Step Action Applicable

paragraphs
1 Know the types of transactions/events that qualify to be treated under IFRS IFRS3.02
3 (i.e. when can I use IFRS 3, and when not?)

2 Know how to identify a business combination.  IFRS3.03  

The following definitions are important: Appendix A
 Business Combination Appendix B5 – B12
 Business Module example D1
 Acquirer
 Acquiree

3 Know the logical flow of the steps of applying the acquisition method: IFRS3.04 & .05

 Identify the acquirer

 Determine the acquisition date
 Measure the identifiable assets, liabilities and non-controlling
interest in the acquiree
 Recognise and measure goodwill or a gain from a bargain purchase
 
The next four steps (4 to 7) will now zoom into each of these four
steps of the acquisition method.
 
4 Know how to identify the acquirer (step 1 of the acquisition method) IFRS3.06 &.07
  Appendix B13 – B16
The acquirer is the entity that obtains control of the acquiree.  IFRS 10 IFRS 10.5 – 9
provides good guidance on how to identify if “control” is obtained.  Module example D2

Very important to also understand the concept of potential voting rights!!!

5 Know how to determine the acquisition date (step 2 of the acquisition IFRS3.08 - .09

method) Module example D3
 
6 Recognising and measuring the identifiable assets acquired,  
the liabilities assumed and any non-controlling interest (NCI hereafter)  
 NB in the acquiree (step 3 of the acquisition method)  
 step!  
! ASSETS & LIABILITIES  
General recognition principle in IFRS 3:  
 A &L obtained must comply with the definition of assets & liabilities  IFRS3.10 - .17
per the Framework  
 A & L obtained must be part of what the acquirer and acquiree  
exchanged in the business combination transaction rather than the  
result of separate transactions.

Classification & designation of A & L obtained:

 General rule: acquirer classifies/designates based on conditions at IFRS 3.51 - .53
acquisition date  
 Exception:  classification of lease contract – acquirer classifies  
based on conditions at inception of lease contract (or modification
date)

General measurement principle in IFRS 3: IFRS 3.15 - .16

 Measure identifiable A & L at their acquisition-date fair values   
 
 Exceptions to general recognition & measurement principles - IFRS 3: IFRS 3.17
 The following assets/liabilities are excluded from the general  
recognition and/or measurement principles of IFRS 3:    
o contingent liabilities  
o income taxes IFRS 3.18-.20
o employee benefits  
 

Excluded in the course IFRS 3.21 - .31

o indemnification assets – not in FAC 320  
o reacquired rights - not in FAC 320  
o share-based payment awards - not in FAC 320 Module example D4
o assets held for sale - not in FAC 320   
   
 
The recognition of intangible assets is always tricky – make Appendix B.31 - .34
sure you spend sufficient time on this!! IE.16 – IE.44
  IAS 38.33 - .43
    
Non-controlling interest IFRS 3.19
  Appendix B.44 - .45
The acquirer has a choice as how to measure NCI: Module example D5
 fair value, or  
 NCI’s proportionate share of acquiree’s identifiable net
assets
 
 NB!! Recognising and measuring goodwill or a gain from a bargain IFRS 3.32 - .33
7 purchase (step 4 of the acquisition method)  
   
Determine the following amounts:  
   
a)  The aggregate of:   
 consideration transferred, and  
 amount of any NCI in the acquiree, and  
 for a business combination achieved in stages: the acquisition-date  
fair value of the acquirer’s previously held equity interest in the  
acquiree  
b)  Net value of the acquisition-date amounts of identifiable assets and    
      liabilities of acquiree (determined during the previous step)  
   
  If a) exceeds b), then you have goodwill   
  
  If b) exceeds a), then you have a gain from a bargain purchase
 
 
Go and look at the following four very important principles in IFRS 3 IFRS 3.34 - .36
relating to this specific step: IE45 – IE47
 
 bargain purchases  IFRS 3.37 - .40
 consideration transferred  IFRS 3.53
 business combination achieved in stages Module example D6
   
 business combination achieved without the transfer of consideration IFRS 3.41 - .42
   
IFRS 3.43 - .44
 
 
8 Understand how the measurement period of a business combination  
works
 
Measurement period:  the period after the acquisition date during which
the acquirer may adjust the provisional amounts.  This provides the acquirer
with a reasonable time to obtain necessary information relating to the
business combination
 
The measurement period ends as soon as the acquirer receives the
information it needs about facts and circumstances that existed as of the
acquisition date.  However, the measurement period may not exceed one
year from acquisition date.
 
During the initial accounting process the following has to be identified and
determined:
the fair values to be assigned to the acquiree’s identifiable assets,
liabilities and NCI, and
the cost of the combination, and
for a business combination achieved in stages: the equity interest in the
acquiree previously held by the acquirer, and
the resulting goodwill or gain on a bargain purchase.
 
 
If any of the above values can only be determined provisionally, the
acquirer will account for the combination using those provisional
values and report in the financial statements that report that the
amounts are simply provisional.
 
Adjustments made to those provisional values within twelve months of the
acquisition date shall be recognized retrospectively to adjust any
accounting entries made on acquisition date.
 
9 Understand how the following items are measured and     
accounted for subsequent to acquisition date: IFRS 3.56
   
 contingent liabilities recognised @ acquisition date  
  IFRS 3.58
 contingent consideration  
  For all of the above
also see Appendix
B63
10 Briefly touch on the following issues for a basic understanding thereof:  
   IFRS 3.51 – 53
 Determining what is part of a business combination Module example D8
 
11 Know how to disclose a business combination IFRS 3.59 - .63
IE72