An acquirer sometimes obtains control of an acquiree in which it held an equity interest immediately before the acquisition date. For example, on 31 December 20X1, Entity A holds a 35 per cent non-controlling equity interest in Entity B. On that date, Entity A purchases an additional 40 per cent interest in Entity B, which gives it control of Entity B. This IFRS refers to such a transaction as a business combination achieved in stages, sometimes also referred to as a step acquisition.
In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss or other comprehensive income, as appropriate. In prior reporting periods, the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest.
A business combination achieved without the transfer of
consideration
An acquirer sometimes obtains control of an acquiree without transferring
consideration. The acquisition method of accounting for a business
combination applies to those combinations. Such circumstances include:
The acquiree repurchases a sufficient number of its own shares for an
existing investor (the acquirer) to obtain control.
Minority veto rights lapse that previously kept the acquirer from
controlling an acquiree in which the acquirer held the majority voting rights.
The acquirer and acquiree agree to combine their businesses by contract
alone. The acquirer transfers no consideration in exchange for control of an acquiree and holds no equity interests in the acquiree, either on the acquisition date or previously. Examples of business combinations
In a business combination achieved by contract alone, the acquirer shall attribute to the owners of the acquiree the amount of the acquiree's net assets recognised in accordance with this IFRS. In other words, the equity interests in the acquiree held by parties other than the acquirer are a non-controlling interest in the acquirer's post-combination financial statements even if the result is that all of the equity interests in the acquiree are attributed to the non-controlling interest.
Measurement period
If the initial accounting for a business combination is incomplete by the
end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for
the items for which the accounting is incomplete. During the
measurement period, the acquirer shall retrospectively adjust the provisional amounts recognised at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognised as of that date. During the measurement period, the acquirer shall also recognise additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date and, if known, would have resulted in the
recognition of those assets and liabilities 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. However, the measurement period shall not exceed one year from the acquisition date.
The measurement period is the period after the acquisition date during which the acquirer may adjust the provisional amounts recognised for a business combination. The measurement period provides the acquirer with a reasonable time to obtain the information necessary to identify and measure the following
as of the acquisition date in accordance with the requirements of this IFRS:
(a) the identifiable assets acquired, liabilities assumed and any
non-controlling interest in the acquiree;
b) the consideration transferred for the acquiree (or the other amount used
in measuring goodwill);
c) in a business combination achieved in stages, the equity interest in the
acquiree previously held by the acquirer; and
d)the resulting goodwill or gain on a bargain purchase
The acquirer shall consider all pertinent factors in determining whether information obtained after the acquisition date should result in an adjustment to the provisional amounts recognised or whether that information results from events that occurred after the acquisition date. Pertinent factors include the date when additional information is obtained and whether the acquirer can
identify a reason for a change to provisional amounts. Information that is obtained shortly after the acquisition date is more likely to reflect circumstances that existed at the acquisition date than is information obtained several months later. For example, unless an intervening event that changed its fair value can be identified, the sale of an asset to a third party shortly after the acquisition date for an amount that differs significantly from its provisional fair value
measured at that date is likely to indicate an error in the provisional amount.
The acquirer recognises an increase (decrease) in the provisional amount recognised for an identifiable asset (liability) by means of a decrease (increase) in goodwill. However, new information obtained during the measurement period may sometimes result in an adjustment to the provisional amount of more than one asset or liability. For example, the acquirer might have assumed a liability to pay damages related to an accident in one of the acquiree's facilities, part or all of which are covered by the acquiree's liability insurance policy. If the acquirer obtains new information during the measurement period about the acquisition-date fair value of that liability, the adjustment to goodwill resulting from a change to the provisional amount recognised for the liability would be offset (in whole or in part) by a corresponding adjustment to goodwill resulting from a change to the provisional amount recognised for the claim receivable from the insurer.
During the measurement period, the acquirer shall recognise adjustments to the provisional amounts as if the accounting for the business combination had been completed at the acquisition date. Thus, the acquirer shall revise comparative information for prior periods presented in financial statements as needed, including making any change in depreciation, amortisation or other income effects recognised in completing the initial accounting.
After the measurement period ends, the acquirer shall revise the accounting for a business combination only to correct an error in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
Determining what is part of the business combination
transaction
The acquirer and the acquiree may have a pre-existing relationship or
other arrangement before negotiations for the business combination began, or they may enter into an arrangement during the negotiations that is separate from the business combination. In either situation, the acquirer shall identify any amounts that are not part of what the acquirer and the acquiree (or its former owners) exchanged in the business combination, ie amounts that are not part of the exchange for the acquiree. The acquirer shall recognise as part of applying the acquisition method only the consideration transferred for the acquiree and the assets acquired and liabilities assumed in the exchange for the acquiree. Separate transactions shall be accounted for in accordance with the relevant IFRSs.
A transaction entered into by or on behalf of the acquirer or primarily for the benefit of the acquirer or the combined entity, rather than primarily for the benefit of the acquiree (or its former owners) before the combination, is likely to
be a separate transaction. The following are examples of separate transactions
that are not to be included in applying the acquisition method:
a transaction that in effect settles pre-existing relationships between the
acquirer and acquiree;
a transaction that remunerates employees or former owners of the
acquiree for future services; and
a transaction that reimburses the acquiree or its former owners for paying the acquirer's acquisition-related costs.
Paragraphs B50-B62 provide related application guidance.
Acquisition-related costs
Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder's fees; advisory, legal, accounting, valuation and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognised in accordance with IAS 32 and IFRS 9.
Subsequent measurement and accounting
In general, an acquirer shall subsequently measure and account for assets acquired, liabilities assumed or incurred and equity instruments issued in a business combination in accordance with other applicable IFRSs for those items, depending on their nature. However, this IFRS provides guidance on subsequently measuring and accounting for the following assets acquired, liabilities assumed or incurred and equity instruments
issued in a business combination:
(a) reacquired rights;
(b) contingent liabilities recognised as of the acquisition date;
(c) indemnification assets; and
(d) contingent consideration.
Paragraph B63 provides related application guidance
Reacquired rights
A reacquired right recognised as an intangible asset shall be amortised over the
remaining contractual period of the contract in which the right was granted. An acquirer that subsequently sells a reacquired right to a third party shall include the carrying amount of the intangible asset in determining the gain or loss on the sale
Contingent liabilit After initial recognition and until the liability is settled, cancelled or expires, the
acquirer shall measure a contingent liability recognised in a business
combination at the higher of:
(a) the amount that would be recognised in accordance with IAS 37; and
(b) the amount initially recognised less, if appropriate, cumulative
amortisation recognised in accordance with IAS 18 Revenue.
This requirement does not apply to contracts accounted for in accordance with
IFRS 9
At the end of each subsequent reporting period, the acquirer shall measure an
indemnification asset that was recognised at the acquisition date on the same basis as the indemnified liability or asset, subject to any contractual limitations on its amount and, for an indemnification asset that is not subsequently measured at its fair value, management's assessment of the collectibility of the indemnification asset. The acquirer shall derecognise the indemnification asset only when it collects the asset, sells it or otherwise loses the right to it.
Contingent consideration
Some changes in the fair value of contingent consideration that the acquirer
recognises after the acquisition date may be the result of additional information that the acquirer obtained after that date about facts and circumstances that existed at the acquisition date. Such changes are measurement period adjustments in accordance with paragraphs 45-49. However, changes resulting from events after the acquisition date, such as meeting an earnings target, reaching a specified share price or reaching a milestone on a research and development project, are not measurement period adjustments. The acquirer shall account for changes in the fair value of contingent consideration that are
not measurement period adjustments as follows:
(a) Contingent consideration classified as equity shall not be remeasured
and its subsequent settlement shall be accounted for within equity.
(b) Other contingent consideration that:
is within the scope of IFRS 9 shall be measured at fair value at each reporting date and changes in fair value shall be recognised in profit or loss in accordance with IFRS 9.
is not within the scope of IFRS 9 shall be measured at fair value at
each reporting date and changes in fair value shall be recognised in profit or loss.
To meet the objective in paragraph 59, the acquirer shall disclose the information specified in paragraphs B64—B66.
The acquirer shall disclose information that enables users of its financial statements to evaluate the financial effects of adjustments recognised in the current reporting period that relate to business combinations that occurred in the period or previous reporting periods.
To meet the objective in paragraph 61, the acquirer shall disclose the information specified in paragraph B67.
If the specific disclosures required by this and other IFRSs do not meet the objectives set out in paragraphs 59 and 61, the acquirer shall disclose whatever additional information is necessary to meet those objectives.
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