📖 Overview
This standard addresses accounting treatment for business combinations using the acquisition method. Identifiable assets acquired and liabilities assumed are measured at fair value. Goodwill (or gain from a bargain purchase) is recognized and goodwill is tested for impairment annually (not amortized).
🎯 Scope
This standard applies to the accounting treatment for business combinations, except:
- Formation of a joint venture.
- Combination of entities under common control.
- Combination of non-commercial entities (NGOs) in some cases.
- Acquisition of assets that do not constitute a business.
⚙️ Key Principles
**Acquisition Method**:
1. **Identify the Acquirer**: The party obtaining control.
2. **Determine the Acquisition Date**: The date control is transferred.
3. **Recognize and Measure Identifiable Assets and Liabilities**: Measured at fair value.
4. **Recognize and Measure Non-Controlling Interest**: Either at fair value or proportionate share of identifiable net assets.
5. **Recognize and Measure Goodwill or Gain**: Goodwill = Consideration transferred + NCI - Identifiable net assets.
📏 Measurement
**Consideration Transferred:**
- Measured at fair value at the acquisition date.
- Includes cash, shares issued, other assets, or liabilities incurred.
- Contingent consideration is measured at fair value.
**Identifiable Net Assets:**
- Assets and liabilities are measured at fair value at the acquisition date.
**Goodwill:**
- Remains not amortized.
- Tested for impairment annually (IAS 36).
**Bargain Purchase Gain:**
- If Identifiable Net Assets > Consideration + NCI, the gain is recognized in the income statement.
✅ Recognition
Identifiable assets and liabilities of the acquiree are recognized on the acquirer's balance sheet.
Goodwill is recognized as an intangible asset on the balance sheet.
If a bargain purchase gain results, it is recognized immediately in the income statement.
Acquisition-related costs (e.g., legal consulting fees) are expensed in the period, not part of the consideration.
📊 Presentation
**On the Statement of Financial Position:**
- Goodwill appears within intangible assets.
- Assets and liabilities of the acquiree are consolidated with acquirer balances.
**On the Income Statement:**
- Acquisition costs appear as expenses.
- Bargain purchase gain appears as revenue.
**Note Disclosures:**
- Name of acquiree and acquisition date.
- Percentage of voting rights acquired.
- Primary reasons for the combination.
- Fair value of consideration transferred.
- Fair value of each class of identifiable assets and liabilities.
📝 Disclosure Requirements
Disclosures required:
- Name of the acquiree.
- Acquisition date.
- Percentage of voting rights acquired.
- Primary reasons for the combination.
- Fair value of consideration transferred (and how determined).
- Fair value of each class of identifiable assets and liabilities.
- Amount of goodwill expected to be non-deductible for tax.
- If combination occurred in stages, fair value of previous equity interest.
- Revenue and profit of the acquiree since acquisition date.
- Information about contingent consideration.
🔗 Related Standards
IAS 36 (Impairment of Assets), IAS 12 (Income Taxes), IFRS 13 (Fair Value Measurement)