Reacquired rights

High level overview IFRS 3 Business Combinations

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HIGH LEVEL OVERVIEW IFRS 3 BUSINESS COMBINATIONS

A summary on one page and more detail for reference

The overview

Scope & Identifying a business combination
A business combination is:
Transaction or event in which acquirer obtains control over a business (e.g. acquisition of shares or net assets, legal mergers, reverse acquisitions).High level overview IFRS 3 Business Combinations High level overview IFRS 3 Business Combinations 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 of “control
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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 rate of return … Read more

The measurement period in business combinations – the best 1 year window to complete

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The measurement period in business combinations explains the one year window allowed in properly accounting for business combinations or as they have been called in the past acquisitions/M&A etc.

The accounting for a business combination requires substantial effort and resources. The initial accounting often is incomplete at the end of the reporting period in which the business combination happens. This is because the acquirer has been unable to obtain all pertinent information necessary to evaluate the conditions that existed as of the acquisition date. As a result, the acquirer may have to record provisional amounts for certain assets or liabilities — for instance, independent valuations for intangible assets may not yet be finalised.The measurement period in business combinations

The measurement period in business

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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 date if they meet … Read more

Contingent liability

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A contingent liability is a possible obligation that potentially arises from past events out of control of the entity or obligations not probable/measurable