«Business combinations and changes in ownership interests A guide to the revised IFRS 3 and IAS 27 Audit.Tax.Consulting.Financial Advisory. Contacts ...»
16.1.7 Details of transactions recognised separately For transactions that are recognised separately from the acquisition of assets and assumption of liabilities in the business combination in accordance with IFRS 3(2008).51 (see section 9.3 above),
the acquirer is required to disclose:
• a description of each transaction;
• how the acquirer accounted for each transaction;
• the amounts recognised for each transaction and the line item in the financial statements in which each amount is recognised; and
• if the transaction is the effective settlement of a pre-existing relationship, the method used to determine the settlement amount.
The disclosure of separately-recognised transactions required by IFRS 3(2008)B64(l) should include the amount of acquisition-related costs and, separately, the amount of those costs recognised as an expense and the line item or items in the statement of comprehensive income in which those expenses are recognised. The amount of any issue costs not recognised as an expense and how they were recognised should also be disclosed. [IFRS 3(2008).B64(m)] Example 16.1.7 [IFRS 3(2008).IE72] Acquisition-related costs (included in selling, general and administrative expenses in AC’s statement of comprehensive income for the year ended 31 December 20X2) amounted to CU1,250.
16.1.8 Details of bargain purchases
In a bargain purchase (see section 10.3), the acquirer is required to disclose:
• the amount of any gain recognised in accordance with IFRS 3(2008).34 and the line item in the statement of comprehensive income in which the gain is recognised; and
• a description of the reasons why the transaction resulted in a gain.
IFRS 3(2008) does not specify that the amount of the gain recognised must be shown as a separate line item. It could be shown as part of ‘other gains and losses’. However, the requirements of IFRS 3(2008).B64(n) ensure that the amount is separately disclosed in the notes.
16.1.9 Details of non-controlling interests For each business combination in which the acquirer holds less than 100 per cent of the equity
interests in the acquiree at the acquisition date, the acquirer is required to disclose:
• the amount of the non-controlling interest in the acquiree recognised at the acquisition date and the measurement basis for that amount; and
• for each non-controlling interest in an acquiree measured at fair value, the valuation techniques and key model inputs used for determining that value.
Example 16.1.9 [IFRS 3(2008).IE72] 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 estimates are based on:
(a) an assumed discount rate range of 20–25 per cent;
(b) an assumed 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) assumed financial multiples of companies deemed to be similar to TC; and (d) assumed adjustments because of the lack of control or lack of marketability that market participants would consider when estimating the fair value of the non-controlling interest in TC.
Disclosure 16.1.10 Business combinations achieved in stages
Where a business combination has been achieved in stages, the acquirer is required to disclose:
• the acquisition-date fair value of the equity interest in the acquiree held by the acquirer immediately before the acquisition date; and
• the amount of any gain or loss recognised as a result of remeasuring to fair value the equity interest in the acquiree held by the acquirer before the business combination and the line item in the statement of comprehensive income in which that gain or loss is recognised.
Example 16.1.10 [IFRS 3(2008).IE72] The fair value of AC’s equity interest in TC held before the business combination amounted to CU2,000. 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.
16.1.11 Impact of acquiree on amounts reported in the statement of comprehensive income
The acquirer is required to disclose the following information:
• the amounts of revenue and profit or loss of the acquiree since the acquisition date included in the consolidated statement of comprehensive income for the reporting period; and
• the revenue and profit or loss of the combined entity for the current 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 IFRS 3(2008).B64(q) is impracticable, the acquirer should disclose that fact and explain why the disclosure is impracticable. IFRS 3(2008) uses the term ‘impracticable’ with the same meaning as in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. [IFRS 3(2008).B64(q)]
Example 16.1.11 [IFRS 3(2008).IE72] 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. 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.
16.1.12 Business combinations after 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 disclosures set out in sections 16.1.1 to 16.1.11 are required unless the initial accounting for the business combination is incomplete at the time the financial statements are authorised for issue. [IFRS 3(2008).B66] In that situation, the acquirer should describe which disclosures could not be made and the reasons why they cannot be made. [IFRS 3(2008).B66]
16.2 Adjustments recognised for business combinations that occurred in the current or previous reporting periods The acquirer is required to disclose 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 current or previous reporting periods. [IFRS 3(2008).61] If the specific disclosures set out below and other those required by other IFRSs do not meet the objectives set out in IFRS 3(2008).61, the acquirer should disclose whatever additional information is necessary to meet those objectives. [IFRS 3(2008).63] The information should be disclosed separately for each material business combination or in the aggregate for individually immaterial business combinations that are material collectively.
[IFRS 3(2008).67] 16.2.1 Business combinations for which the initial accounting is incomplete If the initial accounting for a business combination is incomplete (see section 11.3), and the amounts recognised in the financial statements for the business combination thus have been determined only provisionally, the following information should be disclosed for particular assets,
liabilities, non-controlling interests or items of consideration:
• the reasons why the initial accounting for the business combination is incomplete;
• the assets, liabilities, equity interests or items of consideration for which the initial accounting is incomplete; and
• the nature and amount of any measurement period adjustments recognised during the reporting period in accordance with IFRS 3(2008).49 (see section 11.3).
Disclosure Example 16.2.1 [IFRS 3(2008).IE72] The fair value of the acquired identifiable intangible assets of CU3,300 is provisional pending receipt of the final valuations for those assets.
16.2.2 Contingent assets and contingent liabilities 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, the acquirer should disclose:
• any changes in the recognised amounts, including any differences arising upon settlement;
• any changes in the range of outcomes (undiscounted) and the reasons for those changes; and
• the valuation techniques and key model inputs used to measure contingent consideration.
For contingent liabilities recognised in a business combination, the acquirer should disclose the information required by IAS 37.84 – 85 for each class of provision. [IFRS 3(2008).B67(c)] The requirements of IAS 37.85 are set out at section 16.1.6 above. IAS 37.84 requires the following to be disclosed for each class of provision (and, in these circumstances, each class of recognised
• the carrying amount at the beginning and end of the period;
• additional contingent liabilities recognised in the period, included increases to existing contingent liabilities;
• amounts used (i.e. incurred and charged against the contingent liability) during the period;
• unused amounts reversed in the period; and
• the increase during the period in the discounted amount arising from the passage or time and the effect of any change in the discount rate.
16.2.3 Goodwill The acquirer is required to disclose a reconciliation of the carrying amount of goodwill at the
beginning and end of the reporting period, showing separately:
• 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 Non-current Assets Held for Sale and Discontinued Operations;
• adjustments resulting from the subsequent recognition of deferred tax assets during the reporting period in accordance with IFRS 3(2008).67 (see section 15.3.3) above;
• 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;
• 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.);
• net exchange rate differences arising during the reporting period in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates;
• any other changes in the carrying amount during the reporting period; and
• the gross amount and accumulated impairment losses at the end of the reporting period.
16.2.4 Material gains and losses recognised in the period The acquirer is required to disclose the amount and an explanation of any gain or loss recognised in
the current reporting period that both:
• relates to the identifiable assets acquired or liabilities assumed in a business combination that was effected in the current or previous reporting period; and
• is of such a size, nature or incidence that disclosure is relevant to understanding the combined entity’s financial statements.
16.3 Additional disclosure requirements in IAS 27(2008) As compared with IAS 27(2003), the following are the additional disclosure requirements in the 2008 version of IAS 27:
[IAS 27(2008).41(e) & (f)]
• the consolidated financial statements should include a schedule that shows the effects on the equity attributable to owners of the parent of any changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control; and
• if control of a subsidiary is lost, the parent should disclose the gain or loss, if any, and:
– the portion of that gain or loss attributable to recognising any investment retained in the former subsidiary at its fair value at the date when control is lost; and – the line item(s) in the statement of comprehensive income in which the gain or loss is recognised (if not presented separately in the statement of comprehensive income).
Disclosure 16.4 Disclosure of the impact of adoption of the new Standards and of accounting policies under the Standards 16.4.1 Discussion of revised Standards in advance of adoption For financial statements issued between January 2008 (date of issue of IFRS 3(2008) and IAS 27(2008)) and the date the entity adopts the revised Standards, IAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors requires disclosure of:
• the fact that the entity has not applied a new IFRS that has been issued but is not yet effective;
• known or reasonably estimable information relevant to assessing the possible impact that application of the new IFRS will have on the entity’s financial statements in the period of initial application.
The entity should consider disclosing:
• the nature of the impending change or changes in accounting policy;
• the date by which application of the IFRS is required;
• the date at which it plans to apply the IFRS initially; and
– a discussion of the impact that initial application of the new IFRS is expected to have on the entity’s financial statements; or – if that impact is not known or reasonably estimable, a statement to that effect.