabilities
and ontingent liabilities over the ost of the o$bination*
"aragraphs 13, 1/, 1- and 00 are a$ended to read as follo+s:
14 A deferred ta! liabilit" s#all be recognised for all ta!able
temporar" di$erences% e!cept to t#e e!tent t#at t#e deferred ta!
liabilit" arises from&
'a( t#e initial recognition of good)ill* or
H
1/* Te$porary di>erenes also arise +hen:
9a: the ost of a b(siness o$bination is alloated by reogniCing the
identi7able assets a6(ired and liabilities ass($ed at their fair
val(es, b(t no e6(ivalent ad5(st$ent is $ade for ta8 p(rposes 9see
paragraph 1-:A
9b: assets are reval(ed and no e6(ivalent ad5(st$ent is $ade for ta8
p(rposes 9see paragraph 12:A
9: good+ill arises in a b(siness o$bination 9see paragraphs 00 and
31:A
0.
DRAFT
K
1-* The ost of a b(siness o$bination is alloated by reognising the
identi7able assets a6(ired and liabilities ass($ed at their fair val(es at
the a6(isition date* Te$porary di>erenes arise +hen the ta8 bases of
the identi7able assets a6(ired and liabilities ass($ed are not a>eted by
the b(siness o$bination or are a>eted di>erently* For e8a$ple, +hen
the arrying a$o(nt of an asset is inreased to fair val(e b(t the ta8 base
of the asset re$ains at ost to the previo(s o+ner, a ta8able te$porary
di>erene arises +hih res(lts in a deferred ta8 liability* The res(lting
deferred ta8 liability a>ets good+ill 9see paragraph .3:*
00* Good+ill arising in a b(siness o$bination is $eas(red as the e8ess of
the ost of the o$bination over the a6(irer,s interest in the net fair val(e
of the a6(iree,s identi7able assets, liabilities and ontingent liabilities*
Iany ta8ation a(thorities do not allo+ red(tions in the arrying a$o(nt of
good+ill as a ded(tible e8pense in deter$ining ta8able pro7t* Ioreover,
in s(h 5(risditions, the ost of good+ill is often not ded(tible +hen a
s(bsidiary disposes of its (nderlying b(siness* 1n s(h 5(risditions,
good+ill has a ta8 base of nil* #ny di>erene bet+een the arrying
a$o(nt of good+ill and its ta8 base of nil is a ta8able te$porary
di>erene* Fo+ever, this Standard does not per$it the reognition of the
res(lting deferred ta8 liability bea(se good+ill is $eas(red as a resid(al
and the reognition of the deferred ta8 liability +o(ld inrease the arrying
a$o(nt of good+ill*
"aragraphs 00# and 00' are added:
00#* S(bse6(ent red(tions in a deferred ta8 liability that is (nreogniCed
bea(se it arises fro$ the initial reognition of good+ill are also regarded
as arising fro$ the initial reognition of good+ill and are therefore not
reognised (nder paragraph 139a:* For e8a$ple, if good+ill a6(ired in a
b(siness o$bination has a ost of 100 b(t a ta8 base of nil, paragraph
139a: prohibits the entity fro$ reogniCing the res(lting deferred ta8
liability* 1f the entity s(bse6(ently reognises an i$pair$ent loss of 00 for
that good+ill, the a$o(nt of the ta8able te$porary di>erene relating to
the good+ill is red(ed fro$ 100 to -0, +ith a res(lting derease in the
val(e of the (nreognised deferred ta8 liability* That derease in the val(e
of the (nreognised deferred ta8 liability is also regarded as relating to the
initial reognition of the good+ill and is therefore prohibited fro$ being
reognised (nder paragraph 139a:*
00'* Deferred ta8 liabilities for ta8able te$porary di>erenes relating to
good+ill are, ho+ever, reognised to the e8tent they do not arise fro$ the
initial reognition of good+ill* For e8a$ple, if good+ill a6(ired in a
b(siness o$bination has a ost of 100 that is ded(tible for ta8 p(rposes
at a rate of 00 per ent per year starting in the year of a6(isition, the ta8
base of the good+ill is 100 on initial reognition and -0 at the end of the
year of a6(isition* 1f the arrying a$o(nt of good+ill at the end of the
year of a6(isition re$ains (nhanged at 100, a ta8able te$porary
di>erene of 00 arises at the end of that year* 'ea(se that ta8able
te$porary di>erene does not relate to the initial reognition of the
good+ill, the res(lting deferred ta8 liability is reognised*
"aragraphs 019a:, 03 and 049: are a$ended to read as follo+s:
01* K
9a: in a b(siness o$bination, an entity reognises any deferred ta8
liability or asset and this a>ets the a$o(nt of good+ill or the
0/
DRAFT
a$o(nt of any e8ess over the ost of the o$bination of the
a6(irer,s interest in the net fair val(e of the a6(iree,s identi7able
assets, liabilities and ontingent liabilities 9see paragraph 1-:A
H
+, A deferred ta! asset s#all be recognised for all deductible
temporar" di$erences to t#e e!tent t#at it is probable t#at
ta!able pro-t )ill be available against )#ic# t#e deductible
temporar" di$erence can be utilised% unless t#e deferred ta!
asset arises from t#e initial recognition of an asset or liabilit" in a
transaction t#at&
'a( is not a business combination* and
'b( at t#e time of t#e transaction% a$ects neit#er accounting
pro-t nor ta!able pro-t 'ta! loss(
04* K
9: the ost of a b(siness o$bination is alloated by reogniCing the
identi7able assets a6(ired and liabilities ass($ed at their fair
val(es at the a6(isition date* Ehen a liability ass($ed is
reognised at the a6(isition date b(t the related osts are not
ded(ted in deter$ining ta8able pro7ts (ntil a later period, a
ded(tible te$porary di>erene arises +hih res(lts in a deferred
ta8 asset* # deferred ta8 asset also arises +hen the fair val(e of an
identi7able asset a6(ired is less than its ta8 base* 1n both ases,
the res(lting deferred ta8 asset a>ets good+ill 9see paragraph .3:A
and
K
"aragraph 31 and the preeding heading are deleted*
"aragraphs 4.9b: and .3;.. and the e8a$ple follo+ing paragraph .. are
a$ended to read as follo+s:
./ 0
'b( a business combination 'see paragrap#s /4 to //(
.3* #s e8plained in paragraphs 1- and 049:, te$porary di>erenes $ay arise
in a b(siness o$bination* 1n aordane +ith FRS 103 /usiness
Com%inations, an entity reognises any res(lting deferred ta8 assets 9to
the e8tent that they $eet the reognition riteria in paragraph 03: or
deferred ta8 liabilities as identi7able assets and liabilities at the a6(isition
date* Conse6(ently, those deferred ta8 assets and liabilities a>et
good+ill or the a$o(nt of any e8ess of the a6(irer,s interest in the net
fair val(e of the a6(iree,s identi7able assets, liabilities and ontingent
liabilities over the ost of the o$bination* Fo+ever, in aordane +ith
paragraph 139a:, an entity does not reognise deferred ta8 liabilities
arising fro$ the initial reognition of good+ill*
./* #s a res(lt of a b(siness o$bination, an a6(irer $ay onsider it probable
that it +ill reover its o+n deferred ta8 asset that +as not reognised
before the b(siness o$bination* For e8a$ple, the a6(irer $ay be able
to (tilise the bene7t of its (n(sed ta8 losses against the f(t(re ta8able
pro7t of the a6(iree* 1n s(h ases, the a6(irer reognises a deferred
ta8 asset, b(t does not inl(de it as part of the ao(nting for the b(siness
o$bination, and therefore does not ta@e it into ao(nt in deter$ining the
good+ill or the a$o(nt of any e8ess of the a6(irer,s interest in the net
0-
DRAFT
fair val(e of the a6(iree,s identi7able assets, liabilities and ontingent
liabilities over the ost of the o$bination*
.-* 1f the potential bene7t of the a6(iree,s ino$e ta8 loss arry;for+ards or
other deferred ta8 assets did not satisfy the riteria in FRS 103 for
separate reognition +hen a b(siness o$bination is initially ao(nted for
b(t is s(bse6(ently realised, the a6(irer shall reognise the res(lting
deferred ta8 ino$e in pro7t or loss* 1n addition, the a6(irer shall:
9a: red(e the arrying a$o(nt of good+ill to the a$o(nt that +o(ld
have been reognised if the deferred ta8 asset had been reognised
as an identi7able asset fro$ the a6(isition dateA and
9b: reognise the red(tion in the arrying a$o(nt of good+ill as an
e8pense*
Fo+ever, this proed(re shall not res(lt in the reation of an e8ess of the
a6(irer,s interest in the net fair val(e of the a6(iree,s identi7able assets,
liabilities and ontingent liabilities over the ost of the o$bination, nor
shall it inrease the a$o(nt previo(sly reognised for any s(h e8ess*
02
DRAFT
E;am(-e
#n entity a6(ired a s(bsidiary that had ded(tible te$porary di>erenes of 300*
The ta8 rate at the ti$e of the a6(isition +as 30 per ent* The res(lting deferred
ta8 asset of 20 +as not reognised as an identi7able asset in deter$ining the
good+ill of 400 that res(lted fro$ the b(siness o$bination* T+o years after the
o$bination, the entity assessed that f(t(re ta8able pro7t sho(ld be s(Dient to
reover the bene7t of all the ded(tible te$porary di>erenes*
The entity recognises a deferred tax asset of B= and, in pro3t or loss, deferred tax
income of B=9 The entity also reduces the carrying amount of good0ill %y B= and
recognises an expense for this amount in pro3t or loss9 Consequently, the cost of
the good0ill is reduced to >;=, %eing the amount that 0ould ha"e %een
recognised had the deferred tax asset of B= %een recognised as an identi3a%le
asset at the acquisition date9
!f the tax rate had increased to >= per cent, the entity 0ould ha"e recognised a
deferred tax asset of ;<= -:== at >= per cent. and, in pro3t or loss, deferred tax
income of ;<=9 !f the tax rate had decreased to <= per cent, the entity 0ould
ha"e recognised a deferred tax asset of C= -:== at <= per cent. and deferred tax
income of C=9 !n %oth cases, the entity 0ould also reduce the carrying amount of
good0ill %y B= and recognise an expense for that amount in pro3t or loss9
30
DRAFT
A((en.i; A
1n setion # of #ppendi8 #, paragraphs 10 and 13 are a$ended to read as follo+s:
10* The arrying a$o(nt of an asset is inreased to fair val(e in a b(siness
o$bination and no e6(ivalent ad5(st$ent is $ade for ta8 p(rposes*
-)ote that on initial recognition, the resulting deferred tax lia%ility
increases good0ill or decreases the amount of any excess of the acquirerDs
interest in the net fair "alue of the acquireeDs identi3a%le assets, lia%ilities
and contingent lia%ilities o"er the cost of the com%ination9 ee paragraph
CC of the tandard:*
13* Red(tions in the arrying a$o(nt of good+ill are not ded(tible in
deter$ining ta8able pro7t and the ost of the good+ill +o(ld not be
ded(tible on disposal of the b(siness* -)ote that paragraph ;>-a. of the
tandard prohi%its recognition of the resulting deferred tax lia%ility:*
1n setion ' of #ppendi8 #, paragraph 2 is a$ended to read as follo+s:
2* # liability is reognised at its fair val(e in a b(siness o$bination, b(t none
of the related e8pense is ded(ted in deter$ining ta8able pro7t (ntil a
later period* -)ote that the resulting deferred tax asset decreases
good0ill or increases the amount of any excess of the acquirerDs interest in
the net fair "alue of the acquireeDs identi3a%le assets, lia%ilities and
contingent lia%ilities o"er the cost of the com%ination9 ee paragraph C> of
the tandard:*
1n setion ' of #ppendi8 #, paragraph 10 is deleted*
A((en.i; B
!8a$ple 3 is a$ended to read as follo+s:
=n 1 Jan(ary O4 entity # a6(ired 100 per ent of the shares of entity ' at
a ost of .00* #t the a6(isition date, the ta8 base in #,s ta8 5(risdition of
#,s invest$ent in ' is .00* Red(tions in the arrying a$o(nt of good+ill
are not ded(tible for ta8 p(rposes, and the ost of the good+ill +o(ld also
not be ded(tible if ' +ere to dispose of its (nderlying b(siness* The ta8
rate in #,s ta8 5(risdition is 30 per ent and the ta8 rate in ',s ta8
5(risdition is 30 per ent*
The fair val(e of the identi7able assets a6(ired and liabilities ass($ed
9e8l(ding deferred ta8 assets and liabilities: by # is set o(t in the
follo+ing table, together +ith their ta8 bases in ',s ta8 5(risdition and the
res(lting te$porary di>erenes*
Cost of
Acquisition Tax
/ase
Tempora
ry
+iferenc
e
"roperty, plant and e6(ip$ent 0/0 144 114
#o(nts reeivable 010 010 ;
1nventory 1/3 103 40
Retire$ent bene7t obligations 930: ; 930:
#o(nts payable 9100: 9100: ;
Fair val(e of identi7able assets
a6(ired and liabilities ass($ed,
403 3.2 134
31
DRAFT
e8l(ding deferred ta8
The deferred ta8 asset arising fro$ retire$ent bene7t obligations is o>set against
the deferred ta8 liabilities arising fro$ the property, plant and e6(ip$ent and
inventory 9see paragraph /0 of the Standard:*
No ded(tion is available in ',s ta8 5(risdition for the ost of the good+ill*
Therefore, the ta8 base of the good+ill in ',s ta8 5(risdition is nil* Fo+ever, in
aordane +ith paragraph 149a: of the Standard, # reognises no deferred ta8
liability for the ta8able te$porary di>erene assoiated +ith the good+ill in ',s
ta8 5(risdition*
The arrying a$o(nt, in #,s onsolidated 7nanial state$ents, of its invest$ent in
' is $ade (p as follo+s:
Fair val(e of identi7able assets a6(ired and liabilities ass($ed,
e8l(ding deferred ta8
403
Deferred ta8 liability 9134 at 30P: 943:
Fair val(e of identi7able assets a6(ired and liabilities ass($ed 340
Good+ill 140
Carrying a$o(nt .00
'ea(se, at the a6(isition date, the ta8 base in #,s ta8 5(risdition of #,s
invest$ent in ' is .00, no te$porary di>erene is assoiated in #,s ta8
5(risdition +ith the invest$ent*
D(ring O4, ',s e6(ity 9inorporating the fair val(e ad5(st$ents $ade as a res(lt of
the b(siness o$bination: hanged as follo+s:
#t 1 Jan(ary O4 340
Retained pro7t for O4 9net pro7t of 140, less dividend payable of -0: /0
#t 31 Dee$ber O4 400
# reognises a liability for any +ithholding ta8 or other ta8es that it +ill in(r on
the ar(ed dividend reeivable of -0*
#t 31 Dee$ber O4, the arrying a$o(nt of #,s (nderlying invest$ent in ',
e8l(ding the ar(ed dividend reeivable, is as follo+s:
Net assets of ' 400
Good+ill 140
Carrying a$o(nt ./0
The te$porary di>erene assoiated +ith #,s (nderlying invest$ent is /0* This
a$o(nt is e6(al to the ($(lative retained pro7t sine the a6(isition date*
1f # has deter$ined that it +ill not sell the invest$ent in the foreseeable f(t(re
and that ' +ill not distrib(te its retained pro7ts in the foreseeable f(t(re, no
deferred ta8 liability is reognised in relation to #,s invest$ent in ' 9see
paragraphs 3- and 32 of the Standard:* Note that this e8eption +o(ld apply for
an invest$ent in an assoiate only if there is an agree$ent re6(iring that the
pro7ts of the assoiate +ill not be distrib(ted in the foreseeable f(t(re 9see
paragraph 31 of the Standard:* # disloses the a$o(nt of the te$porary
30
DRAFT
di>erene for +hih no deferred ta8 is reognised: i*e* /0 9see paragraph /29f: of
the Standard:*
K
C4 FRS 13 egment Reporting is a$ended as desribed belo+*
Stan.a.
"aragraphs 12 and 01 are a$ended to read as follo+s:
12* !8a$ples of seg$ent assets inl(de (rrent assets that are (sed in the
operating ativities of the seg$ent, property, plant, and e6(ip$ent, assets
that are the s(b5et of 7nane leases 9FRS 1/ Leases:, and intangible
assets* 1f a parti(lar ite$ of depreiation or a$ortisation is inl(ded in
seg$ent e8pense, the related asset is also inl(ded in seg$ent assets*
Seg$ent assets do not inl(de assets (sed for general entity or head oDe
p(rposes* Seg$ent assets inl(de operating assets shared by t+o or $ore
seg$ents if a reasonable basis for alloation e8ists* Seg$ent assets
inl(de good+ill that is diretly attrib(table to a seg$ent or an be
alloated to a seg$ent on a reasonable basis, and seg$ent e8pense
inl(des any i$pair$ent losses reognised for good+ill*
01* Ieas(re$ents of seg$ent assets and liabilities inl(de ad5(st$ents to the
prior arrying a$o(nts of the identi7able seg$ent assets and seg$ent
liabilities of an entity a6(ired in a b(siness o$bination, even if those
ad5(st$ents are $ade only for the p(rpose of preparing onsolidated
7nanial state$ents and are not reogniCed in either the parent,s separate
or the s(bsidiary,s individ(al 7nanial state$ents* Si$ilarly, if property,
plant or e6(ip$ent has been reval(ed after a6(isition in aordane +ith
the reval(ation $odel in FRS 1., then $eas(re$ents of seg$ent assets
reBet those reval(ations*
C. 1n FRS 1. Property, Plant and Equipment 9pending revision in 0003:, paragraph .3
is deleted*
C/ FRS 12 Employee /ene3ts is a$ended as desribed belo+*
Stan.a.
"aragraph 10- is a$ended to read as follo+s:
10-* 1n a b(siness o$bination, an entity reognises assets and liabilities
arising fro$ post;e$ploy$ent bene7ts at the present val(e of the
obligation less the fair val(e of any plan assets 9see FRS 103 /usiness
Com%inations:* The present val(e of the obligation inl(des all of the
follo+ing, even if the a6(iree had not reognised the$ at the a6(isition
date:
9a: at(arial gains and losses that arose before the a6(isition date
9+hether or not they fell inside the 10P Gorridor,:A
9b: past servie ost that arose fro$ bene7t hanges, or the
introd(tion of a plan, before the a6(isition dateA and
K
C- 1n FRS 0/ Consolidated and eparate Financial tatements, paragraph 30 is
a$ended to read as follo+s:
33
DRAFT
30* The ino$e and e8penses of a s(bsidiary are inl(ded in the onsolidated
7nanial state$ents fro$ the a6(isition date, as de7ned in FRS 103* The
ino$e and e8penses K
C2 FRS 0- !n"estments in Associates is a$ended as desribed belo+:
The de7nition of 5oint ontrol in paragraph 0 is a$ended to read as follo+s:
1oint control is t#e contractuall" agreed s#aring of control over an
economic activit"% and e!ists onl" )#en t#e strategic -nancial and
operating decisions relating to t#e activit" re2uire t#e unanimous
consent of t#e parties s#aring control 't#e venturers(
1n paragraph 14, the referene to FRS 00 /usiness Com%inations is deleted*
Follo+ing this hange and hanges $ade by FRS 104 )on(current Assets *eld for
ale and +iscontinued ,perations, paragraph 14 reads as follo+s:
14* Ehen an invest$ent in an assoiate previo(sly lassi7ed as held for sale
no longer $eets the riteria to be so lassi7ed, it shall be ao(nted for
(sing the e6(ity $ethod as fro$ the date of its lassi7ation as held for
sale* Finanial state$ents for the periods sine lassi7ation as held for
sale shall be restated*
"aragraphs 03 and 33 are a$ended to read as follo+s:
03* #n invest$ent in an assoiate is ao(nted for (sing the e6(ity $ethod
fro$ the date on +hih it beo$es an assoiate* =n a6(isition of the
invest$ent any di>erene bet+een the ost of the invest$ent and the
investor,s share of the net fair val(e of the assoiate,s identi7able assets,
liabilities and ontingent liabilities is ao(nted for in aordane +ith FRS
103 /usiness Com%inations* Therefore:
9a: good+ill relating to an assoiate is inl(ded in the arrying a$o(nt
of the invest$ent* Fo+ever, a$ortisation of that good+ill is not
per$itted and is therefore not inl(ded in the deter$ination of the
investor,s share of the assoiate,s pro7ts or losses*
9b: any e8ess of the investor,s share of the net fair val(e of the
assoiate,s identi7able assets, liabilities and ontingent liabilities
over the ost of the invest$ent is e8l(ded fro$ the arrying
a$o(nt of the invest$ent and is instead inl(ded as ino$e in the
deter$ination of the investor,s share of the assoiate,s pro7t or loss
in the period in +hih the invest$ent is a6(ired*
#ppropriate ad5(st$ents to the investor,s share of the assoiate,s pro7ts
or losses after a6(isition are also $ade to ao(nt, for e8a$ple, for
depreiation of the depreiable assets based on their fair val(es at the
a6(isition date* Si$ilarly, appropriate ad5(st$ents to the investorQs share
of the assoiateQs pro7ts or losses after a6(isition are $ade for
i$pair$ent losses reognised by the assoiate, s(h as for good+ill or
property, plant and e6(ip$ent*
33* 'ea(se good+ill inl(ded in the arrying a$o(nt of an invest$ent in an
assoiate is not separately reognised, it is not tested for i$pair$ent
separately by applying the re6(ire$ents for i$pair$ent testing good+ill in
FRS 3. !mpairment of Assets* 1nstead, the entire arrying a$o(nt of the
invest$ent is tested (nder FRS 3. for i$pair$ent, by o$paring its
reoverable a$o(nt 9higher of val(e in (se and fair val(e less osts to sell:
+ith its arrying a$o(nt, +henever appliation of the re6(ire$ents in FRS
33
DRAFT
32 indiates that the invest$ent $ay be i$paired* 1n deter$ining the
val(e in (se of the invest$ent, an entity esti$ates:
9a: its share of the present val(e of the esti$ated f(t(re ash Bo+s
e8peted to be generated by the assoiate, inl(ding the ash Bo+s
fro$ the operations of the assoiate and the proeeds on the
(lti$ate disposal of the invest$entA or
9b: the present val(e of the esti$ated f(t(re ash Bo+s e8peted to
arise fro$ dividends to be reeived fro$ the invest$ent and fro$
its (lti$ate disposal*
?nder appropriate ass($ptions, both $ethods give the sa$e res(lt*
C10 FRS 31 !nterests in #oint $entures is a$ended as desribed belo+:
The de7nition of 5oint ontrol in paragraph 3 is a$ended to read as follo+s:
1oint control is t#e contractuall" agreed s#aring of control over an
economic activit"% and e!ists onl" )#en t#e strategic -nancial and
operating decisions relating to t#e activit" re2uire t#e unanimous
consent of t#e parties s#aring control 't#e venturers(
"aragraph 11 is a$ended to read as follo+s:
11* The ontrat(al arrange$ent establishes 5oint ontrol over the 5oint
vent(re* S(h a re6(ire$ent ens(res that no single vent(rer is in a
position to ontrol the ativity (nilaterally*
1n paragraph 33, the referene to FRS 00 /usiness Com%inations is deleted*
Follo+ing this hange and hanges $ade by FRS 104 )on(current Assets *eld for
ale and +iscontinued ,perations, paragraph 33 reads as follo+s:
33* Ehen an interest in a 5ointly ontrolled entity previo(sly lassi7ed as held
for sale no longer $eets the riteria to be so lassi7ed, it shall be
ao(nted for (sing proportionate onsolidation or the e6(ity $ethod as
fro$ the date of its lassi7ation as held for sale* Finanial state$ents for
the periods sine lassi7ation as held for sale shall be restated*
C11 1n FRS 30 Financial !nstruments& +isclosure and Presentation 9pending revision in
0003:, paragraph 39: is ren($bered as 39d:* "aragraph 39d: is ren($bered as
39: and a$ended to read as follo+s:
'c( contracts for contingent consideration in a business combination
'see 3RS 14, '(siness Co$binations.9 This exemption applies only to
the acquirer9
Follo+ing this hange and hanges $ade by FRS 103 !nsurance Contracts,
paragraph 39:;9e: reads as follo+s:
'c( contracts for contingent consideration in a business combination
'see 3RS 14, Business Combinations( 5#is e!emption applies onl"
to t#e ac2uirer
'd( insurance contracts as de-ned in 3RS 144 Insuan,e Conta,ts
Ho)ever% t#is Standard applies to derivatives t#at are embedded
in insurance contracts if 3RS ,6 re2uires t#e entit" to account for
t#em separatel"
'e( -nancial instruments t#at are )it#in t#e scope of 3RS 144
because t#e" contain a discretionar" participation feature 5#e
issuer of t#ese instruments is e!empt from appl"ing to t#ese
34
DRAFT
features paragrap#s 1.-,+ and A7+.-A7,. of t#is Standard
regarding t#e distinction bet)een -nancial liabilities and e2uit"
instruments Ho)ever% t#ese instruments are sub8ect to all ot#er
re2uirements of t#is Standard 3urt#ermore% t#is Standard
applies to derivatives t#at are embedded in t#ese instruments
'see 3RS ,6(
"aragraph 39f:, inserted by FRS 100 hare(%ased Payment, re$ains (nhanged*
C10 1n FRS 33 Earnings per hare, paragraphs 00 and .3 are a$ended to read as
follo+s:
00* =rdinary shares iss(ed as part of the ost of a b(siness o$bination are
inl(ded in the +eighted average n($ber of shares fro$ the a6(isition
date* This is bea(se the a6(irer inorporates into its ino$e state$ent
the a6(iree,s pro7ts and losses fro$ that date*
/4 9f 0 s#all be disclosed 9n addition% basic and diluted earnings per
s#are of all periods presented s#all be ad8usted for t#e e$ects of
errors and ad8ustments resulting from c#anges in accounting
policies accounted for retrospectivel"
C13 1n FRS 33 !nterim Financial tatements, paragraphs 1.9i: and 1- are a$ended to
read as follo+s:
1/ 0
'i( t#e e$ect of c#anges in t#e composition of t#e entit"
during t#e interim period% including business combinations%
ac2uisition or disposal of subsidiaries and long-term
investments% restructurings% and discontinuing operations
9n t#e case of business combinations% t#e entit" s#all
disclose t#e information re2uired to be disclosed under
paragrap#s //-:, of 3RS 14, Business Combinations* and
H
1-* =ther Standards speify dislos(res that sho(ld be $ade in 7nanial
state$ents* 1n that onte8t, 7nanial state$ents $eans o$plete sets of
7nanial state$ents of the type nor$ally inl(ded in an ann(al 7nanial
report and so$eti$es inl(ded in other reports* !8ept as re6(ired by
paragraph 1.9i:, the dislos(res re6(ired by those other Standards are not
re6(ired if an entity,s interi$ 7nanial report inl(des only ondensed
7nanial state$ents and seleted e8planatory notes rather than a
o$plete set of 7nanial state$ents*
C13 1n FRS 3/ Pro"isions, Contingent Lia%ilities and Contingent Assets, paragraph 4 is
a$ended to read as follo+s:
4* Ehere another Standard deals +ith a spei7 type of provision, ontingent
liability or ontingent asset, an entity applies that Standard instead of this
Standard* For e8a$ple, FRS 103 /usiness Com%inations addresses the
treat$ent by an a6(irer of ontingent liabilities ass($ed in a b(siness
o$bination* Si$ilarly, ertain types of provisions are also addressed in
Standards on:
K
C14 1n FRS 32 Financial !nstruments& Recognition and 'easurement 9pending revision
in 0003:, paragraph 09f: and 9h: is deleted by FRS 103 !nsurance Contracts*
3.
DRAFT
"aragraph 09g: is ren($bered as paragraph 09f: and a$ended as set o(t belo+*
"aragraph 09g: is added as set o(t belo+* Follo+ing these hanges and hanges
$ade by FRS 103, paragraph 09d:;9g: reads as follo+s:
'd( -nancial instruments issued b" t#e entit" t#at meet t#e de-nition
of an e2uit" instrument in 3RS ,+ 'including options and
)arrants( Ho)ever% t#e #older of suc# e2uit" instruments s#all
appl" t#is Standard to t#ose instruments% unless t#e" meet t#e
e!ception in 'a( above
'e( rig#ts and obligations under an insurance contract as de-ned in
3RS 144 Insuan,e Conta,ts or under a contract t#at is )it#in t#e
scope of 3RS 144 because it contains a discretionar" participation
feature Ho)ever% t#is Standard applies to a derivative t#at is
embedded in suc# a contract if t#e derivative is not itself a
contract )it#in t#e scope of 3RS 144 'see paragrap#s 14-1, and
Appendi! A paragrap#s A7+,-A7,,( 3urt#ermore% if an insurance
contract is a -nancial guarantee contract entered into% or
retained% on transferring to anot#er part" -nancial assets or
-nancial liabilities )it#in t#e scope of t#is Standard% t#e issuer
s#all appl" t#is Standard to t#e contract 'see paragrap# , and
Appendi! A paragrap# A74A(
'f( contracts for contingent consideration in a business combination
'see 3RS 14, Business Combinations( 5#is e!emption applies
onl" to t#e ac2uirer
'g( contracts bet)een an ac2uirer and a vendor in a business
combination to bu" or sell an ac2uiree at a future date
"aragraph 09i: and 95: is ren($bered as 09h: and 9i:* "aragraph 09i: +as inserted
by FRS 100 hare(%ased Payment*
C1. 1n the G(idane on 1$ple$enting FRS 32 Financial !nstruments& Recognition and
'easurement, M(estion F*0*3 and the ao$panying ans+er are a$ended to read
as follo+s:
F>">3 5e.!e a,,ountin!? ,oe .e(osit intan!ib-es
Is &e.!e a,,ountin! teatment (emitte. fo a &e.!e of t&e fai )a-ue
e;(osue of ,oe .e(osit intan!ib-esI
1t depends on +hether the ore deposit intangible is generated internally or
a6(ired 9e*g* as part of a b(siness o$bination:*
1nternally generated ore deposit intangibles are not reognised as intangible
assets (nder FRS 3-* 'ea(se they are not reognised, they annot be
designated as a hedged ite$*
1f a ore deposit intangible is a6(ired together +ith a related portfolio of
deposits, the ore deposit intangible is re6(ired to be reogniCed separately as an
intangible asset 9or as part of the related a6(ired portfolio of deposits: if it $eets
the reognition riteria in paragraph 01 of FRS 3- !ntangi%le Assets* # reognised
ore deposit intangible asset o(ld be designated as a hedged ite$, b(t only if it
$eets the onditions in paragraph --, inl(ding the re6(ire$ent in paragraph
--9b: that the e>etiveness of the hedge an be $eas(re reliably* 'ea(se it is
often diD(lt to $eas(re reliably the fair val(e of a ore deposit intangible asset
other than on initial reognition, it is (nli@ely that the re6(ire$ent in paragraph
--9b: +ill be $et*
3/
DRAFT
C1/ 1NT FRS 04 !ncome Taxes2Changes in the Tax tatus of an Enterprise or its
hareholders is a$ended as desribed belo+*
The 1NT FRS,s 'asis for Conl(sions sho(ld be read as follo+s:
BASIS FOR CONCLUSIONS
%The original te8t has been $ar@ed (p to reBet the revision of FRS 3- in 0003A
deleted te8t is str(@ thro(gh*&
4* FRS 10*4. re6(ires (rrent and deferred ta8 to be inl(ded in the net pro7t
or loss for the period, e8ept to the e8tent the ta8 arises fro$ a
transation or event that is reognised diretly in e6(ity, in the sa$e or a
di>erent period, 9or arises fro$ a b(siness o$bination that is an
a6(isition:* FRS 10*42 re6(ires that (rrent and deferred ta8 be harged
or redited diretly to e6(ity if the ta8 relates to ite$s that are redited or
harged, in the sa$e or a di>erent period, diretly to e6(ity*
C1- 1NT FRS 30 !ntangi%le Assets2Ee% ite Costs is a$ended as desribed belo+*
"aragraphs -;10 are a$ended to read as follo+s:
-* # +eb site arising fro$ develop$ent shall be reognised as an intangible
asset if, and only if, in addition to o$plying +ith the general re6(ire$ents
desribed in FRS 3-*01 for reognition and initial $eas(re$ent, an entity
an satisfy the re6(ire$ents in FRS 3-*4/* 1n parti(lar, an entity $ay be
able to satisfy the re6(ire$ent to de$onstrate ho+ its +eb site +ill
generate probable f(t(re eono$i bene7ts in aordane +ith FRS
3-*4/9d: +hen, for e8a$ple, the +eb site is apable of generating
reven(es, inl(ding diret reven(es fro$ enabling orders to be plaed* #n
entity is not able to de$onstrate ho+ a +eb site developed solely or
pri$arily for pro$oting and advertising its o+n prod(ts and servies +ill
generate probable f(t(re eono$i bene7ts, and onse6(ently all
e8pendit(re on developing s(h a +eb site shall be reognised as an
e8pense +hen in(rred*
2* #ny internal e8pendit(re on the develop$ent and operation of an entity,s
o+n +eb site shall be ao(nted for in aordane +ith FRS 3-* The
nat(re of eah ativity for +hih e8pendit(re is in(rred 9e*g* training
e$ployees and $aintaining the +eb site: and the +eb site,s stage of
develop$ent or post;develop$ent shall be eval(ated to deter$ine the
appropriate ao(nting treat$ent 9additional g(idane is provided in the
#ppendi8 to this 1nterpretation:* For e8a$ple:
9a: the "lanning stage is si$ilar in nat(re to the researh phase in FRS
3-*43;*4.* !8pendit(re in(rred in this stage shall be reognised as
an e8pense +hen it is in(rred*
9b: the #ppliation and 1nfrastr(t(re Develop$ent stage, the
Graphial Design stage and the Content Develop$ent stage, to the
e8tent that ontent is developed for p(rposes other than to
advertise and pro$ote an entity,s o+n prod(ts and servies, are
si$ilar in nat(re to the develop$ent phase in FRS 3-*4/;*.3*
!8pendit(re in(rred in these stages shall be inl(ded in the ost of
a +eb site reognised as an intangible asset in aordane +ith
paragraph - of this 1nterpretation +hen the e8pendit(re an be
diretly attrib(ted, or alloated on a reasonable and onsistent
basis, to preparing the +eb site for its intended (se* For e8a$ple,
e8pendit(re on p(rhasing or reating ontent 9other than ontent
that advertises and pro$otes an entity,s o+n prod(ts and
3-
DRAFT
servies: spei7ally for a +eb site, or e8pendit(re to enable (se of
the ontent 9e*g* a fee for a6(iring a liene to reprod(e: on the
+eb site, shall be inl(ded in the ost of develop$ent +hen this
ondition is $et* Fo+ever, in aordane +ith FRS 3-*/1,
e8pendit(re on an intangible ite$ that +as initially reognised as
an e8pense in previo(s 7nanial state$ents shall not be reognised
as part of the ost of an intangible asset at a later date 9e*g* if the
osts of a opyright have been f(lly a$ortised, and the ontent is
s(bse6(ently provided on a +eb site:*
9: e8pendit(re in(rred in the Content Develop$ent stage, to the
e8tent that ontent is developed to advertise and pro$ote an
entity,s o+n prod(ts and servies 9e*g* digital photographs of
prod(ts:, shall be reognised as an e8pense +hen in(rred in
aordane +ith FRS 3-*.29:* For e8a$ple, +hen ao(nting for
e8pendit(re on professional servies for ta@ing digital photographs
of an entity,s o+n prod(ts and for enhaning their display,
e8pendit(re shall be reognised as an e8pense as the professional
servies are reeived d(ring the proess, not +hen the digital
photographs are displayed on the +eb site*
9d: the =perating stage begins one develop$ent of a +eb site is
o$plete* !8pendit(re in(rred in this stage shall be reognised as
an e8pense +hen it is in(rred (nless it $eets the reognition
riteria in FRS 3-*1-*
10* # +eb site that is reognised as an intangible asset (nder paragraph - of
this 1nterpretation shall be $eas(red after initial reognition by applying
the re6(ire$ents of FRS 3-*/0;*-/* The best esti$ate of a +eb site,s
(sef(l life shall be short*
The 1NT FRS,s 'asis for Conl(sions sho(ld be read as follo+s:
BASIS FOR CONCLUSIONS
%The original te8t has been $ar@ed (p to reBet the revision of FRS 3- in 0003A
ne+ te8t is (nderlined and deleted te8t is str(@ thro(gh*&
11* #n intangible asset is de7ned in FRS 3-*/- as an identi7able non;$onetary
asset +itho(t physial s(bstane held for (se in the prod(tion or s(pply
of goods or servies, for rental to others, or for ad$inistrative p(rposes*
FRS 3-*-2 provides o$p(ter soft+are as a o$$on e8a$ple of an
intangible asset* 'y analogy, a +eb site is another e8a$ple of an
intangible asset*
10* FRS 3-*.-4. re6(ires e8pendit(re on an intangible ite$ to be reognised
as an e8pense +hen in(rred (nless it for$s part of the ost of an
intangible asset that $eets the reognition riteria in FRS 3-*1-;*./44*
FRS 3-*.24/ re6(ires e8pendit(re on start;(p ativities to be reognised as
an e8pense +hen in(rred* #n entity enterprise developing its o+n +eb
site for internal or e8ternal aess is not (nderta@ing a start;(p ativity to
the e8tent that an internally generated intangible asset is reated* The
re6(ire$ents and g(idane in FRS 3-*40;*./30;*44, in addition to the
general re6(ire$ents desribed in FRS 3-*0112 for reognition and initial
$eas(re$ent of an intangible asset, apply to e8pendit(re in(rred on the
develop$ent of an entity,s enterprise,s o+n +eb site* #s desribed in FRS
3-*.4;*./43;*44, the ost of a +eb site reogniCed as an internally
generated intangible asset o$prises all e8pendit(re that an be diretly
attrib(ted, or alloated on a reasonable and onsistent basis, and is
neessary to reating, prod(ing, and preparing the asset for it to be
32
DRAFT
apable of operating in the $anner intended by $anage$entits intended
(se*
13* FRS 3-*4330 re6(ires e8pendit(re on researh 9or on the researh phase of
an internal pro5et: to be reognised as an e8pense +hen in(rred* The
e8a$ples provided in FRS 3-*4.33 are si$ilar to the ativities (nderta@en
in the "lanning stage of a +eb site,s develop$ent* Conse6(ently,
e8pendit(re in(rred in the "lanning stage of a +eb site,s develop$ent is
reognised as an e8pense +hen in(rred*
13* FRS 3-*4/34 re6(ires an intangible asset arising fro$ the develop$ent
phase of an internal pro5et to be reognised only if an entity enterprise
an de$onstrate f(l7l$ent of the si8 riteria spei7ed* =ne of the riteria
is to de$onstrate ho+ a +eb site +ill generate probable f(t(re eono$i
bene7ts 9FRS 3-*4/349d::* FRS 3-*.03- indiates that this riterion is $et
by assessing the eono$i bene7ts to be reeived fro$ the +eb site and
(sing the priniples in FRS 3., !mpairment of Assets, +hih onsiders the
present val(e of esti$ated f(t(re ash Bo+s fro$ ontin(ing (se of the
+eb site* F(t(re eono$i bene7ts Bo+ing fro$ an intangible asset, as
stated in FRS 3-*1/, $ay inl(de reven(e fro$ the sale of prod(ts or
servies, ost savings, or other bene7ts res(lting fro$ the (se of the asset
by the entityenterprise* Therefore, f(t(re eono$i bene7ts fro$ a +eb
site $ay be assessed +hen the +eb site is apable of generating reven(es*
# +eb site developed solely or pri$arily for advertising and pro$oting an
entity,senterprise,s o+n prod(ts and servies is not reognised as an
intangible asset, bea(se the entityenterprise annot de$onstrate the
f(t(re eono$i bene7ts that +ill Bo+* Conse6(ently, all e8pendit(re on
developing a +eb site solely or pri$arily for pro$oting and advertising an
entity,s enterprise,s o+n prod(ts and servies is reognised as an
e8pense +hen in(rred*
14* ?nder FRS 3-*0112, an intangible asset is reognised if, and only if, it
$eets spei7ed riteria* FRS 3-*.443 indiates that the ost of an
internally generated intangible asset is the s($ of e8pendit(re in(rred
fro$ the date +hen the intangible asset 7rst $eets the spei7ed
reognition riteria* Ehen an entityenterprise a6(ires or reates ontent
for p(rposes other than to advertise and pro$ote an entity,s enterprise,s
o+n prod(ts and servies, it $ay be possible to identify an intangible
asset 9e*g* a liene or a opyright: separate fro$ a +eb site* Fo+ever, a
separate asset is not reognised +hen e8pendit(re is diretly attrib(ted, or
alloated on a reasonable and onsistent basis, to reating, prod(ing, and
preparing the +eb site for it to be apable of operating in the $anner
intended by $anage$ent its intended (seH the e8pendit(re is inl(ded in
the ost of developing the +eb site*
1.* FRS 3-*.24/9: re6(ires e8pendit(re on advertising and pro$otional
ativities to be reognised as an e8pense +hen in(rred* !8pendit(re
in(rred on developing ontent that advertises and pro$otes an entity,s
enterprise,s o+n prod(ts and servies 9e*g* digital photographs of
prod(ts: is an advertising and pro$otional ativity, and onse6(ently
reognised as an e8pense +hen in(rred in aordane +ith FRS 3-*4/9:*
1/* =ne develop$ent of a +eb site is o$plete, an entity begins the ativities
desribed in the =perating stage* S(bse6(ent e8pendit(re to enhane or
$aintain an entity,s o+n +eb site is reognised as an e8pense +hen
in(rred (nless it $eets the reognition riteria in FRS 3-*1-* FRS 3-*00
e8plains that $ost s(bse6(ent e8pendit(res are li@ely to $aintain the
f(t(re eono$i bene7ts e$bodied in an e8isting intangible asset rather
than $eet the de7nition of an intangible asset and the reognition riteria
30
DRAFT
set o(t in FRS 3-* 1n addition, it is often diD(lt to attrib(te s(bse6(ent
e8pendit(re diretly to a parti(lar intangible asset rather than to the
b(siness as a +hole* Therefore, only rarely +ill s(bse6(ent e8pendit(reH
e8pendit(re in(rred after the initial reognition of a p(rhased intangible
asset or after o$pletion of an internally generated intangible assetHbe
reognised in the arrying a$o(nt of an asset*
1-* #n intangible asset is $eas(red after initial reognition by applying the
re6(ire$ents of FRS 3-*/0;*-/.3;*/-* The reval(ation $odel#llo+ed
#lternative Treat$ent in FRS 3-*/4.3 is applied only +hen the fair val(e of
an intangible asset an be deter$ined by referene to an ative $ar@et*
Fo+ever, as an ative $ar@et is (nli@ely to e8ist for +eb sites, the ost
$odel 'enh$ar@ Treat$ent applies* #dditionally, sine FRS 3-*-3 states
that an intangible asset al+ays has a 7nite (sef(l life, a +eb site that is
reognised as an asset is a$ortised over the best esti$ate of its (sef(l life
(nder FRS 3-*/2* #sas indiated in FRS 3-*20-1, $any intangible assets
are s(septible to tehnologial obsolesene, and given the history of
rapid hanges in tehnology, the (sef(l life of +eb sites +ill be short*
The EDe,ti)e Date paragraph is a$ended to read as follo+s:
EDe,ti)e Date? This 1nterpretation beo$es e>etive on 1 Febr(ary 0003*
The e>ets of adopting this 1nterpretation shall be ao(nted for (sing the
transitional re6(ire$ents in the version of FRS 3- that +as iss(ed in 0003*
Therefore, +hen a +eb site does not $eet the riteria for reognition as an
intangible asset, b(t +as previo(sly reognised as an asset, the ite$ shall
be dereognised at the date +hen this 1nterpretation beo$es e>etive*
Ehen a +eb site e8ists and the e8pendit(re to develop it $eets the riteria
for reognition as an intangible asset, b(t +as not previo(sly reognised as
an asset, the intangible asset shall not be reognised at the date +hen this
1nterpretation beo$es e>etive* Ehen a +eb site e8ists and the
e8pendit(re to develop it $eets the riteria for reognition as an intangible
asset, +as previo(sly reognised as an asset and initially $eas(red at
ost, the a$o(nt initially reognised is dee$ed to have been properly
deter$ined*
31
DRAFT
1n the #ppendi8, the !8a$ple is a$ended to read as follo+s:
Sta!e J Natue of E;(en.itue A,,ountin! teatment
P-annin!
• (nderta@ing feasibility st(dies
• de7ning hard+are and soft+are
spei7ations
• eval(ating alternative prod(ts and
s(ppliers
• seleting preferenes
Reognise as an e8pense +hen in(rred in
aordane +ith FRS 3-*43
A((-i,ation an. Infastu,tue
De)e-o(ment
• p(rhasing or developing hard+are
#pply the re6(ire$ents of FRS 1.
• obtaining a do$ain na$e
• developing operating soft+are 9e*g*
operating syste$ and server
soft+are:
• developing ode for the appliation
• installing developed appliations on
the +eb server
• stress testing
Reognise as an e8pense +hen in(rred,
(nless the e8pendit(re an be diretly
attrib(ted to preparing the +eb site to
operate in the $anner intended by
$anage$ent, and the +eb site $eets the
reognition riteria in FRS 3-*01 and FRS
3-*4/R
Ga(&i,a- Desi!n De)e-o(ment
• designing the appearane 9e*g*
layo(t and olo(r: of +eb pages
Reognise as an e8pense +hen in(rred,
(nless the e8pendit(re an be diretly
attrib(ted to preparing the +eb site to
operate in the $anner intended by
$anage$ent, and the +eb site $eets the
reognition riteria in FRS 3-*01 and FRS
3-*4/R
Content De)e-o(ment
• reating, p(rhasing, preparing 9e*g*
reating lin@s and identifying tags:,
and (ploading infor$ation, either
te8t(al or graphial in nat(re, on
the +eb site before the o$pletion
of the +eb site,s develop$ent*
!8a$ples of ontent inl(de
infor$ation abo(t an entity,
prod(ts or servies o>ered for sale,
Reognise as an e8pense +hen in(rred in
aordane +ith FRS 3-*.29: to the e8tent
that ontent is developed to advertise and
pro$ote an entity,s o+n prod(ts and
servies 9e*g* digital photographs of
prod(ts:* =ther+ise, reognise as an
e8pense +hen in(rred, (nless the
e8pendit(re an be diretly attrib(ted to
preparing the +eb site to operate in the
30
DRAFT
and topis that s(bsribers aess $anner intended by $anage$ent, and the
+eb site $eets the reognition riteria in
FRS 3-*01 and FRS 3-*4/R
continued
O(eatin!
• (pdating graphis and revising
ontent
• adding ne+ f(ntions, feat(res and
ontent
• registering the +eb site +ith searh
engines
• ba@ing (p data
• revie+ing se(rity aess
• analysing (sage of the +eb site
#ssess +hether it $eets the de7nition of an
intangible asset and the reognition riteria
set o(t FRS 3-*1-, in +hih ase the
e8pendit(re is reognised in the arrying
a$o(nt of the +eb site asset
Ot&e
• selling, ad$inistrative and other
general overhead e8pendit(re
(nless it an be diretly attrib(ted
to preparing the +eb site for (se to
operate in the $anner intended by
$anage$ent
• learly identi7ed ineDienies and
initial operating losses in(rred
before the +eb site ahieves
planned perfor$ane 9e*g* false;
start testing:
• training e$ployees to operate the
+eb site
Reognise as an e8pense +hen in(rred in
aordane +ith FRS 3-*.4;*/0
R #ll e8pendit(re on developing a +eb site solely or pri$arily for pro$oting and advertising an entity,s o+n
prod(ts and servies is reognised as an e8pense +hen in(rred in aordane +ith FRS 3-*.-*
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