Accounting for Business combinations cash flows
1. Presentation and disclosure of cash paid/acquired in a business combination
When an entity acquires a business and part or all of the consideration is in cash or cash equivalents, part of the net assets acquired may include the acquiree’s existing cash balance. This results in different amounts being presented in the statement of cash flows and the notes to the financial statements.
IAS 7.39 and 42 require the net cash flows arising from gaining or losing control of a business, to be classified as arising from investing activities. Consequently, the statement of cash flows will not include the gross cash flows arising from the acquisition, and will instead show a single net amount. IAS 7.40 then requires the gross amounts to be disclosed in the notes.
The disclosures required by IFRS 3 Business Combinations include:
- The acquisition date fair value of total consideration transferred, analysed into each major class of consideration including the cash element (IFRS 3.B64(f)(i))
- Major classes of assets and liabilities acquired, of which cash and cash equivalents would be a class (IFRS 3.B64(i)).