International Financial Reporting Standards_guide.pdf

Chapter 6 Business Combinations (IFRS 3) 69
6.5.2 Information to enable users to evaluate the effects of adjustments that relate to prior
business combinations should be disclosed. This includes the following:
■ if initial accounting is incomplete, the reasons why, the items of net asset and consideration
to which provisional accounting was applied and the amount of any measurement
period adjustments recognized;
■ for each period until settlement, any changes in the contingent consideration amount,
range of undiscounted outcomes (including reasons for the change) and the valuation
techniques and key model inputs to measure contingent consideration; and
■ the amount and an explanation of any gain or loss recognized in the current period
relating to the net assets recognized in a previous period and that is relevant to understanding
the consolidated financial statements.
6.5.3 All information necessary to evaluate changes in the carrying amount of goodwill during
the period must be disclosed. This must be provided in a reconciliation of the opening
and closing carrying amount and must show specific separate reconciling items such as additions,
impairment losses, and so forth as specified in IFRS 3 paragraph B67(d).
Business Combinations Concluded after the Reporting Date
To the extent practicable, the disclosures mentioned above should be furnished for all business
combinations concluded after the reporting date but before the date of issue. If it is impracticable
to disclose any of this information, this fact should be disclosed.
6.6 FINANCIAL ANALYSIS AND INTERPRETATION
6.6.1 When one entity seeks to obtain control over the net assets of another, there are a
number of ways that this control can be achieved from a legal perspective: merger, consolidation,
tender offer, and so forth. Business combinations occur in one of two ways:
■ In an acquisition of net assets: some (or all) of the assets and liabilities of one entity
are directly acquired by another; or
■ With an equity (stock) acquisition: one entity (the parent) acquires control of more
than 50 percent of the voting rights of another entity (the subsidiary). Both entities can
continue as separate legal entities, producing their own independent set of financial
statements, or they can be merged in some way.
Under IFRS 3, the same accounting principles apply to both ways of carrying out the
combination.
6.6.2 Under the acquisition method, the assets and liabilities of the acquired entity are combined
into the financial statements of the acquiring entity at their fair values on the acquisition
date. Because the acquirer’s assets and liabilities, measured at their historical costs, are
combined with the acquiree’s assets and liabilities, measured at their fair market value on the
acquisition date, the acquirer’s pre- and post-combination Statements of Financial Position
might not be easily compared.
6.6.3 The fair value of long-term debt acquired in a business combination is the present
value of the principal and interest payments over the remaining life of the debt, which is
discounted using current market interest rates. Therefore, the fair value of the acquiree’s debt
that was issued at interest rates below current rates will be lower than the amount recognized
on the acquiree’s Statement of Financial Position. Conversely, the fair value of the acquiree’s
debt will be higher than the amount recognized on the acquiree’s Statement of Financial
Position if the interest rate on the debt is higher than current interest rates.