IFRS 3 Business Combinations provides guidance on the accounting treatment on the acquisition of a business.
Revised January 2008. Effective 1 July 2009.
*UK qualifying parents and subsidiaries can take advantage of FRS 101 Reduced Disclosure Framework. Find out more on which entities qualify and the criteria to be met.
The non-controlling (minority) interest is measured at acquisition either at fair value or as a proportion of the fair value of the net assets of the acquiree.
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*Not EU endorsed as at 19 June 2015. Read more on EU Endorsement.
IFRIC 17 Distributions of Non-cash Assets to Owners
Addresses the accounting for dividends of non-cash assets, including those where there is a cash alternative.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
Addresses the accounting by an entity which issues equity instruments in order to settle, in full or part, a financial liability.
The IASB issued a proposed new standard on Insurance Contracts in July 2010. A revised exposure draft was issued in June 2013. When this standard is finalised, IFRS 3 will be amended to clarify that an acquirer shall measure a portfolio of insurance and reinsurance contracts acquired in the business combination in accordance with the new standard.
Deliberations are currently ongoing and a final standard is not expected to be issued during 2015.
ED/2010/9 Leases was issued in August 2010. The revised ED/2013/6 Leases was issued in May 2013 and a final standard is expected in the second half of 2015. It proposes fundamental changes to the way in which leases are accounted for and would require amendments to IFRS 3 in order to reflect the content of the new standard in the context of business combinations.
UK qualifying parents and subsidiaries can take advantage of FRS 101 Reduced Disclosure Framework. Find out more on which entities qualify and the criteria to be met.
Where an entity applies FRS 101, it is preparing Companies Act accounts rather than IAS accounts. Therefore the following amendments must be made to IFRS 3 in order to achieve compliance with the Companies Act and related Regulations:
In the case of a bargain purchase, the excess is recognised on the face of the statement of financial position. Subsequently the excess is measured in profit or loss over a specified period.
Where the cost of a business combination may be adjusted due to consideration which is contingent on future events, the estimated amount of the adjustment is included in the cost of the business combination at the acquisition date if the adjustment is probable and can be measured reliably. If the potential adjustment is not recognised at the acquisition date but later becomes probable and can be measured reliably, the additional consideration is treated as an adjustment to the cost of the business combination. From 1 January 2016 this guidance on contingent consideration is amended to require that contingent consideration balances arising from acquisitions before SI 2015/980 is applied (usually 1 January 2016) are not adjusted as a result of changes in company law and the company’s previous accounting policy continues to apply. Contingent consideration balances arising from acquisitions after SI 2015/980 is applied are accounted for in accordance with IFRS 3, without amendment to the standard.
FRS 101 paragraph 8(b) states that a qualifying entity is exempt from most of the IFRS 3 disclosure requirements in respect of business combinations during the period or after the end of the period provided that equivalent disclosures are made in the consolidated financial statements of the group in which the entity is consolidated. The following basic disclosures are still required:
IFRS 3 paragraphs for which exemption is available: 62, B64(d), B64(e), B64(g), B64(h), B64(j)-(m), B64(n)(ii), B64(o)(ii), B64(p), B64(q)(ii), B66, B67.
This page was last updated 6 October 2015