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What is the term used to describe a constituent company other than the combinor in a business combination?
What is the term used to describe a constituent company other than the combinor in a business combination?
What type of business combination involves enterprises in the same industry?
What type of business combination involves enterprises in the same industry?
What is the term used to describe the accounting entity that results from a business combination?
What is the term used to describe the accounting entity that results from a business combination?
What type of business combination involves an enterprise and its customers or suppliers?
What type of business combination involves an enterprise and its customers or suppliers?
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What is the term used to describe a company entering into a combination whose owners as a group end up with control of the ownership interests in the combined enterprise?
What is the term used to describe a company entering into a combination whose owners as a group end up with control of the ownership interests in the combined enterprise?
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What type of vertical combination involves a company acquiring one of its suppliers?
What type of vertical combination involves a company acquiring one of its suppliers?
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What is the primary condition for a transaction to be considered a business combination?
What is the primary condition for a transaction to be considered a business combination?
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What is the key characteristic of a business, as defined in IFRS 3?
What is the key characteristic of a business, as defined in IFRS 3?
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What is the accounting treatment for a transaction where the assets acquired are not a business?
What is the accounting treatment for a transaction where the assets acquired are not a business?
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What is outside the scope of IFRS 3?
What is outside the scope of IFRS 3?
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What are the three components of a business, as defined in IFRS 3?
What are the three components of a business, as defined in IFRS 3?
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What is the purpose of a business, as defined in IFRS 3?
What is the purpose of a business, as defined in IFRS 3?
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What is the date on which the acquirer obtains control of the acquiree, generally?
What is the date on which the acquirer obtains control of the acquiree, generally?
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What is the acquisition date in Example 1?
What is the acquisition date in Example 1?
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When can Entity A remove any of Entity B's directors in Example 1?
When can Entity A remove any of Entity B's directors in Example 1?
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What is the condition for SME A to be entitled to all profits from SME B in Example 2?
What is the condition for SME A to be entitled to all profits from SME B in Example 2?
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On what date is the consideration and shares transferred in Example 2?
On what date is the consideration and shares transferred in Example 2?
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What determines the amount offered by SME A to acquire 100% of SME B's voting shares?
What determines the amount offered by SME A to acquire 100% of SME B's voting shares?
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Which of the following is a key factor in identifying the acquirer in a business combination?
Which of the following is a key factor in identifying the acquirer in a business combination?
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In a situation where a company acquires a large minority interest (under 50%) in another company, which of the following is likely true?
In a situation where a company acquires a large minority interest (under 50%) in another company, which of the following is likely true?
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What is a key indicator of the acquirer in a business combination, according to IFRS 3?
What is a key indicator of the acquirer in a business combination, according to IFRS 3?
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In a roll-up or put-together transaction, how is the acquirer identified?
In a roll-up or put-together transaction, how is the acquirer identified?
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What is a characteristic of the acquirer in a business combination?
What is a characteristic of the acquirer in a business combination?
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In identifying the acquirer in a business combination, which of the following is NOT a key consideration?
In identifying the acquirer in a business combination, which of the following is NOT a key consideration?
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What is the treatment for a contingent liability if its acquisition-date fair value cannot be measured reliably?
What is the treatment for a contingent liability if its acquisition-date fair value cannot be measured reliably?
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How is contingent consideration recorded?
How is contingent consideration recorded?
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What is the effect of a discovery of new information on the acquisition cost?
What is the effect of a discovery of new information on the acquisition cost?
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What is the treatment for errors discovered after the end of the measurement period?
What is the treatment for errors discovered after the end of the measurement period?
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What is included in acquisition cost?
What is included in acquisition cost?
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What is the period of time allowed for measuring the fair value of assets and liabilities?
What is the period of time allowed for measuring the fair value of assets and liabilities?
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Study Notes
Business Combinations
- A business combination is an event or transaction where two or more business enterprises or their net assets are brought under common control in a single accounting entity.
Types of Business Combinations
- Horizontal Combination: involves enterprises in the same industry
- Vertical Combination: involves an enterprise and its customers or suppliers, classified into Backward Vertical Combination (with supplier) and Forward Vertical Combination (with customers)
- Conglomerate Combination: involves companies in different industries
Definition of Business
- A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants.
- A business consists of input, process, and output.
Identification of Business Combinations
- A transaction or other event is a business combination if the assets acquired and liabilities assumed constitute a business.
- If the assets acquired are not a business, it must be accounted for as an asset acquisition.
Date of Acquisition
- The date on which the acquirer obtains control of the acquiree is generally the date on which the acquirer legally transfers the consideration, acquires the assets, and assumes the liabilities of the acquiree - the closing date.
- However, control may be assumed on other dates (earlier or later than the closing date).
Identifying the Acquirer
- In a stock acquisition, the acquirer is usually the company transferring cash or other assets for a controlling interest in the voting common stock of the acquiree.
- In a business combination effected primarily by exchanging equity interests, the acquirer is usually the entity that issues its equity interests.
- Other facts and circumstances should also be considered, including:
- Voting rights
- Large minority interest
- Governing body of the combined entity
- Terms of exchange
- Relative size
- Initiator of the transaction
- Roll-ups or put-together transactions
Contingent Consideration
- Contingent consideration is recorded at fair value.
- Acquisition cost = Amount of consideration + Contingent consideration
Errors and Changes in Estimates
- No liability is recognized if the acquisition-date fair value of a contingent liability cannot be measured reliably.
- Errors: Discovery of information on facts and circumstances existing as of the acquisition date.
- Change in estimate: Circumstances arising after the acquisition date.
- Retrospective change: Adjust goodwill, fair value of identifiable net assets, and fair value of NCI as if the accounting was completed on the acquisition date.
- Prospective change: No correction of goodwill, fair value of identifiable net assets, or fair value of NCI.
Other Costs
- Direct combination costs: Associated with completing the business combination (Legal, Accounting, Consulting, Appraisal, and Finder's fee).
- Stock issuance costs: When the parent issues stock in conjunction with a BC, any stock issuance costs, such as underwriter fees and exchange fees.
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Description
This quiz covers the definitions and motives of business combinations, methods of arranging business combinations, the acquisition method, and disclosure requirements according to IFRS 3.
