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GROUP MEMBERS:

1. SHAZIDA BIBI- 2018002105

2. SHIVENDRA NAICKER- 2018000339
3. PATRICK SHIVNIL DEO- 2018000167
“BUSINESS COMBINATION”

Business “combinations are transaction or other event in which an acquirer obtains control of one
or more businesses. Transactions sometimes referred to as 'true mergers' or 'mergers of equals'
are also business combinations as that term is used in IFRS 3. Thus, this essay will further
highlight on business combination and discuss the different forms and steps in the acquisition
method of accounting for business combinations with its disclosures requirements”.

To begin with, “business combination refers in general to any set of conditions in which two or
more organizations are joined together through common ownership. It is the term applied to
external expansion in which separate enterprises are brought together into one economic entity as
a result of one enterprise uniting with or obtaining control over the net assets and operations of
another enterprise. However, according to IFRS 3(paragraph 3), “an entity shall determine
whether a transaction or other event is a business combination by applying the definition in this
IFRS, which requires that the assets acquired and liabilities assumed constitute a business”. If the
assets acquired are not a business, the reporting entity shall account for the transaction or other
event as asset acquisition”.

Furthermore, “under IFRS 3, a business combination must be accounted for using a technique
called the “acquisition method”. This views the transaction from the perspective of the acquirer
and involves the following stages/ steps: firstly, identify the acquirer- The acquirer is the entity
that obtains control of the other entity or business. Deciding who the acquirer is depends on
judgment, and it can be useful to look out for these indicators when deciding the acquirer, such
as, the entity transferring cash or assets, the entity that issues equity interests, voting rights in the
combined entity after the combination (acquirer usually receives more voting rights) and the
board of directors and senior management of the new combined entity (acquirer usually controls
the board). Secondly, determine the acquisition date. Acquisition date is the date that the acquirer
obtains control of the acquiree. However, determining the correct acquisition date is important as
the following are affected by the choice of acquisition date: The fair values of net assets
acquired, Consideration given, where the consideration takes a non-cash form and Measurement
of the non-controlling interest. Thirdly, Measure the fair value of the acquiree. At the date of
acquisition, the acquirer must recognize the identifiable assets acquired, the liabilities assumed
and any non-controlling interests in the acquiree. Lastly, recognize and measure goodwill, or
recognize a gain from a bargain purchase. Goodwill is recognized if the aggregate consideration
transferred, plus fair value of previously held equity interest in the acquiree as of the acquisition
date, plus fair value of non-controlling interest is greater than fair value of net identifiable assets.
Gain from bargain purchase is recognized if fair value of net identifiable assets is greater than the
aggregate consideration transferred, plus fair value of previously held equity interest in the
acquiree as of the acquisition date, plus fair value of non-controlling interest”.

Moreover, “the acquirer shall disclose information that enables users of its financial statements
to evaluate the nature and financial effect of a business combination that occurs either during the
current reporting period or after the end of the period but before the financial statements is
authorized for issue. Some of the disclosures required to meet the foregoing objective are: name
and a description of the acquiree, acquisition date, percentage of voting equity interests acquired
and so on. However, there are disclosure of information about adjustments of past business
combinations which involves an acquirer is required to disclose information that enables users of
its financial statements to evaluate the financial effects of adjustments recognised in the current
reporting period that relate to business combinations that occurred in the period or previous
reporting period. Additionally, the disclosures required to meet the foregoing objective are:
details when the initial accounting for a business combination is incomplete for particular assets,
liabilities, non-controlling interests or items of consideration”.

Finally, “business combination is an event in which acquire obtain control of the acquiree entity.
Thus, certain things need to be considered when referring to business combination. Things such
as; following proper acquisition method which involves: identifying the acquirer, determine
correct acquisition date, measure fair value of acquiree and recognize goodwill or bargain. In
addition to, information regarding business combination need to be disclosed according to IFRS
3”.
REFERENCE

1. IFRS 3 — Business Combinations. (n.d.). Retrieved May 12, 2020, from IASPlus:
https://www.iasplus.com/en/standards/ifrs/ifrs3

2. Muc, M. (2020, April 4). ACcounting for Business Combinations (IFRS 3). Retrieved
May 15, 2020, from IFRSCommunity.com: https://ifrscommunity.com/knowledge-
base/business-combination-accounting/

3. The 4 Step Acqusition Method for Business Combinations under IFRS 3. (2015, March
20). Retrieved May 13, 2020, from charterededucation.com:
https://www.charterededucation.com/ifrs/the-4-step-acqusition-method-for-business-
combinations-under-ifrs-3/