reporting period as though the acquisition date for all business
combinations that occurred during the year had been as of the beginning
of the annual reporting period.
If disclosure of any of the information required by this subparagraph is
impracticable, the acquirer shall disclose that fact and explain why the disclosure
is impracticable. IFRS 3 uses the term ‘impracticable’ with the same meaning as in
IAS 8 (see Chapter 3 at 4.7).
Although it is not explicitly stated in paragraph B64 of the standard, it is evident that
the above information is required to be given for each material business combination.
This is due to the fact that the standard states that for individually immaterial business
combinations occurring during the reporting period that are material collectively, the
acquirer has to disclose, in aggregate, the information required by items (e) to (q) above.
[IFRS 3.B65].
16.1.2
Business combinations effected after the end of the reporting period
If the acquisition date of a business combination is after the end of the reporting period
but before the financial statements are authorised for issue, the acquirer is required to
disclose the information set out in 16.1.1 above for that business combination, unless the
initial accounting for the business combination is incomplete at the time the financial
statements are authorised for issue. In that situation, the acquirer describes which
disclosures could not be made and the reasons why they cannot be made. [IFRS 3.B66].
16.2 Financial effects of adjustments recognised in the current
reporting period
The second objective is that the acquirer discloses information that enables users of its
financial statements to evaluate the financial effects of adjustments recognised in the
current reporting period that relate to business combinations that occurred in the
period or previous reporting periods. [IFRS 3.61].
Information that is required to be disclosed by the acquirer to meet the above objective
is specified in the application guidance of the standard. [IFRS 3.62].
700 Chapter
9
To meet the above objective, the acquirer is required to disclose the following
information for each material business combination or in the aggregate for individually
immaterial business combinations that are material collectively: [IFRS 3.B67]
(a) if the initial accounting for a business combination is incomplete (see 12 above) for
particular assets, liabilities, non-controlling interests or items of consideration and
the amounts recognised in the financial statements for the business combination
thus have been determined only provisionally:
(i)
the reasons why the initial accounting for the business combination is incomplete;
(ii) the assets, liabilities, equity interests or items of consideration for which the
initial accounting is incomplete; and
(iii) the nature and amount of any measurement period adjustments recognised
during the reporting period in accordance with paragraph 49 of the standard
(see 12.1 above);
(b) for each reporting period after the acquisition date until the entity collects, sells or
otherwise loses the right to a contingent consideration asset, or until the entity settles a
contingent consideration liability or the liability is cancelled or expires (see 7.1 above):
(i) any changes in the recognised amounts, including any differences arising
upon settlement;
(ii) any changes in the range of outcomes (undiscounted) and the reasons for
those changes; and
(iii) the valuation techniques and key model inputs used to measure contingent
consideration;
(c) for contingent liabilities recognised in a business combination, the acquirer shall
disclose the information required by paragraphs 84 and 85 of IAS 37 for each class
of provision (see Chapter 27 at 7.1);
(d) a reconciliation of the carrying amount of goodwill at the beginning and end of the
reporting period showing separately:
(i) the gross amount and accumulated impairment losses at the beginning of the
reporting period;
(ii) additional goodwill recognised during the reporting period, except goodwill
included in a disposal group that, on acquisition, meets the criteria to be
classified as held for sale in accordance with IFRS 5 (see Chapter 4 at 2.1);
(iii) adjustments resulting from the subsequent recognition of deferred tax assets
during the reporting period in accordance with paragraph 67 of the standard
(there should in fact be no such adjustment to disclose as any adjustment is
recognised in profit or loss (see 5.6.2 above));
(iv) goodwill included in a disposal group classified as held for sale in accordance
with IFRS 5 and goodwill derecognised during the reporting period without
having previously been included in a disposal group classified as held for sale;
Business
combinations
701
(v) impairment
losses
recognised during the reporting period in accordance with
IAS 36. (IAS 36 requires disclosure of information about the recoverable
amount and impairment of goodwill in addition to this requirement (see
Chapter 20 at 14.3));
(vi) net exchange rate differences arising during the reporting period in
accordance with IAS 21 – The Effects of Changes in Foreign Exchange Rates
(see Chapter 15 at 6.5);
(vii) any other changes in the carrying amount during the reporting period; and
(viii) the gross amount and accumulated impairment losses at the end of the
reporting period;
(e) the amount and an explanation of any gain or loss recognised in the current
reporting period that both:
(i) relates to the identifiable assets acquired or liabilities assumed in a business
combination that was effected in the current or previous reporting period; and
(ii) is of such a size, nature or incidence that disclosure is relevant to
understanding the combined entity’s financial statements.
16.3 Other necessary information
IFRS 3 includes a catch-all disclosure requirement, that if in any situation the
information required to be disclosed set out above, or by other IFRSs, does not satisfy
the objectives of IFRS 3, the acquirer discloses whatever additional information is
necessary to meet those objectives. [IFRS 3.63].
In addition, IAS 7 – Statement of Cash Flows – requires disclosures in respect of
obtaining control of subsidiaries and other businesses (see Chapter 36 at 6.3).
[IAS 7.39-42].
16.4 Illustrative
disclosures
An illustration of some of the disclosure requirements of IFRS 3 is given by way of an
example in the Illustrative Examples accompanying the standard. The example, which
is reproduced below, assumes that the acquirer, AC, is a listed entity and that the
acquiree, TC, is an unlisted entity. The illustration presents the disclosures in a tabular
format that refers to the specific disclosure requirements illustrated. (The references to
paragraph B64 correspond to the equivalent item at 16.1.1 above and those to
paragraph B67 correspond to the equivalent item at 16.2 above.) It is also em
phasised
that an actual footnote might present many of the disclosures illustrated in a simple
narrative format. [IFRS 3.IE72].
702 Chapter
9
Example 9.40: Footnote X: Acquisitions
Paragraph
reference
B64(a-d)
On 30 June 20X0 AC acquired 15 per cent of the outstanding ordinary shares of TC. On
30 June 20X2 AC acquired 60 per cent of the outstanding ordinary shares of TC and
obtained control of TC. TC is a provider of data networking products and services in
Canada and Mexico. As a result of the acquisition, AC is expected to be the leading
provider of data networking products and services in those markets. It also expects to
reduce costs through economies of scale.
B64(e)
The goodwill of CU2,500 arising from the acquisition consists largely of the synergies
and economies of scale expected from combining the operations of AC and TC.
B64(k)
None of the goodwill recognised is expected to be deductible for income tax purposes.
The following table summarises the consideration paid for TC and the amounts of the
assets acquired and liabilities assumed recognised at the acquisition date, as well as the
fair value at the acquisition date of the non-controlling interest in TC.
At 30 June 20X2
Consideration CU
B64(f)(i) Cash
5,000
B64(f)(iv)
Equity instruments (100,000 ordinary shares of AC)
4,000
B64(f)(iii);
B64(g)(i)
Contingent consideration arrangement
1,000
B64(f)
Total consideration transferred
10,000
B64(p)(i)
Fair value of AC’s equity interest in TC held before the business
2,000
combination
12,000
B64(m)
Acquisition-related costs (included in selling, general and administrative
1,250
expenses in AC’s statement of comprehensive income for the year ended
31 December 20X2)
B64(i)
Recognised amounts of identifiable assets acquired and liabilities assumed
Financial
assets
3,500
Inventory
1,000
Property, plant and equipment
10,000
Identifiable intangible assets
3,300
Financial
liabilities
–4,000
Contingent
liability
–1,000
Total identifiable net assets
12,800
B64(o)(i)
Non-controlling interest in TC
–3,300
Goodwill
2,500
12,000
B64(f)(iv)
The fair value of the 100,000 ordinary shares issued as part of the consideration paid for
TC (CU4,000) was measured using the closing market price of AC’s ordinary shares on
the acquisition date.
B64(f)(iii)
The contingent consideration arrangement requires AC to pay the former owners of TC
B64(g)
5 per cent of the revenues of XC, an unconsolidated equity investment owned by TC, in
B67(b)
excess of CU7,500 for 20X3, up to a maximum amount of CU2,500 (undiscounted).
Business
combinations
703
Paragraph
reference
The potential undiscounted amount of all future payments that AC could be required to
make under the contingent consideration arrangement is between CU0 and CU2,500.
The fair value of the contingent consideration arrangement of CU1,000 was estimated by
applying the income approach. The fair value measurement is based on significant inputs
that are not observable in the market, which IFRS 13 – Fair Value Measurement – refers
to as Level 3 inputs. Key assumptions include a discount rate range of 20-25 per cent and
assumed probability-adjusted revenues in XC of CU10,000-20,000.
As of 31 December 20X2, neither the amount recognised for the contingent
consideration arrangement, nor the range of outcomes or the assumptions used to
develop the estimates had changed.
B64(h)
The fair value of the financial assets acquired includes receivables under finance leases
of data networking equipment with a fair value of CU2,375. The gross amount due under
the contracts is CU3,100, of which CU450 is expected to be uncollectible.
B67(a)
The fair value of the acquired identifiable intangible assets of CU3,300 is provisional
pending receipt of the final valuations for those assets.
B64(j)
A contingent liability of CU1,000 has been recognised for expected warranty claims on
B67(c)
products sold by TC during the last three years. We expect that the majority of this
IAS 37.84,
expenditure will be incurred in 20X3 and that all will be incurred by the end of 20X4.
85
The potential undiscounted amount of all future payments that AC could be required to
make under the warranty arrangements is estimated to be between CU500 and CU1,500.
As of 31 December 20X2, there has been no change since 30 June 20X2 in the amount
recognised for the liability or any change in the range of outcomes or assumptions used
to develop the estimates.
B64(o)
The fair value of the non-controlling interest in TC, an unlisted company, was
estimated by applying a market approach and an income approach. The fair value
measurements are based on significant inputs that are not observable in the market
and thus represent a fair value measurement categorised within Level 3 of the fair
value hierarchy as described in IFRS 13. Key assumptions include the following:
(a)
a discount rate range of 20-25 per cent;
(b)
a terminal value based on a range of terminal EBITDA multiples between 3 and 5
times (or, if appropriate, based on long term sustainable growth rates ranging
from 3 to 6 per cent);
(c)
financial multiples of companies deemed to be similar to TC; and
(d)
adjustments because of the lack of control or lack of marketability that market
participants would consider when measuring the fair value of the non-controlling
interest in TC.
B64(p)(ii)
AC recognised a gain of CU500 as a result of measuring at fair value its 15 per cent equity
interest in TC held before the business combination. The gain is included in other income
in AC’s statement of comprehensive income for the year ending 31 December 20X2.
B64(q)(i)
The revenue included in the consolidated statement of comprehensive income since
30 June 20X2 contributed by TC was CU4,090. TC also contributed profit of CU1,710
over the same period.
B64(q)(ii)
Had TC been consolidated from 1 January 20X2 the consolidated statement of
comprehensive income would have included revenue of CU27,670 and profit of CU12,870.
704 Chapter
9
References
1
Report and Feedback Statement Post-
24 ED/2016/1, pp.12-13.
implementation Review of IFRS 3 Business 25 ED/2016/1, pp.11-12, 20.
Combinations, pp.5-6.
26 ED/2016/1, pp.21-27.
2
Report and Feedback Statement Post-
27 ED/2016/1, pp.8-9.
implementation Review of IFRS 3 Business 28 IASB Update, October 2017.
Combinations, pp.7-10.
29 IFRIC Update, July 2011.
3 Exposure Draft ED/2016/1 – Definition of a
30 IFRIC Update, September 2011.
Business and Accounting for Previously Held
31 IASB Update, December 2017.
Interests (Proposed amendments to IFRS 3 and
32 IASB Work Plan as at 7 September 2018.
IFRS 11), IASB, June 2016.
33 IFRIC Update, May 2014.
4
IASB Work Plan as at 7 September 2018.
34 IFRS 17 Insurance contracts, Appendix
D
5
ED/2016/1,
p.4.
Amendments to other IFRS Standards, IFRS 3
6
ED/2016/1,
pp.8-9.
Business Combinations, May 2017.
7
IASB Update, October 2017.
35 IFRIC Update, September 2008.
8
IASB Work Plan as at 7 September 2018.
36 IFRIC Update, March 2009.
9
IFRIC Update, November 2017.
37 IFRIC Update, March 2009.
10 The Proposed Accounting Standards Update
38 IFRS 17 Insurance contracts, Appendix
D
Clarifying the Definition of a Business, FASB,
Amendments to other IFRS Standards, IFRS 3
November 2015.
Business Combinations, May 2017.
11 IASB Update, October 2017.
39 IFRIC Update, January 2011.
12 IASB Work Plan as at 7 September 2018.
40 Staff Paper, IASB meeting, June 2009, Agenda
13 ED/2016/1, pp.10-11.
reference 13C, Annual Improvements Process,
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 139
