To improve the relevance, reliability, and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects.
Requires the application of the acquisition method to all business combinations within its scope.
Applies to transactions or other events that meet the definition of a business combination.
The formation of a joint arrangement in the financial statements of the joint arrangement itself.
A combination of entities or businesses under common control (transactions where all combining entities are ultimately controlled by the same party both before and after the combination).
The acquisition of an asset or a group of assets that does not constitute a business. In such cases, the cost is allocated to individual identifiable assets and liabilities based on their relative fair values. No goodwill arises.
Business Components (Minimum Requirements):
| Element | Description |
| Inputs |
Any economic resource that creates, or has the ability to create, outputs when one or more processes are applied to it (e.g., non-current assets, intellectual property, employees). |
| Processes |
Any system, standard, protocol, convention or rule that when applied to an input or inputs, creates or has the ability to create outputs (e.g., strategic management processes, operational processes, resource management processes). |
| Outputs |
The result of inputs and processes applied to those inputs that provide or have the ability to provide a return. (While outputs are usually present, they are not required for an integrated set to qualify as a business after 2020 amendments, if it has inputs and substantive processes). |
Optional Concentration Test (Simplifies Assessment):
If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set of activities and assets is not a business.
This test is optional. If not met, or if an entity chooses not to perform it, a more detailed assessment of inputs, processes (and outputs) is required.
Step 1: Identify the Acquirer
The acquirer is the entity that obtains control over the acquiree (the business acquired).
Control is determined based on IFRS 10 *Consolidated Financial Statements* (power over investee, exposure to variable returns, ability to use power to affect returns).
Usually the entity paying cash or issuing shares is the acquirer, but substance over form applies (e.g., in reverse acquisitions).
Step 2: Determine the Acquisition Date
The date on which the acquirer obtains control of the acquiree.
This is generally the closing date โ the date when consideration is transferred, assets are acquired, and liabilities are assumed.
Step 3: Recognize & Measure Identifiable Assets Acquired, Liabilities Assumed, and NCI
Recognize, separately from goodwill, the identifiable assets acquired, liabilities assumed, and any non-controlling interest (NCI) in the acquiree.
Measure these items at their acquisition-date fair values.
Must meet the definitions of assets and liabilities in the Conceptual Framework.
Must be part of what the acquirer and acquiree exchanged in the business combination transaction, rather than separate transactions.
Special Items Recognition & Measurement:
| Item | Treatment |
| Contingent Liabilities (of Acquiree) | Recognize at fair value at acquisition date if it's a present obligation arising from past events and fair value can be reliably measured (even if outflow not probable - different from IAS 37). |
| Contingent Assets (of Acquiree) | Not recognized. |
| Intangible Assets (of Acquiree) | Recognize separately from goodwill if identifiable (meets separability or contractual-legal criterion) and fair value reliably measurable (e.g., trademarks, customer lists, patents, unpatented technology). |
| Deferred Tax | Recognize and measure deferred tax assets/liabilities arising from the assets acquired and liabilities assumed in accordance with IAS 12. |
| Indemnification Assets | Recognize an indemnification asset at the same time and on the same basis as the indemnified item (e.g., uncertain tax position), subject to collectability. |
| Reacquired Rights | Recognize as an intangible asset measured based on remaining contractual term, irrespective of market participant assumptions. |
| Employee Benefits | Recognize liabilities/assets for acquiree's employee benefit arrangements per IAS 19. |
Non-controlling Interest (NCI):
For each business combination, the acquirer measures NCI in the acquiree at either:
(a) Fair value (leads to recognizing 100% of goodwill, often called "full goodwill" method); OR
(b) NCI's proportionate share of the acquiree's identifiable net assets (leads to recognizing only the parent's share of goodwill, "partial goodwill").
This choice is available on a transaction-by-transaction basis.
Step 4: Recognize and Measure Goodwill or Gain from Bargain Purchase
| Item | Calculation / Recognition |
| Goodwill |
Recognized as an asset. Calculated as the excess of (a) over (b):
(a) The aggregate of: (i) Consideration transferred (fair value); (ii) Amount of NCI (at FV or proportionate share); (iii) Fair value of acquirer's previously held equity interest in acquiree (for step acquisitions).
(b) Net of acquisition-date amounts of identifiable assets acquired and liabilities assumed (measured at fair value).
|
| Gain from Bargain Purchase |
Arises if (b) exceeds (a) above (i.e., net assets acquired are more than consideration paid + NCI + previous interest).
Before recognizing a gain, acquirer must reassess identification and measurement of assets/liabilities and consideration. If gain still exists, recognize in profit or loss on acquisition date.
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Goodwill is not amortized but tested for impairment annually (IAS 36).
Forms of Consideration (Measured at Fair Value at Acquisition Date):
Equity instruments issued by the acquirer.
Liabilities incurred by the acquirer to former owners of acquiree.
Deferred payments (discounted to present value if material).
Contingent consideration.
Contingent Consideration:
An obligation of the acquirer to transfer additional assets or equity interests to the former owners if specified future events occur or conditions are met. Measured at fair value at acquisition date and included in consideration transferred.
| Type of Contingent Consideration | Subsequent Accounting |
| Classified as a Liability | Remeasure to fair value at each reporting date, with changes recognized in profit or loss. |
| Classified as Equity | Not remeasured. Its subsequent settlement is accounted for within equity. |
Costs the acquirer incurs to effect a business combination (e.g., finder's fees, advisory, legal, accounting, valuation fees) are expensed in the periods incurred.
Exception: Costs to issue debt or equity securities are recognized in accordance with IAS 32 and IFRS 9 (usually deducted from proceeds of debt/equity).
Treatment:
Acquirer must re-measure its previously held equity interest in the acquiree at its acquisition-date fair value.
Recognize any resulting gain or loss in profit or loss (or OCI if the interest was previously classified as FVOCI under IFRS 9).
This effectively treats the acquisition of control as if the previous stake was sold and reacquired at fair value.
Concept:
Occurs when the entity that issues securities (the legal acquirer) is identified as the acquiree for accounting purposes, and the entity whose equity interests are acquired (the legal acquiree) is the accounting acquirer. (E.g., a private operating company arranges to be 'acquired' by a smaller public non-operating company to obtain a stock exchange listing).
Accounting Treatment:
Consolidated financial statements are issued under the name of the legal parent (accounting acquiree) but are effectively a continuation of the financial statements of the legal subsidiary (accounting acquirer).
Consideration transferred is deemed to be the fair value of equity instruments the accounting acquirer would have had to issue to give the owners of the accounting acquiree the same percentage equity interest in the combined entity.
Rules:
If initial accounting for a business combination is incomplete by the end of the reporting period in which it occurs, the acquirer reports provisional amounts.
The measurement period is the period after acquisition date during which the acquirer may adjust provisional amounts. It shall not exceed one year from the acquisition date.
Adjustments to provisional amounts are recognized retrospectively (as if made on acquisition date), impacting goodwill and comparative information.
Adjustments are only made if they result from additional information obtained about facts and circumstances that existed as of the acquisition date (not from events occurring after acquisition date).
Minimum Disclosures for Each Material Business Combination:
| Requirement Category | Description |
| Names & Descriptions | Name and description of acquiree, acquisition date, percentage of voting equity acquired, primary reasons for combination, description of how control obtained. |
| Consideration Transferred | Acquisition-date fair value of total consideration transferred and for each major class (cash, equity, contingent). Details of contingent consideration. |
| Recognized Assets & Liabilities | Acquisition-date fair values for each major class of identifiable assets acquired and liabilities assumed. Amounts of any NCI. |
| Goodwill / Bargain Purchase | Amount of goodwill recognized and qualitative description of factors making up goodwill (e.g., synergies, assembled workforce). Amount of any gain on bargain purchase and line item in P&L. |
| Acquisition-Related Costs | Amount expensed and line item(s) in P&L. |
| Revenue and Profit Contribution | Amounts of revenue and profit/loss of the acquiree since acquisition date included in consolidated P&L. (Optionally, pro-forma revenue/profit as if combined from start of year). |
Disclosure for Step Acquisitions:
Fair value of the previously held equity interest at the acquisition date.
Amount of gain or loss recognized as a result of remeasuring the previously held equity interest.
Disclosure for Bargain Purchases:
Description of the facts and circumstances leading to the gain.
The amount of the gain and the line item in the statement of comprehensive income where it is recognized.
IFRS 12 also requires extensive disclosures about interests in subsidiaries.
Identifying the acquirer, especially in complex structures or reverse acquisitions.
Measuring the fair values of identifiable assets acquired and liabilities assumed (especially intangible assets like brands, customer relationships, and contingent liabilities).
Determining whether an acquired set of activities and assets constitutes a business or an asset acquisition.
Assessing when control is obtained (acquisition date).
Measuring contingent consideration at fair value and its subsequent remeasurement.
Choosing the measurement basis for NCI (fair value or proportionate share).
