Proposed clarifications to the definition of a business ................ 605
4 ACQUISITION METHOD OF ACCOUNTING .................................................. 608
4.1
Identifying the acquirer ...................................................................................... 608
4.1.1
New entity formed to effect a business combination .................. 609
4.1.2 Stapling
arrangements
.........................................................................
614
4.2
Determining the acquisition date ...................................................................... 614
5 RECOGNITION AND MEASUREMENT OF ASSETS ACQUIRED,
LIABILITIES ASSUMED AND NON-CONTROLLING INTERESTS .................... 615
588 Chapter
9
5.1
General principles ................................................................................................ 615
5.2
Recognising identifiable assets acquired and liabilities assumed ................ 615
5.3
Acquisition-date fair values of identifiable assets acquired and
liabilities assumed ................................................................................................. 617
5.4
Classifying or designating identifiable assets acquired and liabilities
assumed .................................................................................................................. 617
5.5
Recognising and measuring particular assets acquired and
liabilities assumed ................................................................................................. 619
5.5.1
Operating leases .................................................................................... 619
5.5.2 Intangible
assets
...................................................................................
620
5.5.2.A
Examples of identifiable intangible assets ................. 622
5.5.2.B
Customer relationship intangible assets ..................... 623
5.5.2.C
Combining an intangible asset with a related
contract, identifiable asset or liability ......................... 625
5.5.2.D
In-process research or development project
expenditure ...................................................................... 626
5.5.2.E Emission
rights
................................................................
628
5.5.2.F
Determining the fair values of intangible assets ....... 628
5.5.3
Reacquired rights .................................................................................. 631
5.5.4
Assembled workforce and other items that are not
identifiable ............................................................................................ 632
5.5.4.A
Assembled workforce .................................................... 632
5.5.4.B
Items not qualifying as assets ....................................... 632
5.5.5
Assets with uncertain cash flows (valuation allowances) .............633
5.5.6
Assets that the acquirer does not intend to use or intends
to use in a way that is different from other market
participants ............................................................................................633
5.5.7
Investments in equity-accounted entities ...................................... 634
5.5.8
Assets and liabilities related to contacts with customers ............ 634
5.6
Exceptions to the recognition and/or measurement principles ................. 636
5.6.1
Contingent liabilities ........................................................................... 636
5.6.1.A
Initial recognition and measurement ........................... 637
5.6.1.B
Subsequent measurement and accounting ................. 637
5.6.2
Income taxes .......................................................................................... 637
5.6.3 Employee
benefits
...............................................................................
638
5.6.4 Indemnification assets ........................................................................ 638
5.6.5 Reacquired
rights
.................................................................................
639
5.6.6 Assets
held for sale .............................................................................. 640
5.6.7 Share-based
payment transactions .................................................. 640
5.6.8
Leases in which the acquiree is the lessee (IFRS 16) .................... 640
5.6.9
Insurance contracts within the scope of IFRS 17 ........................... 641
Business
combinations
589
6 RECOGNISING AND MEASURING GOODWILL OR A GAIN IN A
BARGAIN PURCHASE ...................................................................................... 641
6.1
Subsequent accounting for goodwill................................................................ 642
7 CONSIDERATION TRANSFERRED ................................................................ 642
7.1
Contingent consideration ................................................................................... 644
7.1.1
Initial recognition and measurement ............................................... 645
7.1.1.A
Estimating an appropriate discount rate ..................... 647
7.1.2
Classification of a contingent consideration obligation ............... 648
7.1.3
Subsequent measurement and accounting ..................................... 650
7.2
Replacement share-based payment awards .................................................... 651
7.3 Acquisition-related costs..................................................................................... 651
7.4
Business combinations achieved without the transfer of
consideration ........................................................................................................ 652
7.4.1
Business combinations by contract alone ....................................... 653
7.5
Combinations involving mutual entities .......................................................... 653
8 RECOGNISING AND MEASURING NON-CONTROLLING INTERESTS .......... 654
8.1
Measuring qualifying non-controlling interests at acquisition-date
fair value ................................................................................................................. 655
8.2
Measuring qualifying non-controlling interests at the proportionate
share of the value of net identifiable assets acquired ....................................... 656
8.3
Implications of method chosen for measuring non-controlling
interests .................................................................................................................. 656
8.4 Measuring
share-based
payment and other components of non-
controlling interests ............................................................................................. 658
8.5
Call and put options over non-controlling interests .................................... 659
9 BUSINESS COMBINATIONS ACHIEVED IN STAGES (‘STEP
ACQUISITIONS’) .............................................................................................. 661
9.1
Accounting for previously held interests in a joint operation ..................... 667
10 BARGAIN PURCHASE TRANSACTIONS ......................................................... 667
11 ASSESSING WHAT IS PART OF THE EXCHANGE FOR THE ACQUIREE ....... 670
11.1
Effective settlement of pre-existing relationships ......................................... 671
11.2 Remuneration for future services of employees or former owners
of the acquiree ....................................................................................................... 675
11.2.1
Arrangements for contingent payments to employees or
selling shareholders ................................................................................ 675
11.2.2
Share-based payment awards exchanged for awards held
by the acquiree’s employees .............................................................. 678
11.3 Reimbursement for paying the acquirer’s acquisition-related costs .............. 678
11.4 Restructuring
plans
...............................................................................................
678
590 Chapter
9
12 MEASUREMENT PERIOD .............................................................................. 679
12.1 Adjustments made during measurement period to provisional
amounts ................................................................................................................. 680
12.2 Adjustments made after end of measurement period .................................. 682
13 SUBSEQUENT MEASUREMENT AND ACCOUNTING .................................... 682
14 REVERSE ACQUISITIONS .............................................................................. 683
14.1 Measuring the consideration transferred ........................................................ 684
14.2 Measuring
goodwill ............................................................................................. 685
14.3 Preparation and presentation of consolidated financial statements ............. 686
14.4 Non-controlling
interest
.....................................................................................
688
14.5 Earnings per share ............................................................................................... 690
14.6 Cash
consideration
...............................................................................................
691
14.7 Share-based
payments
........................................................................................ 692
14.8 Reverse acquisitions involving a non-trading shell company .................... 693
14.9 Reverse acquisitions and acquirers that are not legal entities .................... 695
15 PUSH DOWN ACCOUNTING .......................................................................... 695
16 DISCLOSURES................................................................................................ 696
16.1 Nature and financial effect of business combinations................................... 697
16.1.1
Business combinations during the current reporting
period ...................................................................................................... 697
16.1.2
Business combinations effected after the end of the
reporting period ................................................................................... 699
16.2 Financial effects of adjustments recognised in the current
reporting period ................................................................................................... 699
16.3 Other
necessary information .............................................................................. 701
16.4 Illustrative
disclosures ......................................................................................... 701
List of examples
Example 9.1:
Extractive industries – definition of a business (1) ....................... 602
Example 9.2:
Extractive industries – definition of a business (2) ....................... 603
Example 9.3:
Real estate – definition of a business (1) ......................................... 603
Example 9.4:
Real estate – definition of a business (2) ........................................ 603
Example 9.5:
Life sciences – definition of a business (1) ..................................... 604
Example 9.6:
Life sciences – definition of a business (2) ..................................... 605
Example 9.7:
Business combination effected by a Newco for cash
consideration (1) .................................................................................... 610
Business
combinations
591
Example 9.8:
Business combination effected by a Newco for cash
consideration: spin-off transaction (2) .............................................. 611
Example 9.9:
Newco formed to facilitate a debt-to-equity swap
transaction .............................................................................................. 612
Example 9.10:
Customer relationship intangible assets ......................................... 623
Example 9.11:
Acquirer’s intention not to use an intangible asset ....................... 634
Example 9.12:
Contract liability of an acquiree ........................................................ 635
Example 9.13:
Contingent consideration – applying the probability-
weighted payout approach to determine fair value ..................... 646
Example 9.14:
Share-settled contingent consideration – financial liability
or equity? ............................................................................................... 650
Example 9.15:
Initial measurement of non-controlling interests in a
business combination (1) .................................................................... 656
Example 9.16:
Initial measurement of non-controlling interests in a
business combination (2) ..................................................................... 657
Example 9.17:
Measurement of non-controlling interest represented by
preference shares and employee share options ............................ 659
Example 9.18:
Business combination achieved in stages – original
investment treated as FVOCI without recycling ........................... 662
Example 9.19:
Business combination achieved in stages – original
investment treated as an associate under IAS 28 .......
................... 664
Example 9.20:
Business combination achieved in stages – loss arising on
step-acquisition .................................................................................... 666
Example 9.21:
Gain on a bargain purchase (1) .......................................................... 668
Example 9.22:
Gain on a bargain purchase (2) .......................................................... 670
Example 9.23:
Settlement of pre-existing non-contractual relationship ............. 672
Example 9.24:
Settlement of pre-existing contractual relationship –
Supply contract ..................................................................................... 673
Example 9.25:
Settlement of pre-existing contractual relationship – Loan
agreement ............................................................................................... 673
Example 9.26:
Settlement of pre-existing contractual relationship –
Reacquired technology licensing agreement .................................. 674
Example 9.27:
Contingent payments to employees ................................................. 677
Example 9.28:
Recognition or otherwise of a restructuring liability as
part of a business combination .......................................................... 679
Example 9.29:
Adjustments made during measurement period to
provisional amounts .............................................................................. 681
Example 9.30:
Identification of an asset during measurement period ................ 682
Example 9.31:
Reverse acquisition – calculating the fair value of the
consideration transferred ................................................................... 684
Example 9.32:
Reverse acquisition – measuring goodwill (1)................................ 686
Example 9.33:
Reverse acquisition – measuring goodwill (2) ............................... 686
Example 9.34:
Reverse acquisition – consolidated statement of financial
position immediately after the business combination .................. 687
592 Chapter
9
Example 9.35:
Reverse acquisition – legal parent’s statement of financial
position in separate financial statements ........................................ 688
Example 9.36:
Reverse acquisition – non-controlling interest............................. 689
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 117
