Complete detection of all IFRS 3 intangibles

Complete detection of all IFRS 3 intangibles explains it all, because detecting intangible assets can be a complex and challenging matter. Strategies to detect identifiable intangible assets vary depending on the facts and circumstances of the business combination and usually require a full review of the transaction. It is important to understand the business of the acquiree, what intangible resources it depends on and how these may translate into identifiable intangible assets. It should be possible to explain the acquired business in terms of the resources it uses to generate profits and how these are reflected in the acquiree’s assets and liabilities. In other words ask the question: what has been paid for?

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High level overview IFRS 3 Business Combinations

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HIGH LEVEL OVERVIEW IFRS 3 BUSINESS COMBINATIONS

ScopeHigh level overview IFRS 3 Business Combinations

IFRS 3 does not apply to:

  • The accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself.
  • Acquisition of an asset or group of assets that is not a business.
  • A combination of entities or businesses under common control.

Definition

A business combination is: A transaction or event in which acquirer obtains control over a business (e.g. acquisition of shares or net assets, legal mergers, reverse acquisitions).

Definition of a “Business”

A business is:

  • Integrated set of activities and assets
  • Capable of being conducted and managed to provide return
  • Returns include dividends and cost savings.

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Leveraged buyout IFRS 3 best reporting

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Leveraged buyout IFRS 3 best reporting – In corporate finance, a leveraged buyout (LBO) is a transaction where a company is acquired using debt as the main source of consideration. These transactions typically occur when a private equity (PE) firm borrows as much as they can from a variety of lenders (up to 70 or 80 percent of the purchase price) and funds the balance with their own equity. Leveraged buyout IFRS 3 best reporting

1 The process and business reason

The use of leverage (debt) enhances expected returns to the private equity firm. By putting in as little of their own money as possible, PE firms can achieve a large return on equity (ROE) and internal … Read more

Identify and separate Intangible assets

Identify and separate Intangible assets that is one of the most important exercises in a IFRS 3 business combination. The acquirer recognises, separately from goodwill, the identifiable intangible assets acquired in a business combination. An intangible asset is identifiable if it meets either the separability criterion or the contractual-legal criterion. Identify and separate Intangible assets Identify and separate Intangible assets

An intangible asset that meets the contractual-legal criterion is identifiable even if the asset is not transferable or separable from the acquiree or from other rights and obligations. For example:

  1. an acquiree leases a manufacturing facility under an operating lease that has terms that are favourable relative to market terms. The lease terms

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IFRS 3 Executive Compensation in Acquisitions

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IFRS 3 Executive Compensation in Acquisitions – The acquirer in a business combination may or must agree to assume existing compensation arrangements with employees of the acquiree or may establish new arrangements to compensate those employees for postcombination services. These arrangements may involve cash payments to the employees or the exchange (or settlement) of share-based payment awards.

These replacement share-based payment awards, in many cases, include the same terms and conditions as the original awards and are intended to keep the employees of the acquiree “whole” (i.e., preserve the value of the original awards at the acquisition date) after the acquisition. The acquirer may, in other situations, change the terms of the share-based payment awards, often … Read more

IFRS 3 Reverse acquisitions How to?

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IFRS 3 Reverse acquisitions How to? – or reverse mergers present unique accounting and reporting considerations. Depending on the facts and circumstances, these transactions can be asset acquisitions, capital transactions, or business combinations.

A reverse acquisition that is a business combination can occur only if the accounting acquiree meets the definition of a business under IFRS 3. An entity that is a reporting entity, but not a legal entity, could be considered the accounting acquirer in a reverse acquisition. Like other business combinations, reverse acquisitions must be accounted for using the acquisition method.

A reverse acquisition occurs if the entity that issues securities (the legal acquirer) is identified as the acquiree for accounting purposes and the entity … Read more

IFRS 3 Recognition of restructurings or exit activities

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IFRS 3 Recognition of restructurings or exit activities – Liabilities related to restructurings or exit activities of the acquiree should only be recognized at the acquisition date if they are preexisting liabilities of the acquiree and were not incurred for the benefit of the acquirer.

Absent these conditions, including a plan for restructuring or exit activities in the purchase agreement does not create an obligation for accounting purposes to be assumed by the acquirer at the acquisition date.

Liabilities and the related expense for restructurings or exit activities that are not preexisting liabilities of the acquiree should be recognized through earnings [profit or loss] in the postcombination period when all applicable criteria of IAS 37 have been … Read more

IFRS 3 Recognising what you acquired in a business combination

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IFRS 3 Recognising what you acquired in a business combination or recognizing and measuring the identifiable assets acquired, liabilities assumed, and any non-controlling interest in the acquiree.

IFRS 3 provides the following recognition principle for assets acquired, liabilities assumed, and any non controlling interest in the acquiree:

Excerpt from IFRS 3 10

As of the acquisition date, the acquirer shall recognize, separately from goodwill, the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. Recognition of identifiable assets acquired and liabilities assumed is subject to the conditions specified in IFRS 3 11 and IFRS 3 12.

An acquirer should recognize the identifiable assets acquired and the liabilities assumed on the acquisition … Read more

Assets acquired in an exchange transaction

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Assets acquired in an exchange transaction – Assets are usually acquired through an exchange transaction, which can be a monetary or a non-monetary exchange. The accounting for assets acquired in an exchange transaction including the recognition and measurement under IFRS is discussed in this session.

Initial recognition

An asset acquisition triggers the initial recognition of an asset acquired and may include a liability assumed. Assets are usually acquired through an exchange transaction, which can be a monetary or a non-monetary exchange. Assets surrendered are derecognized at the date of acquisition. If liabilities are incurred or equity interests are issued as the consideration for an acquisition of an asset or group of assets, those liabilities and equity interests … Read more

IFRS 3 Business combinations achieved in stages

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IFRS 3 Business combinations achieved in stages – Additional guidance for applying the acquisition method to particular types of business combinations Business combinations achieved in stages.

A ‘business combination achieved in stages’ (step acquisition) is a business combination in which the acquirer obtains control of an acquiree in which it held a non-controlling equity interest immediately before the date of acquisition. [IFRS 3 41]

In a step acquisition: IFRS 3 Business combinations achieved in stagesIFRS 3 Business combinations achieved in stages

  • the previously held non-controlling equity interest is remeasured to its fair value at the date of acquisition, with any resulting gain or loss recognised in profit or loss;
  • the acquirer derecognises the previously held non-controlling equity interest and recognises
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