IFRS 3 – Business Combination

IFRS 3   – Business Combination

Objective: The financial reporting by an entity when it undertakes a business combination.

Today Purchas method is used for all business combination, the use of uniting-pooling that was use under IAS 22 is now prohibited.

 Goodwill and other intangible assets with indefinite live must be tested for impairment at least annually.

Goodwill is impaired if its carrying amount exceeds its implied value implied value. Implied value is the recoverable amount of the cash generating unit to which the goodwill has been allocated.

 If the acquirers interest in the net fair value of the acquires identifiable assets and liabilities and contingent liabilities exceeds the cost, the excess is recognized as an immediate gain.

 Minority's share of acquired assets is measured at fair value. Minority's interest is reported in equity.  

     The Differences and Similarities between US GAAP Law and IFRS 

Significant Differences & Similarities:

IFRS	US Law  GAAP
All business combinations are accounted for using purchase accounting.	Like IFRS all business combinations are accounted for using purchase accounting.	Accounting Treatment
A business combination is the brining together of separate entities or business into one reporting entity	Like IFRS a business combination occurs when entity acquires net assets that constitute a business, or acquires interest of one or more other entities that together constitute a business and obtain control over that entity or entities	Business Combination
A business can be an operation managed for the purpose of providing a return to investors, or not. An entity in its development stage can meet the definition of a business.	Unlike IFRS business must be managed for the purpose of providing a return to investors. In a development stage entity does not meet the definition of business.	Definition of business
IFRS	US Law  GAAP
The date of acquisition is the date on which effective control is transferred to the acquirer.	Like IFRS the date of acquisition is the date on which effective control is transferred to the acquire	The acquisition date
The cost of acquisition is the amount of cash or cash equivalents paid, plus the fair value of other purchase consideration given, plus any cost directly attributable to the acquisition.	Like IFRS the cost of acquisition is the amount of cash or cash equivalents paid, plus the fair value of other purchase consideration given, plus any cost directly attributable to the acquisition. However, direct costs differ in certain respects from directly attributable cost under IFRS.	Cost of acquisition a business or businesses
The fair value of the securities issued by the acquirer is determined at the date of the exchange.	Unlike IFRS the fair value of equity securities issued by the acquired is determined by reference to their market price for few days before and after the terms of the acquisition are agreed and announced.	Fair value of securities issued in the acquisition
Costs directly attributable to the acquisition may be internal costs, but cannot be general administrative costs	Unlike IFRS direct cost of the business combination cannot include internal costs.	Cost attributed to the acquisition
A liability for contingent consideration is recognized as soon as payment becomes probable and the amount can be measures reliably.	Unlike IFRS a liability for contingent consideration is recognized only when the contingency is resolved and the consideration becomes payable.	A Liability for Contingent
Any change in the acquires deferred tax assets as a result of the business combination is not recognized as part of the purchase accounting. Except in respect of goodwill, deferred tax is recognized on fair value adjustments recognized as part of the purchase accounting.	Unlike IFRS no deferred tax is recognized in respect of in-process research and development recognition as a part of the purchase accounting. Like IFRS in respect of goodwill, deferred tax is recognized on fair value adjustments recognized as part of the purchase accounting.	Changes in deferred taxes as part of business combination
IFRS	US Law  GAAP
	However in acquisition if acquire less than 100%, assets and liabilities are adjusted to reflect fair vale only to the extent of the acquirer's interest in the acquire.	Assets and liabilities acquired in business combination
Adjustment to goodwill can be made only within 12 months of the acquisition.	Like IFRS adjustment to goodwill can be made only within 12 months of the acquisition.	Adjustment to Goodwill in Business Combination
If additional deferred tax assets of the acquire that were not recognized at the date of acquisition are realised subsequently, then the adjustment is recognized in profit or loss.	Unlike IFRS if additional deferred tax assets of the acquire that were not recognized at the date of the acquisition are recognized first against goodwill, than against other non-current intangible assets before being recognized in profit or loss.	Additional deferred tax assets that was not recognized in the acquisition date
When the acquirer's interest in the fair value of assets and liabilities and contingent liabilities that were acquired exceeds the cost of acquisition (negative goodwill) any excess is recognized in profit or loss immediately	Unlike IFRS When the acquirer's interest in the fair value of assets and liabilities and contingent liabilities that were acquired exceeds the cost of acquisition (negative goodwill) any excess is first deducted from the purchase price allocated to certain non-current assets until their carrying amounts are reduced to zero, and any remain negative goodwill is recognized as contingent and not to profit and loss.	Negative Goodwill
When an acquisition is achieved in a few share purchases, the assets and liabilities and contingent liabilities that were acquired, are recognized at full fair value when control is obtained.   Each exchange transaction is considered separately in determining goodwill.	Unlike IFRS When an acquisition is achieved in a few share purchases, the assets and liabilities and contingent liabilities that were acquired, are not remeasured to full fair value when control is obtained. Like IFRS Each exchange transaction is considered separately in determining goodwill.	Acquisition is achieved in  a few   share purchases
There is no guidance on accounting for combination by contract alone or for combination involving two or more mutual entities	Like IFRS there is no guidance on accounting for combination by contract alone or for combination involving two or more mutual entities	Business combination by contract alone
IFRS	US Law  GAAP
A business combination is a transaction or other event in which an acquirer obtain control of one or more business.	Like IFRS a business combination is a transaction or other event in which an acquirer obtain control of one or more business.	Business combination
Consideration transferred is the sum of the fair values of the assets transferred, liabilities incurred to the previous owners of the acquire, equity interests issued.     Consideration transferred does not include acquisition related costs	Like IFRS consideration transferred is the sum of the fair values of the assets transferred, liabilities incurred to the previous owners of the acquire, equity interests issued.     Like IFRS consideration transferred does not include acquisition related costs	Consideration Transfer
An intangible assets is recognized separately from goodwill when it is identifiable.	Like IFRS an intangible assets is recognized separately from goodwill when it is identifiable	An intangible Asset
A restructuring provision is recognized only when it is an existing liability at the acquisition date.	Like IFRS a restructuring provision is recognized only when it is an existing liability at the acquisition date.	Restructuring  Provision
If additional deferred tax assets of the acquire that were not recognized at the date of acquisition are realised subsequently, then the adjustment is recognized in profit or loss.	Like IFRS If additional deferred tax assets of the acquire that were not recognized at the date of acquisition are realised subsequently, then the adjustment is recognized in profit or loss.	Additional Deferred tax assets that were not recognized at the date of acquisition