Accounting for Business Combinations under
IFRS 3
Goodwill and Intangible Assets under IFRS 3
and IAS 38
Vienna, March 14, 2006
By Thierry Bertrand, Partner, E&Y
Olivier Lemaire, Partner, E&Y
Renaud Breyer, Manager, E&Y
1
Agenda
•
•
•
•
•
Scope of IFRS 3
Identifying the acquirer
Cost of the acquisition
Allocation of cost
Accounting for adjustments to provisional
accounting
• Accounting for goodwill
• First-time adoption issues
• Exposure draft – Phase 2
2
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Case study – IFRS 3
• Fact patterns described in appendix A
3
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Scope of IFRS 3
Question
• Does the transaction constitute a business combination
within the scope of IFRS 3? For the purpose of
answering this question, assume ADC is the acquirer.
Answer
•?
4
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Scope of IFRS 3 (cont’d)
1. Does the transaction satisfy
the definition of a business
combination ?
No
Yes
2. Does the acquiree satisfy
the definition of a business ?
No
Yes
3. Is the business combination
within the scope of IFRS 3 ?
No
Yes
Transaction represents a
business combination and is
within the scope of IFRS 3.
5
Transaction is outside the
scope of IFRS 3 ?
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Scope of IFRS 3 (cont’d)
Explanation
• Does the transaction satisfy the definition of a business
combination?
ADC’s acquisition of OLH gives rise to a parent/subsidiary
relationship. Therefore, this transaction satisfies the definition of
a business combination (i.e., the bringing together of separate
entities into one reporting entity).
• Does the acquiree satisfy the definition of a business?
ADC (the acquirer) has obtained control of OLH (the acquiree).
OLH is an integrated set of activities and assets conducted and
manages to provide return to investors.
6
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Scope of IFRS 3 (cont’d)
Explanation (cont’d)
• Is the business combination within the scope of IFRS 3?
IFRS 3 does not apply to:
– business combinations in which separate entities or businesses
are brought together to form a joint venture;
– business combinations involving entities under common control;
– business combinations involving two or more mutual entities; and
– business combinations in which separate entities or businesses
are brought together to form a reporting entity by contract alone
without the obtaining of an ownership interest (i.e., dual listed
companies). (IFRS 3.3)
ADC’s acquisition of OLH is within the scope of IFRS 3.
Therefore, ADC’s acquisition of OLH is a business
combination that is included within the scope of IFRS 3.
7
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Scope of IFRS 3 (cont’d)
Question
• Instead of acquiring the issued shares of OLH, assume
ADC has acquired the net assets of OLH. Does the
transaction still constitute a business combination within
the scope of IFRS 3?
Answer
•?
8
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Scope of IFRS 3 (cont’d)
Explanation
• Does the transaction satisfy the definition of a business
combination?
ADC’s acquisition of OLH gives rise to a parent/subsidiary
relationship.
• Does the acquiree satisfy the definition of a business?
The net assets of OLH would constitute a business (i.e.,
satisfies the definition of a business).
9
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Scope of IFRS 3 (cont’d)
• Is the business combination within the scope of IFRS 3?
– business combinations in which separate entities or businesses
are brought together to form a joint venture;
– business combinations involving entities under common control;
– business combinations involving two or more mutual entities; and
– business combinations in which separate entities or businesses
are brought together to form a reporting entity by contract alone
without the obtaining of an ownership interest (i.e., dual listed
companies). (IFRS 3.3)
Further, this particular transaction is not excluded from the
scope of IFRS 3. Therefore this combination would be
accounted for by applying IFRS 3
10
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Scope of IFRS 3 (cont’d)
Question
• Assume ADC and OLH are proprietary companies that
are owned by the same parent entity. Does the
transaction constitute a business combination within the
scope of IFRS 3?
Answer
• No. Business combinations involving entities under
common control are excluded from the scope of IFRS 3.
11
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Scope of IFRS 3 (cont’d)
Question
• Assume ADC and OLH enter into a contractual arrangement
under which the activities of two companies are brought
together, managed and operated on a unified basis as if they
were a single economic enterprise while retaining their
separate legal identities and stock exchange listings. Does the
transaction constitute a business combination within the scope
of IFRS 3? (For the purpose of answering this question,
assume ADC is adjudged the acquirer.)
Answer
• No, as it is a transaction in which separate entities are brought
together to form a reporting entity by contract alone without the
obtaining of an ownership interest.
12
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Scope of IFRS 3 – Some practical issues
Business combinations achieved in stages when control is
obtained over a former joint venture
Question:
• Should IFRS 3 apply to the acquisition of additional
ownership interests in a joint venture resulting in a former
venturer gaining control on the joint venture?
13
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Scope of IFRS 3 – Some practical issues
(cont’d)
Fact patterns:
• Entities M and P currently operate under a agreement a joint
venture, J, with M holding a 75% interest and P a 25%
interest. M accounts for J's activities according to IAS 31 using
the proportionate consolidation method.
• M now buys out P's 25% interest in J and as a result, obtains
control over J's activities.
• Should M account for the acquisition of the remaining 25% as
for a step acquisition and record J's net assets at 100% of
their fair values at the date that M obtains control of J?
14
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Scope of IFRS 3 – Some practical issues
(cont’d)
Answer:
• Yes, acquisition of the remaining 25 % of J should be
accounted for as a business combination. IFRS 3 applies
when control is obtained over a former joint venture.
Therefore, at the date control is obtained, M shall:
– determine goodwill for the newly acquired 25 % interest using
the cost of that transaction and the fair value of J's identifiable
net assets at the date control is obtained;
– recognise the assets and liabilities at 100 % of their fair value at
the date of obtaining control; and
– treat any adjustment to those fair values relating to previously
held interests as a revaluation.
15
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Scope of IFRS 3 – Some practical issues
(cont’d)
Business combination achieved in stages
When a business combination involves more than one exchange
transaction, the fair value adjustments related to held interests prior to
the control acquisition are accounted for in an equity revaluation
reserve.
Question:
• Is it acceptable for any revaluation amount arising in a business
combination achieved in stages to be recycled through profit or loss
on subsequent disposal of the underlying assets (or liabilities) or
businesses concerned?
16
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Scope of IFRS 3 – Some practical issues
(cont’d)
• Revaluation surplus can arise when a business
combination is achieved in stages
• However, IFRS 3 is silent as to whether any such
revaluation surplus can or shall be recycled into profit or
loss at a later date.
• IAS 27 also does not make any reference to such
revaluation surplus being taken into account in
calculating the gain or loss on disposal of a subsidiary.
17
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Scope of IFRS 3 – Some practical issues
(cont’d)
Answer:
Answer based on facts and circumstances:
• It depends whether the revaluation amounts are related to assets or
liabilities whose revaluation are normally recycled through the profit
or loss on disposal in accordance with the relevant accounting
standard (such as available-for-sale investments under IAS 39)
• In the other cases, any revaluation amount should not be recycled
into P&L either on disposal of the underlying assets or of the
business concerned (PP&E, intangible assets).
18
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Identifying the acquirer
1. What is legal form of the
businesses that are subject to the
business combination? For example,
does the business combination
involve legal entities or groups of
assets/net assets that constitute a
business?
Assets
Typically, the acquirer will be the
entity acquiring the group of
assets/net assets.
Entities
2. Was a new entity formed to issue
equity instruments to effect a
business combination between two or
more pre-existing entities?
Yes
One of the combining entities that
existed before the combination shall
be adjudged the acquirer on the
evidence available.
No
3. Does the transaction constitute a
reverse acquisition (i.e., is the legal
acquiree actually obtaining control of
the legal acquirer)?
Yes
The legal acquiree (legal subsidiary)
shall be adjudged the [in-substance]
acquirer for the purpose of applying
IFRS 3.
No
4. The legal acquirer will be the
entity that is acquiring the issued
shares of the other entity.
19
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Identifying the acquirer (cont’d)
Question
• Which entity would be adjudged the acquirer under
IFRS 3 ?
Answer
• ADC
20
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Identifying the acquirer (cont’d)
• Assume that a newly formed company, NewCo, effected
the business combination between ADC and OLH by
issuing shares to the owners of ADC and OLH in
exchange for the issued shares of those companies.
NewCo
ADC
OLH
• Also assume that as a result of the transaction, the
existing directors of ADC and two of the existing directors
of OLH have taken up the board positions in NewCo.
21
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Identifying the acquirer (cont’d)
Question
• Which entity would be adjudged the acquirer under
IFRS 3 ?
Answer
• ADC
22
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Identifying the acquirer (cont’d)
• Assume that in order to effect the business combination, OLH
issued shares to the owners of ADC in exchange for the
issued shares of ADC. Also assume that as a result of the
transaction, the existing 4 directors of ADC taken up board
positions with OLH and that one of the directors of OLH has
resigned. There are now 6 directors in OLH.
• Before the transaction:
ADC
Shareholder
s
1
OLH
Shareholder
s
2
ADC
23
OLH
1: OLH issues shares to ADC shareholders.
2: Ownership of ADC issued shares
transfers to OLH
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Identifying the acquirer (cont’d)
• After the transaction:
OLH Shareholders
(including previous
ADC shareholders)
24
Legal parent
OLH
Legal subsidiary
ADC
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Identifying the acquirer (cont’d)
Question
• Who is the acquirer under IFRS 3?
Answer
• ADC
25
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Cost of acquisition
Question
• What is the cost of the business combination under IFRS 3?
Answer
• The cost of the business combination to ADC is:
EUR million
Fair value of assets given (10 million shares x EUR 10/share)
100
Plus: directly attributable costs:
Legal fees and other due diligence costs
Total cost
26
5
105
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Cost of acquisition (cont’d)
Assume OLH is a proprietary company with 1 owner (further assume that the
owner will not continue as a key employee of OLH post combination). In
addition to the purchase consideration outlined in the fact patterns (i.e., 10
million shares in ADC), ADC agrees to pay a further EUR 5,000,000 cash if
OLH achieves a profit of EUR 10,000,000 in the 12 months following the
business combination. As at the acquisition date (1 May 20X5), ADC
management believe that it is probable that the profit level will be achieved and
that the additional consideration will be required.
Question:
• What impact, if any, does this have on the cost of the combination?
Answer:
• Given the additional consideration can be reliably measured and the fact that
management consider that it is probable it will be paid out, the EUR
5,000,000 should be included in the cost of the combination (this will impact
the amount of goodwill/’excess over cost’ recognised).
27
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Cost of acquisition (cont’d)
Following on the previous assumption, assume that OLH does not
achieve the EUR 10,000,000 profit in the 12 months following the
business combination and therefore the additional consideration is not
paid.
Question:
• What impact, if any, does this have on the cost of the combination?
Answer:
• The cost of the combination is retrospectively adjusted to remove the
contingent consideration that has not actually been paid. This
adjustment will impact the amount of goodwill/‘excess over cost’
recognised.
28
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Cost of acquisition – Practical issues
Question:
• Are acquisition costs recorded gross or net of applicable
income taxes ? IFRS 3 does not provide specific guidance.
Answer:
• In accordance with the “no offsetting” principle in paragraph 32
of IAS 1, Presentation of Financial Statements, and in the
absence of specific guidance in IFRS 3 to the contrary,
acquisition costs are recorded gross-that is, if any costs
directly attributable to the acquisition are deductible for income
tax purposes, the related taxes are not netted against the
acquisition costs.
29
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Cost of acquisition – Practical issues
Question:
• Company A engages Company X, which has specific
technical knowledge, to assist in identifying an
investment target. Company X recommends that
Company A purchase Company B. Company A has
agreed to pay Company X a performance fee in the event
that the return from its investment in Company B exceeds
a specified target. Can this be accounted for as
contingent consideration arising on business
combination?
30
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Cost of acquisition – Practical issues
Answer:
• No. The payment to Company X is not contingent
consideration as it is not part of the agreement between
the vendor and the purchaser. It arises from a separate
agreement with the third party adviser. Accordingly, whilst
the payment to Company X is part of the cost of the
combination it must be measured as at the combination
date. Any subsequent remeasurement cannot be
adjusted against the cost of the combination except
where it is an adjustment to the initial accounting under
paragraph 62 of IFRS 3. However, an adjustment to the
initial accounting must reflect conditions as they existed
at the date of the combination and does not take into
account subsequent events.
31
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Cost of acquisition – Contingent
consideration
vs deferred consideration
Question
• Should a payment that is uncertain, in both amount and timing, at
acquisition date in a business combination be treated as ‘contingent
consideration’?
Fact pattern
• Adjustments to the cost of a business combination that are
contingent on future events can take a number of forms. Examples
include:
– an additional payment of EUR 1m if a drug currently under development
receives approval at a later date;
– an additional payment of EUR 1m if the acquiree's profit in the year after
acquisition exceeds EUR 2m; and
– an additional payment of 50% of actual EBITDA of the acquiree in the
year after acquisition.
32
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Cost of acquisition – Contingent
consideration
vs deferred consideration (cont’d)
Fact pattern (cont’d)
• The issue is whether the payment of an uncertain amount should be
accounted for as contingent consideration (with the amount
ultimately paid adjusted to the cost of the combination) or whether it
is more akin to deferred consideration (that must be estimated at
acquisition date with any future changes in that estimate taken to
income).
Answer
• Yes. Any consideration for a business combination where the amount
or the timing is not known with certainty is contingent consideration.
Therefore any adjustments to that consideration are made to
goodwill (assuming there is no compensation element).
The only adjustment made to the income statement is to unwind the
discount recognised at the date of acquisition. Therefore in the
examples in fact pattern all scenarios would result in a classification
as contingent consideration.
33
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Allocation of cost
• Fact patterns described in appendix B.
34
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Allocation of cost (cont’d)
Question
• Identify which items would be recognised separately from goodwill
under IFRS 3, and why (i.e., due to satisfying the specified
recognition criteria in IFRS 3 and IAS 38).
Item
IFRS 3
(a) Customer contracts
Satisfies the definition of an intangible asset (arises
from contractual rights) and fair value can be reliably
measured. Therefore recognised separately from
goodwill. (IFRS 3.37(c))
35
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Allocation of cost (cont’d)
Item
IFRS 3
(b) Non-contractual
IAS 38 Intangible Assets states that in the absence of
customer relationships legal rights to protect, or other ways to control, these
relationships, the entity usually has insufficient control
to meet the definition of an intangible asset.
However, exchange transactions for the same or
similar non-contractual relationships (other than as
part of a business combination) provides evidence
that the entity is nonetheless able to control the
expected future benefits flowing from the customer
relationships (in which case the relationships would
satisfy the “separable” criterion and therefore meet
the definition of an intangible asset). In this example,
there is no such evidence therefore, the relationships
are not separately recognised. (IAS 38.16)
36
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Allocation of cost (cont’d)
Item
IFRS 3
(c) Internet domain
names
Satisfies the definition of an intangible asset (arises
from contractual or other legal rights) and fair value
can be reliably measured. Therefore recognised
separately from goodwill. (IFRS 3.37(c))
(d) Brand name
Satisfies the definition of an intangible asset (arises
from contractual or other legal rights) and fair value
can be reliably measured. Therefore recognised
separately from goodwill. (IFRS 3.37(c))
(e) Customer database
Satisfies the definition of an intangible asset
(separable) and fair value can be reliably measured.
Therefore recognised separately from goodwill.
(IFRS 3.37(c))
37
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Allocation of cost (cont’d)
Item
IFRS 3
(f) In-process R&D
Satisfies the definition of an intangible asset
(separable) and fair value can be reliably measured.
Therefore recognised separately from goodwill.
(IFRS 3.37(c))
Also, IAS 38.34 states “the acquirer recognises as an
asset separately from goodwill an IPR&D project of
the acquiree if the project meets the definition of an
intangible asset and its fair value can be reliably
measured.
(g) Lease agreement
IFRS 3 requires all liabilities of the acquiree that
satisfy the general recognition criteria of probable and
reliable measurement to be recognised at their fair
values (therefore, includes agreements equally
proportionately unperformed that are not at current
market rates – “out-of-the-money”). (IFRS 3.37(b))
38
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Allocation of cost (cont’d)
Item
IFRS 3
(h) Website contract
Satisfies the definition of an intangible asset (arises
from contractual or other legal rights) and fair value
can be reliably measured. Therefore recognise
separately from goodwill. (IFRS 3.37(c))
(i) Damages claim
IFRS 3 requires all contingent liabilities of the
acquiree to be recognised at their fair values
(provided that fair value can be reliably measured).
(IFRS 3.37(c)).
39
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Allocation of cost (cont’d)
Other examples of intangible assets which are typically recognized as
part of a business combination separately from goodwill:
• Marketing related
– Trademarks, trade names,
service marks…
– Internet domain names
– Newspaper mastheads
• Customer related
– Customer lists
– Order backlog
– Contractual relationships
40
• Artistic
– Plays, operas, ballets, books,
musical works, pictures,
films…
• Contract-based
– Licenses, royalties, leases,
agreements, rights, contracts
• Technology-based
– Patents, sofware, databases,
trade secrets
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Allocation of cost (cont’d)
Question
• Would ADC be able to recognise a restructuring provision
under IFRS 3?
Answer
• ADC is not able to recognise a provision for the
restructuring of OLH. Only the existing liabilities for
restructuring recognized in OLH in accordance with IAS
37 are recognized as allocation of the cost.
41
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Allocation of cost (cont’d)
• Allocate the cost of the business combination to the assets, liabilities
and contingent liabilities of the acquiree (purchase price allocation).
On-line Homes (OLH)
Fair value
Cash
10
10
Debtors, net
20
20
Mortgage loan receivables#
55
47
P,P & E
30
35
IPR&D
-
1
Intangible-Software
2
2
Intangible-Customer contracts
-
15
Intangible-Domain name
-
2
Intangible-Brand name
-
20
Intangible-Database
-
1
Intangible-Website contract
-
2
117
155
TOTAL ASSETS
42
Book value
!@#
Allocation of cost (cont’d)
On-line Homes (OLH)
Deferred tax
Book value
Fair value
-
(8)
Payables
(30)
(30)
Provisions
(10)
(10)
Interest bearing liabilities
(10)
(15)
Liability – operating lease agreement
-
(3)
Contingent liability
-
(2)
(50)
(68)
67
87
TOTAL LIABILITIES
NET ASSETS
43
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Allocation of cost – accounting for deferred
tax effect (cont’d)
• As a consequence of the fair value adjustments recognised on acquisition,
ADC must calculate the tax effect of these adjustments in accordance with
IAS 12 Income Tax.
• Applicable income tax rate is 30%.
Table 1: Calculate temporary differences
• The fair value of the identifiable assets and liabilities (excluding deferred tax
liabilities and assets) acquired by ADC and recognised in ADC’s
consolidated financial report is set out in the following table, together with
their tax base and the resulting temporary differences:
On-line Homes (OLH)
Fair value
Tax base
Temporary differences
Cash
10
10
-
Debtors, net
20
20
-
Mortgage loan receivables
47
55
(8)
P,P & E
35
20
15
IPR&D
1
-
1
44
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Allocation of cost – accounting for deferred
tax effect (cont’d)
On-line Homes (OLH)
Intangible-Software
Fair value
Tax base
Temporary differences
2
2
-
15
-
15
2
-
2
20
-
20
Intangible-Database
1
-
1
Intangible-Website contract
2
-
2
Payables
(30)
(30)
-
Provisions
(10)
-
(10)
Interest bearing liabilities
(15)
(10)
(5)
Liability – operating lease agreement
(3)
-
(3)
Contingent liability
(2)
-
(2)
Fair value of the identifiable assets and
liabilities acquired, excluding deferred tax
95
67
28
Intangible-Customer contracts
Intangible-Domain name
Intangible-Brand name
45
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Allocation of cost – accounting for deferred
tax effect (cont’d)
Table 2: Calculate deferred tax balance
Temporary differences
Applicable tax rate
Deferred tax balance
EUR 28
30%
EUR 8.4
• The deferred tax asset arising from the mortgage loan receivables,
the provisions, the interest bearing liability, the liability – operating
lease agreement and the contingent liability is offset against the
deferred tax liabilities arising from PP&E and the identifiable
intangible assets. This gives rise to a net deferred tax liability of
EUR 8 million.
46
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Accounting for adjustments to provisional
accounting
• Assume that ADC had accounted for the business combination on a
provisional basis (for example, ADC was awaiting a final valuation
with respect to the brand name acquired).
• Assume that within 12 months of the acquisition date, ADC obtains a
final valuation with regard to the brand name (i.e., EUR 25 million
instead of the provisional amount of EUR 20 million).
• Assume that ADC had estimated the useful life of the brand name to
be 40 years. Therefore, 2 months worth of amortisation charges was
recorded for the reporting period ended 30 June 20X5 (EUR 20
million / 40 years * 2/12 = EUR 83,333).
Question
• How would the adjustment be accounted for under IFRS 3? Provide
journals to illustrate the required adjustment
47
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Accounting for adjustments to provisional
accounting (cont’d)
Answer
• ADC has to adjust the provisional accounting and adjust goodwill as
appropriate.
• Given the change in the determination of fair value, the amortisation charge
for the period ended 30 June 20X5 should have been EUR 104,167 (i.e.,
EUR 25 million / 40 years * 2/12).
• ADC would therefore adjust the comparative figures in its consolidated
financial report for the year ended 30 June 20X6 as follows:
Dr
Intangible-Brand name
Amortisation expense
Cr
5,000,000
20,833
Goodwill
5,000,000
Accumulated amortisation
Notes:
1: EUR 104,167 - EUR 83,333 = EUR 20,833
48
20,833
!@#
Accounting for adjustments to provisional
accounting (cont’d)
• In accordance with IFRS 3.69, ADC discloses in its 20X5
financial report that the initial accounting for the business
combination has been determined only provisionally, and
explains why this is the case. In accordance with
IFRS 3.73(b), the entity discloses in its 20X6 financial report
the amounts and explanations of the adjustments to the
provisional values recognised during the current reporting
period. Therefore, the entity discloses that:
– the fair value of the brand name at the acquisition date has been
increased by EUR 5 million with a corresponding decrease in
goodwill; and
– the 20X5 comparative information is restated to reflect this
adjustment and to include additional depreciation of EUR 20,833
relating to the year ended 30 June 20X5
49
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Accounting for goodwill
Question
• How is any residual (i.e., difference between the cost of the combination and
the fair value of the identifiable net assets acquired) accounted for under
IFRS 3?
Answer
• The acquirer shall, at the acquisition date measure that goodwill at its cost,
being the excess of the cost of the business combination over the acquirer’s
interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities. Therefore, the goodwill is calculated as follows:
EUR million
Cost of the business combination
105
Less: net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree,
including deferred tax liability
87
Goodwill
18
50
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Accounting for goodwill (cont’d)
Assume ADC issues only 7.5 million ordinary shares as purchase
consideration for the acquisition of 100% of the issued shares of OLH.
Question
• How is any residual amount accounted for under IFRS 3?
Answer
EUR million
Cost of the business combination (EUR 75m + EUR 5m)
80
Less: net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree,
including deferred tax liability (see SS 5 and 6)
87
Excess over cost
(7)
Assuming a reassessment of the identifiable net assets and the cost of
the business combination does not result in changes to these amounts,
ADC would recognise the excess over cost as an immediate gain
(formerly denominated “negative goodwill” or “badwill”).
51
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First-time application – Exemption for Past
Business Combinations
Apply IFRS 3
Use Exemption
Apply IFRS 3 from a
point in time, use
exemption for earlier
52
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First-time application – Retrospective
Application of IFRS 3
• A retrospective application of IFRS 3 will involve a
consideration of the following:
– Classification of a business combination
– Measuring the cost of the business combination at the time the
transaction took place
– Cost allocation: separately recognise the acquiree’s assets,
liabilities and contingent liabilities
• More definitive approach to identifying and recognising intangible assets
• Contingent liabilities
– Non-amortisation of goodwill
– Excess over cost
53
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First-time application – Use Exemption
under IFRS 1
• Using the exemption gives rise to consequential
amendments that deal with the following:
– Classification of the past business combination
– Recognition of assets and liabilities acquired in the past business
combination
– Measurement of assets and liabilities acquired in the past
business combination
• Some of the adjustments impact opening retained
earnings, whilst others impact goodwill
54
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First-time application – Other accounting
issues
• Retrospective application of IFRS 3
– Appropriate documentation to support restatements performed
by management
– Necessary information to retrospectively apply IAS 36 (annual
goodwill impairment test) and IAS 38 (identification and separate
recognition of intangible assets)
• Use exemption under IFRS 1
– Goodwill impairment test at date of transition
– Reclassification of intangibles as appropriate
55
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Summary – First-time Adoption
• 3 Courses of Action
– Apply IFRS 3 retrospectively to all past business combinations;
or
– Utilise the exemption within IFRS 1 for all past business
combinations; or
– Apply IFRS 3 retrospectively to some past combinations and
utilise the exemption for others.
56
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Phase 2 – Business Combinations
• Exposure Draft of amendments to IFRS 3,
IAS 27, and IAS 37 / IAS 19 were issued in June 2005
• Culmination of a joint project with FASB dealing with
“application of the purchase method of accounting”
57
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Phase 2 – Key Proposals
• Expensing acquisition-related transaction costs
• Recognising contingent consideration at their acquisitiondate fair values
• Recognising the fair value of contingencies
• Recognising full goodwill
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Phase 2 – Key Proposals (2)
• Recognising holding gains and losses in step acquisitions
• Accounting for changes in ownership of a subsidiary
(without loosing control) as equity transactions
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Q&A
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