Wiley IFRS: Practical Implementation Guide and Workbook, 3rd Edition

Chapter 34

BUSINESS COMBINATIONS (IFRS 3)

BACKGROUND AND INTRODUCTION

IFRS 3 (2008) replaced IFRS 3 (2004). IFRS 3 (2008) resulted from a joint project with the US Financial Accounting Standards Board. FASB issued a similar standard in December 2007 (SFAS 141[R]). The revisions will result in a high degree of convergence between IFRS and US GAAP in these areas, although some potentially significant differences remain. The International Financial Reporting Standards (IFRS) assume that an acquirer can be determined and identified in nearly all business combinations. IFRS 3 applies to all business combinations except combinations of entities under common control, combinations of mutual entities, combinations by contract without exchange of any ownership interest, and any joint venture operations.

DEFINITIONS OF KEY TERMS

Business combination. Occurs where several entities are brought together to form a single reporting entity.

Acquisition method. Looks at the business combination from the perspective of the acquiring company. It measures the cost of the acquisition and allocates the cost of the acquisition to the net assets acquired.

Control. The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Business Combination

If a business combination involves the purchase of net assets, including goodwill of another entity, rather than the purchase of the equity of the other entity, this does not result in a parent/ subsidiary ...