About

IFRS 3 establishes principles and requirements for how an acquirer in a business combination:

  • recognises and measures in its financial statements the assets and liabilities acquired, and any interest in the acquiree held by other parties;
  • recognises and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and
  • determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

The core principles in IFRS 3 are that an acquirer measures the cost of the acquisition at the fair value of the consideration paid; allocates that cost to the acquired identifiable assets and liabilities on the basis of their fair values; allocates the rest of the cost to goodwill; and recognises any excess of acquired assets and liabilities over the consideration paid (a ‘bargain purchase’) in profit or loss immediately. The acquirer discloses information that enables users to evaluate the nature and financial effects of the acquisition.

What you should know

  • Know and apply the definitions related to business combinations.
  • Determine whether a transaction or event is a business combination.
  • Identify the acquirer
  • Determine the acquisition date.
  • Apply the acquisition method to account for a business combination.
  • Recognise and measure identifiable assets acquired, liabilities assumed and non-controlling interests.
  • Calculate and account for goodwill or a gain from a bargain purchase.
  • Present and disclose business combinations in the financial statements.
  • Understand the nature of a business combination and its various forms
  • Explain the basic steps in the acquisition method of accounting for a business combination
  • Recognise and measure the assets acquired and liabilities assumed in the business combination
  • Understand the nature of and the accounting for goodwill and gain from bargain purchase
  • Account for assets and liabilities subsequent to the business combination
  • Provide the disclosures required under IFRS 3.