IFRS 3 - Basics of Business Combination


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IFRS 3 - Basics of Business Combination
IFRS 3 - Basics of Business Combination



IFRS 3 was issued in January 2008 and applies to business combinations in the first year of an entity's existence and begins on or after July 1, 2009.

When a new owner takes over an established firm, the accounting standards in IFRS 3 Business Combinations serve as guidance (e.g. an acquisition or merger). Whenever assets and liabilities are acquired, they are valued at their fair market value on the date of acquisition, which is the case with purchase accounting.

Understanding IFRS 3- Business Combination

 As part of an acquisition, an acquirer must adhere to certain IFRS 3 principles and standards, including:

●       Accounts for the assets and liabilities it acquires from the acquiree as well as any other parties' ownership interest in the acquiree;

●       An acquisition of goodwill via a merger or a bargain purchase is recognized and measured;

●       Decide what information should be disclosed so that those who read the financial statements can evaluate the combined company's financial consequences and character.

What is the Scope of IFRS-3?

 When accounting for business combinations, IFRS 3 must be used; however, it does not apply to the following situations:

 ●       A joint venture is formed. By[IFRS 3.2(a),] Although some guidelines are offered on how such transactions should be recorded, the purchase of an asset or group of assets that are not part of a company

 ●       As per International FinancialReporting Standard (IFRS) 3.2. (b), Entities or enterprises controlled by a single entity or entity group (the IASB has a different and separate agenda project on basic control transactions)

 ●       As per International FinancialReporting Standard (IFRS) 3.2. (c), When an investment company purchases a subsidiary, the fair value of the acquired subsidiary is required to be shown on the consolidated financial statements by IFRS 10. International Financial Reporting Standards 3] 3.2(d)

 How to figure out whether or not a deal is a merger or acquisition?

 If a transaction is a business combination, it must be recorded according to IFRS 3. In addition, IFRS 3 gives further advice on this matter. This advice contains the following:

 ●       By transferring cash, incurring obligations, issuing stock instruments (or of any combination thereof), or without consideration, business combinations may occur (i.e. through contract alone). The International Financial Reporting Standard (IFRS) 3 .B5] To meet legal, tax, or other goals, a business combination may be organized in a variety of ways, including the creation of a new subsidiary or the transfer of net assets from one company to another or a new company.

 ●       Non-current assets, intellectual property, and other economic resources are examples of inputs. When applied to one or more processes, these resources generate outputs. When an input or a set of inputs is subjected to a process, an output is produced (e.g. strategic management, operational processes, resource management). To produce anything, you need inputs and procedures.


 By IFRS 3, the acquirer must provide data that enables the users of its financial statements to assess the nature and financial influence of the business combination during the current reporting period or later, after the reporting date but before the financial statements are authorized for release. To be released. Immediately after a business combination, the acquirer must record any changes in the current reporting period related to the prior reporting period's-business combination.