|OBJECTIVE||Specify the Financial Reporting by an Entity when it undertakes a Business Combination.|
|CORE PRINCIPLE||All Business Combinations should be accounted by applying the PURCHASE METHOD.|
|SCOPE||Accounting for Business CombinationsExclusions :
|Definition – Business||Integrated Set of Activities and Assets conducted & managed for the purpose of providing :
If GOODWILL is present – Presumption as to Business.
|Recognition – Acquirer’s Perspective||The Acquirer Recognises the Acquiree’s IdentifiableAssetsLiabilities (including Contingent Liabilities)At Fair ValueAt Acquisition Date.
Goodwill on Acquisition is recognised and Subsequently tested for Impairment at reporting date annually rather than amortised.
|Identify The Acquirer||
|How To Identify The Acquirer?||The Entity
Indicators – The Entity
q whose Fair Value is Higher
q making payment of Cash or Other Assets
q whose Management Dominates in the Combined Entity
q initiated the process of Business Combination
Note: New Entity is formed – Identify one of the existing entities as the Acquirer on the previously mentioned criteria.
|Measure the Cost of Business Combination||The Cost of Business Combination is++ Fair Value of Assets given++ Fair Value of Liabilities assumed++ Fair Value of Equity instruments issued by the Acquirer++ Directly Attributable Costs of Business Combination
++ Present Value of Deferred Consideration
++ FV of Contingent Consideration – if Adjustment is Probable and can be measured Reliably.
N.B. Fair Value (FV) is measured at Date of Exchange.
|Definitions – Cost of Business Combination||Acquisition Date||Date on which Acquirer Effectively obtains ‘Control’ of the Acquiree.|
|Directly Attributable Costs||Includes – Professional fees paid to Accountants, Legal Advisors, Valuers and other Consultants to effect Business Combination.Excludes – General Administration Costs, etc. not specifically linked to a Business Combination|
|Fair Value||The amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm length’s transaction.|
|Allocate the Cost to Assets, Liabilities on Acquisition Date||Recognises the Acquiree’s IdentifiableAssetsLiabilities (including Contingent Liabilities)At Fair ValueAt Acquisition Date.
Exception :: Non-current Assets (or Disposal Groups) that are classified as Held for Sale as per IFRS 5 shall be recognised At Fair Value Less Costs to Sell.
|RECOGNITION CRITERIA – ASSETS AND LIABILITIES OF ACQUIREE||
|Recognition Of Income Of Acquiree||Profits / Losses of Acquiree shall be Incorporated after the Date of Acquisition.Profits / Losses shall be Based on the Cost of Business Combination to the Acquirer.|
|Recognition Of Goodwill||q Cost of Business Combination > Fair Value of Assets, Liabilities & Contingent Liabilities acquiredq Recognise Difference as GOODWILL as Assetq Initial Measurement At Cost.q Subsequent Measurement – Cost less Accumulated Impairment loss (if any)q Goodwill – payment for F.E.B. from assets not capable of being individually identified and separately recognised.
q No Amortisation – Test for impairment annually or more frequently – if events indicate Impairment (IAS 36).
|Bargain Purchase||q Cost of Business Combination < Fair Value of Assets, Liabilities & Contingent Liabilities acquired.q Reassess the identification & measurement of Acquiree’s identifiable Assets, Liabilities, and Contingent Liabilities and the measurement of Cost of Business Combination.q Recognise in P & L – any excess remaining after that reassessment.|
|Disclosure – By Acquirer||Information that enable the users of Financial Statements evaluate:-q The Nature and Financial Effect of Business Combination effectedq during the period; andq after the Balance sheet date but before the Financial Statements are authorised for issue.q The Financial Effect of Gains, Losses, Error Corrections and other adjustments recognised in current period that relate to Business Combination effected in Current or Prior periods.|