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IFRS 3 Business Combinations

IFRS 3 Business Combinations provides guidance on the accounting treatment on the acquisition of a business.

Revised January 2008. Effective 1 July 2009.

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*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.



  • Business combinations are accounted for using the acquisition method
  • Goodwill is measured as the excess of the aggregate of
  • Consideration transferred
  • The non-controlling (minority) interest
  • Fair value of any previously held equity interest in acquiree
  • Over the identifiable net assets of the acquiree

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 7 June 2017. Read more on EU Endorsement.

The following interpretations refer to IFRS 3

Current proposals

  1. The IASB issued ED/2016/1 Definition of a Business and Accounting for Previously Held Interests in June 2016. The proposed amendments to IFRS 3 and IFRS 11:
    • Clarify the definition of a business in order to help distinguish between a business and a group of assets. To be considered a business, it is proposed that an acquired set of activities and assets:
    • Must not have a fair value that is concentrated in a single identifiable asset (or group of similar identifiable assets), and
    • Must include an input and a substantive process that together contribute to the ability to create outputs.
    • Clarify the accounting when an entity obtains control of a business that is a joint operation and when an entity obtains joint control of a business that is a joint operation. When control is obtained, an entity will have to remeasure any previously held interest in the joint operation; when joint control is obtained or retained, this remeasurement is not required.
  2. As a result of the post-implementation review of IFRS 3 the IASB has initiated a project to consider:
    • whether changes should be made to the existing impairment test for non-current non-financial assets including goodwill.
    • The accounting treatment applied to goodwill after initial recognition.
    • The extent to which other intangibles should be separated from goodwill.

UK reduced disclosures

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.

Amendments to the standard

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:

  1. 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.

  2. 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.

Disclosure exemptions

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:

  • The name and a description of the acquiree;
  • The acquisition date and percentage of voting equity interests acquired;
  • The acquisition date fair value of consideration transferred, in total and by class;
  • Amounts recognised at acquisition for each major class of assets and liabilities;
  • The gain recognised in a bargain purchase;
  • The non-controlling interest recognised at acquisition and measurement basis applied;
  • The revenue and profit or loss of the combined entity for the current period as though the acquisition date for any mid-period business combination was the start of the period.

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. 

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This page was last updated 7 June 2017