International Financial Reporting Standard 3

Business Combinations
Objective:
The objective of this IFRS is to improve the relevance,
reliability and comparability.

IFRS establishes principles and requirements for how the acquirer-

 Recognizes and measures in its financial

statements.
 Recognizes and measures the goodwill.

 Determines which information is to disclose.

Scope
IFRS 3 applies to a transaction or other event.

IFRS 3 does not apply to-

 The formation of a joint venture.

 The acquisition of an asset or a group of assets.

 A combination of entities or businesses

Identifying a Business Combination

The Four Steps of Acquisition Method for Business

Combinations under IFRS 3:-

Common
1. Identifying the Straight example is
Acquirer forward merger

2.Determining the
Acquisition Date

Assumes the
Transfers the Acquires the Liabilities acquire in
consideration Assets the closing date
3. Recognizing and measuring the identifiable assets
acquired, the liabilities assumed and any non-controlling
interest in the acquire:

Acquired assets Non-controlling

and liabilities interests

4. Recognizing and measuring goodwill or a gain from a

bargain purchase.

Goodwill
The
The Can be
Acquisition
Aggregate Positive or
Date
Negative
 Additional Guidance to Specific
Transactions
• IFRS 3 provides guidance about the following
transactions:-

A Business
Combination Acquisition Pre-existing
Achieved in Stages Costs Relationships

Indemnification Contingent Reacquired

Assets Liabilities Rights
 Effective Date
This IFRS shall be applied
prospectively to business
combinations for which the
acquisition date is on or after
the beginning of the first
annual reporting period
beginning on or after 1 July
2009.

Improvements to IFRSs
An entity shall apply
issued in May 2010
those amendments for
amended paragraphs 19, 30
annual periods
and B56 and added
beginning on or after 1
paragraphs B62A and
July 2010
B62B.
Transition

o Assets and liabilities that arose from

business combinations.

o Contingent consideration balances arising

from business combinations.

o Business combination agreement provides

for adjustment on future events.
Transition

o Business combination agreement may allow

for adjustments on one or more future
events.

o Adjustment is not include in the cost of

the combination.

o Acquirer may be required to make

subsequent payment to the seller as
compensation.

o An entity, such as a mutual entity that

has not yet applied IFRS 3.
Disclosures
 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

 After the end of the reporting period but before

the financial statements are authorized for issue.