A transaction or other event in which an acquirer obtains control of one or more businesses .
Transactions sometimes referred to as ‘true mergers’ or ‘mergers of equals’ are also business combinations as that term is used in this IFRS. ( ie; Combinations of entities of approximately equal size or those in which it is difficult to identify an acquirer .)
The date on which acquirer obtains control of the acquiree
It may be the date of:
Transfer of consideration and acquisition of assets and assumption of liabilities. This is known as “ closing date”.
It is also possible for the acquirer to obtain control on a date which is either earlier or later than the closing date by virtue of agreement
One has to consider all pertinent facts and circumstances to identify the acquisition date
Principle of Recognition and Measurement RECOGNITION PRINCIPLE RECOGNITION CONDITIONS CLASSIFICATION OR DESIGNATION OF ASSETS ACQUIRED AND LIABILITIES ASSUMED- EXCEPTIONS? RECOGNITION AND MEASUREMENT MEASUREMENT PRINCIPLE EXCEPTIONS TO THE RECOGNITION AND/OR MEASUREMENT PRINCIPLES
Identifiable assets acquired and liabilities assumed must meet the definitions of assets and liabilities as per “Frame Work”
The identifiable assets acquired and liabilities assumed must be part of what the acquirer and the acquiree exchanged in the business combination transaction rather than the result of separate transactions.
The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values .
The acquirer shall measure any non-controlling interest in the acquiree either at fair value or at its proportionate share of the acquiree’s identifiable net assets. CASE STUDY
Further guidance on measurement is available in Para B 41 – B 45
Exceptions to the measurement principle is given in Para 24 to Para 31
Exceptions to the recognition or measurement principles
Limited exceptions are given to recognition and measurement principles.
Paras 22–31 specify exceptions and the nature of those exceptions.
The acquirer shall account for those items by applying the requirements in paragraphs 22–31, which will result in some items being:
(a) recognised either by applying recognition conditions in addition to those in paragraphs 11 and 12 or by applying the requirements of other IFRSs, with results that differ from applying the recognition principle and conditions.
(b) measured at an amount other than their acquisition-date fair values.
The requirements in IAS 37 do not apply in determining which contingent liabilities to recognise as of the acquisition date.
The acquirer shall recognise as of the acquisition date a contingent liability assumed in a business combination if it is a present obligation that arises from past events and its fair value can be measured reliably.
Even though there is no probable outflow of resources embodying economic benefits will be required to settle the obligation
Exceptions to both the recognition and measurement principles
Income taxes – to be measured as per IAS 12 Income Taxes
Employee benefits – to be measured in accordance with IAS 19 Employee Benefits
The acquirer shall recognise an indemnification asset at the same time that it recognises the indemnified item measured on the same basis as the indemnified item, subject to the need for a valuation allowance for uncollectible amounts.
A contingent liability that is not recognised at the acquisition date because its fair value is not reliably measurable at that date
An employee benefit, that is measured on a basis other than acquisition date fair value.
The acquirer shall measure a liability or an equity instrument related to the replacement of an acquiree’s share-based payment awards with share-based payment awards of the acquirer in accordance with the method in IFRS 2 Share-based Payment .
The acquirer shall measure an acquired non-current asset (or disposal group) that is classified as held for sale at the acquisition date in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations at fair value less costs to sell
The acquirer shall retrospectively adjust the provisional amounts recognised at the acquisition date
This is to reflect new information obtained about facts and circumstances that existed as of the acquisition date and,
If known, it would have affected the measurement of the amounts recognised as of that date
The measurement period ends as soon as the acquirer receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable
(b) Contingent consideration classified as an asset or a liability that:
(i) Is a financial instrument and is within the scope of IFRS 9 or IAS 39 shall be measured at fair value, with any resulting gain or loss recognised either in profit or loss or in other comprehensive income in accordance with IFRS 9 or IAS 39 as applicable.
(ii) Is not within the scope of IFRS 9 or IAS 39 shall be accounted for in accordance with IAS 37 or other IFRSs as appropriate.