Ifrs 3


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Ifrs 3

  1. 1. IFRS- 3<br />BUSINESS COMBINATION<br />
  2. 2. Objective<br />Is to set out the accounting & disclosure requirements for a business combination<br />
  3. 3. CORE PRINCIPLE<br />An acquirer of a business recognizes the assets acquired & liabilities assumed at their acquisition-date fair value & discloses relevant information nature and financial effects of the acquisition.<br />
  4. 4. What is the Business Combination<br />A transaction or other event that results in an acquirer obtaining control over one or more businesses.<br />
  5. 5. Scope & Exclusion<br />Transactions or other events that meet the definition of a business combination are subjected to IFRS-3<br />This standard in not applicable to formation of joint venture,<br />Acquisition of an assets or group of assets that do not constitute business & combination between entities or businessess under common control<br />
  6. 6. APPLICATION<br />Each BC should be accounted for using acquisition method(Purchases method) <br />Identifying An Acquirer<br />Determining acquisition date<br />Recognizing & measuring<br />Identifiable assets acquired, the liabilities assumed & any non-controlling interest in the acquiree<br />Goodwill or a gain from a bargain purchases (capital reserve)<br />
  7. 7. Pooling interest method not permitted under IFRS-3<br />An entity should assess whether a particular transaction is a business combination or not.<br />i.e. has the entity gained control of one or more businesses for making profit?<br />Control of an entity is where one party has the power over another to “Govern its financial & operating policies so as to obtain the benefits from its activities<br />
  8. 8. There will be only one acquirer<br />For application of IFRS 3, emphasis is on acquisition of business rather than an assets or a group of assets.<br />Purchases of assets or a group of assets, if they do not constitute business, do not give rise to goodwill, as also not covered by IFRS 3<br />In a straightforward BC one entity will acquire another resulting, in a parent-subsidiary relationship<br />
  9. 9. Steps in Business Combination<br />1. Identify an acquirer<br />2. Determining the acquisition date<br />3. Recognition <br />4. Measurements of Assets and Liablities<br />
  10. 10. Identify an acquirer<br />An acquirer is the entity that obtains control of the entity- the acquiree. The power to govern the financial & operating policies of an entity so as to obtained benefits from its activities<br />
  11. 11. Determining the Acquisition date<br />The acquisition date is defined as ‘the date on which the acquirer obtains control of the acquiree, <br />which is normally the date on which the acquirer legally transfer the consideration for the business<br />
  12. 12. Recognition<br />Assets & liabilities recognized must be part of the exchange transaction between the acquirer and the acquiree and Not part of a separate transaction or transactions<br />Intangible assets should be recognized by acquirer, the one which is separable from entity or acquired by law or contractual agreements.<br />
  13. 13. Measurement of Assets & Liabilities<br />The measurement principle is that an acquirer measures the identifiable tangible & intangible assets acquired and the liabilities assumed<br />
  14. 14. Recognition & Measurement of goodwill<br />A= Consideration paid<br />B= Identifiable assets & liablitiesrecognised<br />If A>B = GOODWILL<br />B>A = gain from bargain purchases<br />
  15. 15. Treatment of goodwill<br />It will be either be carried in the statement of financial position at the amount recognizes<br />Or it will reduced as impairment losses are recognizes<br />
  16. 16. Treatment of gain from bargain purchases<br />Gain from bargain purchases to be recognised in profit & loss account ( not in capital reserved as per AS 14 & as per Indian GAAP)<br />