IFRS Essentials

IFRS 3 BUSINESS COMBINATIONS

1 INTRODUCTION AND SCOPE

In a business combination, an acquirer obtains control of one or more businesses. A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing economic benefits (e.g. dividends) directly to investors, members or participants. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities (IFRS 3.Appendix A).

The acquisition of a group of assets or net assets, which do not constitute a business, is not a business combination (IFRS 3.3). In such a case, the cost of acquisition is allocated between the individual identifiable assets and liabilities on the basis of their relative fair values at the date of acquisition (IFRS 3.2b). Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction (IFRS 3.Appendix A). The remaining part of this chapter on IFRS 3 only deals with business combinations.

IFRS 3 does not apply to a combination of entities or businesses under common control (IFRS 3.2c). This is a business combination in which all of the combining businesses or entities are ultimately controlled by the same party or parties both before and after the combination and the control is not transitory (IFRS 3.B1–3.B4). Such transactions often occur during the reorganization of groups.

Frequently, equity ...