What is a business combination according to PFRS/IFRS?

According to the IFRS 3, a business combination can be defined either as a

transaction or other event wherein an acquirer obtains control of one or more
businesses. It pertains to the expansion wherein separate enterprises are
brought together, through or by merger or consolidation, into one distinct
economic entity upon or after gaining control over the net assets and operations
of another enterprise.

Define a business.

The definition of a business varies from one person to another and depending
on some factors as well, but in the simplest sense it is where a person or a group
of people engage in any kind or form of activity to provide other people their
needs and wants, may it be tangible or not, for the purpose of gaining profit.

How is control achieved?

In a business combination, there are two ways to gain or achieve control of

another company. It is either through the acquisition of the assets of the target
company or by acquiring over 50% controlling interest of the target company’s
voting common stock.

Please explain contingent consideration.

Contingent consideration can be considered as an obligation that an acquirer

must fulfill towards the acquiree if considerations are met or if future events
occur. The acquirer is expected to transfer additional assets or equity interests
to the former owner of the company or the acquiree if either of the two
situations happened.

How should acquisition-related costs be recorded?

Acquisition-related costs incurred related to the business combination are

recognized as expense. As per the IFRS 3, an entity is required to account for
acquisition-related costs as expenses in the periods in which the costs are
incurred and the services are received, except when it is a cost to issue debt
securities or equity securities.

What is the treatment of stock issuance costs?

Stock issuance costs, on the other hand, are recognized or accounted as a

deduction to the additional paid-in capital. In cases that the additional paid-in
capital are reduced to zero, stock issuance costs is treated as a contra-account
from the retained earnings.
How does "new" goodwill arise?

Goodwill or gain on bargain purchase arises when the consideration transferred

or the price paid for the net assets acquired is greater than the fair value of net
identifiable assets
When does bargain purchase result?

Bargain purchase is a result of a transaction wherein the fair value of the net
assets acquired is greater than the consideration transferred; or when the price
paid is lower than the net assets acquired. The difference between the two is
considered as gain on acquisition.

What will be the consequence of the business combination on the acquirer's Statement of
Financial Position?

On a business combination, under the acquisition method, it is expected for an

acquirer’s Statement of Financial Position to include all the assets and liabilities
of the acquiree at fair value after the combination.

What will the effect of the business combination on the acquirer's Statement of Comprehensive
Income?

The acquirer’s Statement of Comprehensive Income for the period of the

business combination will generally include all the operating results of the
acquiree. Such results that occurred after the date of acquisition are the only
one that should be accounted for on the recording.

REFERENCE:

Guerrero, P., & Peralta, J. (2017). Advanced Accounting. (Volume 2, 2017 edition).

IAS Plus. (2012). IFRS 3 – Business Combinations.

https://www.iasplus.com/en/standards/ifrs/ifrs3

IAS Plus. (2012). IFRS 3 – Acquisition related costs in a business combination.

https://www.iasplus.com/en/meeting-notes/ifrs-ic/not-added/2009/ifrs-3-acquisition-related-
costs-in-a-business-combination