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IFRS 3 –
BUSINESS COMBINATIONS
DEFINITION
Business Combination
Is
a transaction or other event in which an acquirer obtains control of one or
more businesses.
Business
Is
an integrated set of activities and assets that is capable of being conducted
and managed for the purpose of providing
a return in the form of dividends, lower costs or other economic
benefits directly to investors or other owners, members or participants.
OBJECTIVE OF IFRS 3
The
objective of IFRS 3 is to improve the relevance, reliability and comparability
of information reported about business combinations and their effects.
Principal requirements
1.
Recognition and measurement of identifiable assets acquired, liabilities
assumed and non-controlling interest in the acquiree.
2.
Recognition and measurement of Goodwill
3.
Disclosures
DIFFERENCE BETWEEN IFRS 3 AND IFRS 10
IFRS 10 defines control
and prescribes specific consolidation procedures.
IFRS 3 provides basis
for the measurement of the items in the consolidated financial statement such
as goodwill, non-controlling interest, etc.
Elements that indicate a Business
Combination
1.
Inputs
2.
Process
3.
Output
NB: Optional method to determine a
business combination is Concentration
test.
HOW TO ACCOUNT FOR A BUSINESS
COMBINATION?
We
account for business combination using the Acquisition
Method.
4 STEPS IN THE ACQUISITION METHOD
1.
Identify
the acquirer or parent or investor
2.
Determine
the acquisition date
3.
Recognise
and measure identifiable assets acquired, liabilities assumed and any
non-controlling interest in the acquire
4.
Recognise
and measure goodwill (or gain on bargain purchase)
NON-CONTROLLING INTEREST (NCI)
Is
an equity in a subsidiary which is not directly or indirectly attributable to a
parent.
MEASUREMENT OF NON-CONTROLLING INTEREST
1.
Fair
value
2.
The
proportionate share in the recognised acquiree’s net assets
GOODWILL
Is
an asset representing the future economic benefits arising from other assets
acquired in a business combination that are not individually identified and
separately recognised.
DETERMINATION OF
GOODWILL
|
Purchase
consideration Fair
value of previous equity interests NCI at acquisition
Less:
net assets at acquisition Goodwill
on acquisition Impairment |
GH₵ XX XX XX XX (X) XX (X) XX |
NOTE:
Treatment of Goodwill
·
If goodwill is positive, treat it as a non-current asset (intangible asset) on
the statement of financial position.
·
If goodwill is negative, you should
a. Review
the proceduces for recognizing assets and liabilities, non-controlling
interest, previously held interest and purchase consideration.
b. Record
as a gain on a bargain purchase and
is included as a gain within profit or loss.