CA BUSINESS SCHOOL
EXECUTIVE DIPLOMA IN BUSINESS AND ACCOUNTING
SEMESTER 2
SLFRS 03
Business Combinations
M B G Wimalarathna
(FCA, ACMA, ACIM, SAT, ACPM)(MBA–PIM/USJ)
Objective
The objective of this SLFRS is to improve the relevance, reliability and
comparability of the information that a reporting entity provides in its
financial statement about a business combination and its effects.
Scope
This SLFRS applies to a transaction or other event that meets the
definition of a business combination. This SLFRS does not apply to:
a) the formation of a joint venture.
b) the acquisition of an asset or a group of assets that does not
constitute a business.
c) a combination of entities or business under common control.
The acquisition method
An entity shall account for each business combination by
applying the acquisition method.
Applying the acquisition method requires:
a) identifying the acquirer;
b) determining the acquisition date;
c) recognizing and measuring the identifiable assets
acquired, the liabilities assumed and any non-controlling
interest in the acquire;
d) and recognizing and measuring goodwill or a gain from a
bargain purchase.
Identifying the acquirer
For each business combination, one of the combining entities
shall be identified as the acquirer.
Determining the acquisition date
The acquire shall identify the acquisition date, which is the date
on which it obtains control of the acquire.
Recognizing and measuring the identifiable assets
acquired, the liabilities assumed and any non-controlling
interest in the acquire
Recognition principle
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
acquire.
Measurement principle
The acquirer shall measure the identifiable assets acquired and
the liabilities assumed at their acquisition-date fair values.
Recognizing and measuring goodwill or a gain from a bargain
purchase
The acquirer shall recognize goodwill as of the acquisition date
measured as the excess of (a) over (b) below:
(a) the aggregate of:
i. the consideration transferred measured in accordance with
this SLFRS, which generally requires acquisition-date fair
value.
ii. the amount of any non-controlling interest in the acquire
measured in accordance with this SLFRS; and
iii. in a business combination achieved in stages the
acquisition-date fair value of the acquirer’s previously held
equity interest in the acquirer.
(b) the net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed measured in accordance
with this SLFRS.
Disclosures
The acquirer shall disclose information that enables users of
its financial statements to evaluate the nature and financial
effect of a business combination that occurs either:
(a) during the current reporting period; or
(b) after the end of the reporting period but before the
financial statements are authorized for issue.
The acquirer shall disclose information that enables of its
financial statements to evaluate the financial effects of
adjustments recognized in the current reporting period that
relate to business combinations that occurred in the period
or previous reporting periods.
Appendix A
Defined terms
This appendix is an integral part of the SLFRS
Acquire
The business or business that the acquirer obtains
control of in a business combination.
Acquirer
The entity that obtains control of the acquire.
Acquisition Date
The date on which the acquirer obtains control of
the acquire.
An integrated set of activities and assets that is
capable of being conducted and managed for the
purpose of providing return in the form of
dividends, lower costs or other economic benefits
directly to investors or other owners, members or
participants.
A transaction or other event in which an acquirer
obtains control of one or more business.
Transactions sometimes referred to as “true
mergers” or “mergers of equals” are also business
combinations as that term is used in this SLFRS.
Business
Business combination
Contingent Consideration Usually an obligation of the acquirer to transfer additional
asset or equity interests to the former owners of an acquire
as part of the exchange for control of the acquire if specified
future events occur or conditions are met. However,
contingent consideration also may give the acquirer the right
to the return of previously transferred consideration if
specified conditions are met.
Control
The power to govern the financial and operating policies of
an entity so as to obtain benefits from its activities.
Equity interests
For the purposes of this SLFRS equity interest is used
broadly to mean ownership interest of investor -owned
entities and owner, member or participants interests of
mutual entities.
Fair value
The amount for which an asset could be exchanged or a
liability settled, between knowledgeable, willing parties in
an arm’s length transaction.
Goodwill
An asset representing the future economic benefits arising
from other assets acquired in a business combination that are
not individually identified and separately recognized.
Intangible assets
Mutual entity
Non-controlling Interests
Owners
An identifiable non-monitory asset without physical
substance.
An entity, other than an investor-owned entity, that
provides dividends, lower costs or other economic
benefits directly to its owners, members or participants.
(A mutual Insurance company, A credit union and a cooperative entity are all mutual entities.)
The equity in a subsidiary not attributable, directly or
indirectly to a parent.
For the purpose of this SLFRS owners is used broadly
to include holders of equity interests of investor-owned
entities and owners or members of, or participants in,
mutual entities