IFRS 3 Business Combinations | Annualreporting.info

IFRS 3 What are the different classifications of software?

Computer software can be classified as either a tangible asset, i.e. property, plant and equipment or an intangible asset, depending on the level of integration with the related hardware.

In cases where software is an integral part of the related hardware, i.e. the hardware cannot operate without the software, the software will be treated as property, plant and equipment together with the related hardware already recognised, which will normally be computer equipment, a laboratory computer equipment (e.g. computer hardware and related operating systems are recognised under PPE). In such a case, the Accounting Policy on Property, Plant and Equipment shall apply.

In cases where the software is not an integral part of the related hardware, i.e. the hardware can … Read more

Customer relationships valuation


Customer contracts and the related customer relationships
Non-contractual customer relationships
Order or production backlog


Here a valuation model is presented to value customer contracts and the related customer relationship and the non-contractual customer relationships, as per IFRS 3 Business Combinations.

What are the inputs?

Revenue – represents revenue from existing customer relationships for existing products. Includes contractual and non-contractual relationships (even those without current backlog or commitments). Separate valuation of a backlog revenue intangible asset can be considered if and when such backlog exists.… Read more

IAS 38 Non-contractual customer relationships

In a Business Combinations, this is a intangible asset and is therefore recognised separately from goodwill, provided that its fair value can be measured reliably. This customer-related intangible asset does not arise from contractual or other legal rights, but meets the definition of an intangible asset because it is separable.

If a customer relationship acquired in a business combination does not arise from a contract, the relationship is an intangible asset if it meets the separability criterion. Exchange transactions for the same asset or a similar asset provide evidence of separability of a non-contractual customer relationship and might also provide information about exchange prices that should be considered when estimating fair value.

There are valuation models to … Read more

Identify and separate Intangible assets

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:… Read more

Identifying an asset group for valuation purposes

An entity acquires assets and assumes liabilities in a business combination. One of the groups of assets acquired comprises Assets A, B and C.

Asset C is billing software integral to the business developed by the acquired entity for its own use in conjunction with Assets A and B (the related assets). The entity measures the fair value of each of the assets individually, consistently with the specified unit of account for the assets. The entity determines that the highest and best use of the assets is their current use and that each asset would provide maximum value to market participants principally through its use in combination with other assets or with other assets and liabilities (its complementary assets … Read more

The acquisition method

An entity shall account for each business combination by applying the acquisition method. Applying the acquisition method requires:

  1. identifying the acquirer;
  2. determining the acquisition date;
  3. recognising and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; and
  4. recognising and measuring goodwill or a gain from a bargain purchase.

Identifying the acquirer

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