International Financial Reporting Standards_guide.pdf

66 Chapter 6 Business Combinations (IFRS 3)
TABLE 6.3 Illustration of the Effect of Step Acquisitions
Classification of previously held interest
Held for trading
Designated at fair value through profit or loss
Available-for-sale investment
Investment in associate or joint venture at cost in
stand-alone financial statements
Investment in associate or joint venture at fair value
in stand-alone financial statements
Investment in associate or joint venture in
consolidated financial statements
Gain/loss on deemed disposal
No gain or loss is recognized as the investment was previously carried
at fair value.
No gain or loss is recognized as the investment was previously carried
at fair value.
No gain or loss is recognized as the investment was previously carried
at fair value (remeasured to fair value up to the date immediately
before the deemed disposal). The fair value movements previously
recognized in reserves should be recycled from other comprehensive
income to profit or loss for the period.
A gain or loss should be recognized for the difference between the fair
value and cost on acquisition date.
No gain or loss is recognized as the investment was previously carried
at fair value.
A gain or loss should be recognized for the difference between the fair
value and the equity-accounted carrying amount on acquisition date.
6.4.19 In business combinations where control is obtained but no consideration is transferred,
such as share buybacks or rights issues or business combinations by contract alone
(where no equity is held in acquiree), the consideration used in the calculation of goodwill
will be substituted with the acquisition-date fair value of the acquirer’s interest in the
acquiree determined using a valuation technique.
6.4.20 Non-controlling interest is initially measured and recognized as equity of the
acquirer at acquisition date. IFRS 3 allows a measurement choice at acquisition date. This
measurement choice is not an accounting policy and is available per business combination.
Non-controlling interest can be measured:
■ as its proportionate percentage of the net assets of the acquiree at acquisition date; or
■ at fair value. If the acquiree has publicly traded shares the share price per an active
market can be used to measure the fair value. If the acquiree does not have publicly
traded shares other valuation techniques must be used to determine the fair value.
This initial measurement choice does not affect the subsequent measurement. Subsequently
non-controlling interest is always measured as the proportionate percentage of the profit or
loss of the subsidiary and its changes in equity, that is, no fair value adjustments are taken
into account.
6.4.21 Goodwill is calculated at acquisition date. It is calculated as follows:
■ consideration transferred by the acquirer (including contingent consideration); plus
■ the fair value of the previous interest held in the acquiree; plus
■ non-controlling interest at acquisition (amount per measurement choice selected); less
■ the fair value of the identifiable net assets of the acquiree.
If this results in a positive amount, it is goodwill. If it results in a negative amount, a gain on
bargain purchase has been made.